Tuesday, October 18, 2011

Sentul City Tbk.

by Mandiri Securities

Conservative NAV estimate of Rp992/share, with 73%, or 6,682 hectares of BKSL’s land pegged at book value of Rp12,355 per sqm, versus retail selling price of Rp1.5mn per sqm. We set our target price at Rp400 or 60% discount to NAV.

Sentul City (BKSL) – Initiating coverage with BUY. Report attached. BKSL is Indonesia’s largest property developer based on land inventory, proportionately owning around 9,100 hectares in Sentul area, strategically located between Jakarta and Bogor. The next biggest developer is BSDE with around 4,500 hectares of land inventory. Big land inventory is a blessing when property prices are on the run, eliminating any concern on land replacement cost while allowing margin expansion. As a satellite city, Sentul area offers unique topography being situated 300-1,100M above sea levels with surrounding mountains and cooler weather compared with competing developments.

Land monetization strategy is in motion. After a change in shareholding and management line-up 2 years ago, BKSL is opening a 100-ha theme park, factory outlets, river market, 5 new hotels, 2 new universities, and new hospital with strong partners.

Better and new access to the development area. Its most relevant toll-road has just been expanded from three lanes to four lanes. There is a provincial road being built providing second access road to the back side of BKSL’s 9,100 hectares land.

Land prices in competing satellite cities becoming less affordable. Land prices in Serpong area (Summarecon, Bumi Serpong Damai, Alam Sutera) have been rallying. Now, Sentul area has become a valid alternative.

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