Monday, October 22, 2012

Balance & diversification

By Bahana : Property

2013: Preference towards diversification & commercial projects

Considering the strong rallies which have occurred on the selling prices of housing land since 2010 (exhibit 4), we believe property companies with diversified business models and greater exposure towards commercial and high-rise projects will outperform the  market in 2013. In our view, rising investments (exhibit 8) propping up industrial land ASPs to the highest ever this year (exhibit 9) will be followed by more expansions in retail/office/commercial segments. On the retail side, the implementation of a moratorium on malls in 2011 has curbed retail space supply and supported higher rental rates.  Demand support will also come from not only domestic retailers like MAPI and the unlisted PARA Group, but also  renowned  retailers  from  Japan, Korea, Europe and the US, capitalizing on Indonesia’s growing middle class income (exhibit 7) and looking for more space in Jakarta and Greater Jakartaareas.    Furthermore,  we  believe  rising  investment  will continue  to  support strong demand on office space, both for relocations and expansions. 

Remaining bullish on property & industrial estates

We  have  10  BUYs  and  1  HOLD  on  the  sector  (exhibit  29)  with  CTRA  (BUYTP:IDR950) and LPKR (BUY-TP:IDR1,280) as our top picks on their project diversifications and significant growing recurring incomes.  On the industrial front, we like BEST (BUY-IDR:TP780) and LPCK (BUY-TP:IDR5,000), which has  ample  land  bank  supplies  to meet  continued demand for industrial land and strong ASP to support higher margins ahead. Our rating summary: 

BSDE for its land bank:  On landed-focus, BSDE (BUY-TP:IDR1,450) still remains undervalued compared to its peers considering its huge land bank reserves. In our view, faster/greater  realization on additional commercial projects will support share price performance in the next 12-months.

SMRA & ASRI - expensive land with rising recurring incomes: We continue to like SMRA (BUY-IDR2,225) and ASRI (BUY-IDR670) as they will continue to benefit from higher land bank value in their remaining locations, with additional 2013 recurring incomes from new retail malls/offices, which will cushion against lumpy revenue recognition, raise margins and help preserve high selling prices in those immediate areas.   

CTRP - apartment/commercial focus only:  Investors with preference towards high rise/commercial buildings, CTRP (BUY-IDR770) will provide higher 2013 earnings growth of 39% y-y (2012:14.5% y-y), stemming from the operation of 122k sqm Lotte Shopping Avenue and more revenue recognition from apartments/offices  in Ciputra World Jakarta complex.

Other positive catalysts will also come from potential Joint Operation/Joint Venture commercial projects in the coming years.

SSIA – potentially more land:  We retain our HOLD rating on SSIA pending positive news on its plan to add 1,000ha industrial land. The government’s plan to construct 100km Cikampek-Palimanan toll road by end 2012 will provide sizeable order book for SSIA’s construction division.

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