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Thursday, October 4, 2012

Baby steps

Bahana : BSDE

Bumi Serpong Damai (BSDE-BUY-IDR1,130-TP:IDR1,450)

Cut target price on slow execution, but retain BUY

Bumi Serpong Damai (BSDE) has the second largest land bank totaling to 4,945ha, of which 67% are located in Serpong, greater Jakarta area.  However, slower than expected project realizations (exhibit 15) have us cutting our target price to IDR1,450, reflecting 30% discount to NAV.  Nevertheless, we maintain a BUY on BSDE as we continue to like its solid 2012-14F operating cash flow on revenue recognition and earnings growth.  With continued net cash position to support high capex, BSDE is currently developing commercial projects (mixed used developments and office towers) in BSD City phase II (Exhibit 13) and the opening of the next township development in BSD City phase III (2,450ha).  Recently, BSDE has started the construction of The Breeze (20k sqm commercial project consisting of F&B and a supermarket on 13.5ha area) and Green Office Park lot 6 (a 5-storey building with 15k sqm leasable space) in BSD City phase II.  In spite of its small contribution to the top line, we see these commercial projects as stepping stones to help sustain growth until greater commercial projects can materialize. Thus, once BSDE can accelerate realization on its plan to develop more commercial areas and monetize its assets, we expect its share price performance to improve going forward (exhibit 5 shows just 4% ytd market outperformance, which is amongst the worst in the sector – exhibit 11 ).

2013F: 19% y-y earnings growth

Going into 2013, we expect BSDE to maintain its 22% y-y top line growth to IDR4.29t, 83% contribution from development with the remaining in the form of recurring incomes from hotels and offices in Jakarta, Surabaya, Medan and Balikpapan. While we estimate BSDE will maintain its 2013F GPM at 63.5%, manageable opex has helped 2013F OPM improvement to 34.6%, translating to 24% y-y operating profit growth to IDR1.49t. After incorporating additional interest expense from its recent bond issuance (IDR1t, 3-series with coupon ranging from 8% to 9.5%), we estimate 2013 bottom line to reach IDR1.19t, +19% y-y and translating to 27.7% net margin.

More launches in the coming months with industrial in 2013

Other than commercial projects in BSD City, the company will continue to launch several residential sub clusters in BSD City, Grand Wisata, Balikpapan and Surabaya, to reach FY12 marketing sales of IDR4.2t, +22% y-y. Going into 2013, BSDE will launch industrial estate in 287ha area in Benowo (Surabaya, East Java) while continuing to sell products in its township developments.  Based on our latest land bank data, BSDE’s subsidiaries (DUTI and Sinarmas Wisesa) have a total of 1,671ha land, mostly township developments in Bekasi (780ha), Surabaya (200ha), Balikpapan (250ha) and Cibubur (300ha) with the remaining to be developed as future commercial projects.  Development of commercial projects and growing marketing sales should provide positive support on the counter’s sentiment, in our view.

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