Monday, February 28, 2011

Summarecon Agung Tbk (SMRA)

By Kresna Securities

We maintain our BUY rating on SMRA with TP of Rp1,310. Improving traffic condition and the development of new mall will drive Summarecon Bekasi to become SMRA’s future cash generator. The new bank loan at 9.75% rate will potentially lower SMRA’s WACC by 1.4% to 13.8% which will later increase our TP by +5.3% to Rp1,380. Presently, SMRA is trading at premium FY11 P/BV of 3.2x. We believe it is warranted given the company’s superior brand equity and asset quality.

Key Catalysts

• FY10 net profit may rose by 30.2%YoY. The management indicated that FY10 marketing sales has reached Rp2.2tr. Serpong contributes the most with sales reached Rp877bn followed by Kelapa Gading at Rp751bn and Bekasi at Rp531bn. AS such, FY10 revenue will reach Rp1.5tr - Rp1.6tr with net profit of Rp218bn - Rp220bn.
• Construction of Bekasi Mall will start by end of 2011. The company has set aside Rp500.0bn to build a 60,000sqm GFA mall in Bekasi. The construction will start by end of this year to be finished in a year.
• New loan with cheap rate. Currently, SMRA has acquired Rp350bn loan facility from BBCA to finance the development of Mall Serpong at an attractive rate of only 9.75% p.a. SMRA will also need another Rp400bn loan for Mall Bekasi.
• Better toll gate setting to increase Bekasi property value. Indonesia Toll Road Authority (BPJT) is ready to shift Pondok Gede Timur toll gate to Cikarang Utama. We believe it will mitigate traffic jam and increase people attraction to live there.
• Land acquisition is still on the pipeline. The company still works on land
acquisition in South Jakarta after having acquired 90ha of land area in Bandung.

Earnings Outlook

• FY10 result is inline with our expectation. The indicative FY10 revenue figure of Rp1.5-1.6tr was inline with our estimate of Rp1.55tr. Bottom line, our FY10 estimate of Rp229bn is also within the range of the company’s number of Rp218bn - Rp220bn.
• A stall FY10 marketing sales, but FY11 revenue forecast should remain intact. FY10 marketing sales of 6.5% was lower than our expectation of Rp2.3tr due to the unexpected delay in the signing of sales and purchase agreement (PPJB) from several customers in late 2010. We are not too worry of this issue as SMRA has a very minor cancellation rate in its track record. Hence, we still maintain our FY11 accounting sales of Rp2.1tr.
• Mall Bekasi + debt financing for Mall Serpong = NPV Rp70/share. In our current model, we do not incorporate Summarecon Mall Bekasi project while assuming pure equity financing for Summarecon Mall Serpong project. Should we incorporate the Bekasi mall project and the Rp750bn new loan (for Bekasi and Serpong mall project) in the model, we will see possible upgrade in our TP by approximately Rp70/share to Rp1,380/share.

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