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Monday, January 9, 2012

Property Sectors - Upward Momentum

by Batavia Prosperindo Securities

• Solid Domestic Economy

Indonesia is still on the track of positive economic development, with a stable current GDP growth of 6.5%. Driven mainly by strong domestic consumption, Indonesia has become an attractive investment destination. Foreign Direct Investment for nine month of 2011 stood at US$9.1 billion, and portfolio investment totaling to US$4.4 billion. Year on year inflation rate at November 2011 remain stable at 4.44%, meanwhile BI rate kept at 6%.

• Sector current facts

Adhere to domestic economy, property sector also experiencing positive growth. As the nation centre of economic growth, Jabodetabek region gave an appealing attraction for property companies to build more projects. Office space, residential, hotel, retail, and industrial estates are overriding projects in Jabodetabek region.

Bank Indonesia in its Property Survey for 3Q11 revealed that almost all property projects in Jabodetabek and Banten region rose in terms of occupancy / take up rate, supply, and rental / selling price.

Business expansion, new companies, lifestyle shifting, and high consumption rate are the key factors which drove the property sector increment in Jabodetabek region. Important note for retail (malls) was the moratorium of shopping centre development in DKI Jakarta, due to the overloaded supply in DKI Jakarta.

· Property Index

Property sector index has been able to keep up with JCI, as of December 12, 2011. The index tend to rise in the recent week, following the news of the land bill approval. We perceive this as a short term fluctutaion, and a good opprotunity for investing in property companies.

Companies Selection

We have gathered six property companies for our comparison. Among those companies, we picked KIJA (NAV/Shares Rp734), ELTY (NAV/Shares Rp341), and BKSL (NAV/Shares Rp405). These companies’s shares recently traded at cheap prices, and had interesting potential upside to their target prices. They also possess potential projects that could boost revenue in the future.

Conclusion

Solid economy and high consumption rate will bolster the property sector of Indonesia, as more property projects will be absorbed by the market. Recent upgrade of Indonesian credit rating by Fitch Ratings to BBB-, and greater possibility of foreigners to possess properties in Indonesia will be major points for property sector escalation.

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