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Monday, October 24, 2011

Summarecon Agung Tbk - Investment Thesis

by Kresna Securities

We reinitiate SMRA with a BUY rating and 12-month TP of Rp1,450. The catalysts are: 1) hefty marketing sales in 8M11 (82.6% of company’s FY11 budget), 2) increasing margins along with robust price appreciation and stable input cost, 3) new revenue stream from Harris Hotel and Serpong Mall II, 4) the operation of Summarecon Bekasi flyover road by mid-2012 and 5) conducive domestic mortgage markets (lower BI rate and banks’ ample liquidity).

Key Catalysts

Strong Aug11 marketing sales. Summarecon has marked Rp612.1bn marketing sales in Aug11. The result is principally derived from land plot sales at Grand Orchard, Summarecon Kelapa Gading (Rp462.6bn), with the other contributor being Summarecon Serpong (Rp149.5bn). These figures bring 8M11 marketing sales to Rp1.9tr, or around 82.6% of company’s full year target of Rp2.3tr.

Kelapa Gading: Focus on high-rises. With limited land bank available in Kelapa Gading (around 20ha), the company is starting to shift its focus to develop high-rise buildings, to fully utilize the remainder of its land bank. Current projects are Sherwood Apartments (360 units) and Menara Satu Office (18,800sqm GFA), with upcoming mixed use high-rise projects.

Serpong: 2 new clusters sold out in less than a month, new mall II is ready to be opened. The company launched 2 new clusters: The Scarlet (130 units) and The Starling (270 units), early of this month. The entire units now have been sold, reaping around Rp500.0bn marketing sales. Additionally, Summarecon Mall Serpong (SMS) II will also be opened by the end of this month and has 23% higher monthly rental fee compared to SMS I. Occupancy rate of SMS II is claimed to have reached 80%.

Bekasi: 2 new clusters + 1 new mall. Clusters that are planned to be launched this year are: the Lotus (200 units) and the Magnolia (250 units). These clusters are expected to reap Rp400.0bn sales. SMRA also plans to build its first mall in Bekasi with first phase ground breaking on 11 Sep 2011. The mall will cover 80,000sqm area and is projected to complete by the end of 2012, with a total investment of around

Earnings Outlook

Marketing sales to grow by 13.5% CAGR10-13. We estimate marketing sales this year to grow by 22.3% to Rp2.6tr and continue to increase by 16.3% YoY to Rp3.1tr in 2012, encouraged by rising land prices and the launch of 2 new clusters by the end of year.

Growing margins lead to EPS growth of 27.0% CAGR10-13. We set our gross margin assumption in 2011 at 46.5%, 2.4% higher than that of last year, due to robust land price appreciation and stable input cost, while in 2012 we project margin to improve to 47.4%. Accordingly, gross profit in 2011/12 will increase by 27.8% YoY and 34.4% YoY to Rp955.4bn and Rp1.3tr, respectively. Bottom line is forecasted to grow by 38.2% YoY in 2011 to Rp322.7bn, while in 2012 to rise by 35.0% YoY to Rp435.6bn

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