JPM Indonesia Property C 2014-05-07 1386436

www.jpmorganmarkets.
com
Asia Pacific Equity Research
08 May 2014
Indonesia Property
Changes, challenges and choices
Property
Felicia Tandiyono
AC
(62-21) 5291-8574
felicia.tandiyono@jpmorgan.com
PT J.P. Morgan Securities Indonesia
Aditya Srinath, CFA
(62-21) 5291-8573
aditya.s.srinath@jpmorgan.com
Cusson Leung
(852) 2800-8526
cusson.leung@jpmorgan.com
J.P. Morgan Securities (Asia Pacific) Limited
Joy Wang
(65) 6882-2312
joy.qq.wang@jpmorgan.com
J.P. Morgan Securities Singapore Private
Limited
See page 72 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the
firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in
making their investment decision.
We initiate coverage of the Indonesia property sector with a positive
view on the housing development and Jakarta retail lease market
outlook, a cautious view on the Jakarta office lease outlook and a
negative view on apartment development over the next 12 months.
Property stocks have outperformed JCI by 14% YTD in anticipation of
better post-election infrastructure progress. Property stocks recently traded
at one standard deviation above the average sector discount, reflecting this
optimism. In the face of near-term headwinds, we think there are only
select opportunities across the property space for the next two to four
quarters. We rate Summarecon and Ciputra Development Overweight
and Pakuwon, Bumi Serpong Damai and Lippo Karawaci Neutral.
Near-term regulatory changes: Potentially negative across segments.
We believe any regulatory changes will be generally negative short-term
before becoming more positive long-term. Three regulatory changes to
watch, especially after the elections, are policies on government-
subsidized housing, zoning laws and building permits. There have been
predecessor policies within the past 24 months, but they have had issues
with clarity and execution.
Potential structural changes: Long-term positive across property
segments. Three potential structural changes that we believe are likely to
emerge in 2015 are: (1) infrastructure progress; (2) property industry
consolidation; and (3) mortgage product evolution. We believe all three
changes are likely to be positive in the longer term for property prices.
Supportive affordability: Positive for housing. Housing affordability
nationally is likely to remain supportive in 2014 and 2015, in our view.
The settlement of the mortgage disbursement scheme for housing
developments in 1QFY14 provides incentives for developers to promote
back mortgage payments to customers. Our mortgage rate assumption is
9% for end-2014 and 2015, still among low rates seen in the market.
12-month stock views: Selective opportunities. We expect Indonesian
property developers to continue to trade at one standard deviation above
their average discount to RNAV because we expect slow regulatory
changes, a positive impact from emerging structural changes in 2015 and
a stable mortgage rate outlook.
Figure 1: Property sector vs. JCI YTD
Source: J.P. Morgan estimates, Bloomberg.
Figure 2: Sector RNAV discount band
(+/-1SD)
Source: J.P. Morgan estimates.
90
105
120
135
150
JCI (re-based)
Sector (re-based)
-80%
-60%
-40%
-20%
0%
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(62-21) 5291-8574
Table of Contents
Sector investment thesis.........................................................3
Sector catalysts........................................................................4
Positives .................................................................................................................4
Negatives................................................................................................................4
Sector risks...............................................................................5
Sector performance drivers.....................................................7
Stock investment summary.....................................................8
Sector strategy ........................................................................................................8
Stock preferences ....................................................................................................8
Investment thesis summary......................................................................................9
Valuation metrics....................................................................11
Industry analysis ....................................................................13
Demand drivers.....................................................................................................13
Supply drivers.......................................................................................................16
Companies..............................................................................17
Summarecon .........................................................................................................20
Ciputra Development ............................................................................................30
Pakuwon...............................................................................................................41
Bumi Serpong Damai ............................................................................................51
Lippo Karawaci.....................................................................................................62
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08 May 2014
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Table 1: Indonesia property stock coverage
Price
(Rp)
PT
(Rp)
% to
PT Rating
Mkt cap
(US$ M)
Avg. TO
3 mos.
(US$ M)
RNAV/share (Rp)
YTD
perf. FY14E FY15E
BSDE 1,525 1,500 -2% N 2,317 3.7 1,982 2,063 16%
CTRA 990 1,700 72% OW 1,304 2.5 2,196 2,372 27%
LPKR 1,050 900 -14% N 2,104 8.8 1,164 1,225 15%
PWON 365 385 5% N 1,526 1.6 408 446 30%
SMRA 1,095 1,900 74% OW 1,372 2.2 2,395 2,694 34%
Source: J.P. Morgan estimates, Bloomberg. Pricing data as of 6 May 2014.
Sector investment thesis
We initiate coverage of the Indonesia property sector with the following views:
We are most positive on the housing development and Jakarta retail lease
outlook.
We are neutral on the Jakarta office lease outlook.
We are negative on the apartment development outlook.
We have not published a view on hotels and industrial estates, as the property
companies under our coverage have low exposure to these segments.
Our 12-month views are influenced by potential regulatory changes. We believe
upcoming policies or supporting regulations are likely to address government-
subsidized housing, property zoning (which supports better city planning) and
building permits. These measures are likely to create negative sentiment for the
property sector near-term, in our view, though they may be positive for the sector in
the long run.
We are positive on the property sector in the long run in light of the potential for a
more reformist government post-2014. We see three potential structural changes for
the sector that are likely to emerge in 2015:
Infrastructure progress. The land acquisition for public infrastructure law will
become effective January 2015. The duration of land acquisition is 260-520 days,
based on the law. Therefore, actual construction progress may start in 3QFY15 at
the earliest or 3QFY16 at the latest.
Property industry consolidation. Two reasons: (1) The mortgage disbursement
scheme introduced last year may have created cash flow issues for smaller
developers that build high-rise developments. (2) Higher land tax in Jakarta and
other cities in Indonesia may have created cash constraints for smaller developers
that have large unsold landbank.
Mortgage product evolution. The trigger could be another round of fuel subsidy
removals, as in 2008. We think there is room for banks to offer mortgage
durations of more than 15 years or longer fixed-rate durations, assuming a
healthy banking sector. Most banks currently offer a fixed teaser rate for the first
12-24 months, followed by a floating rate for the remaining mortgage duration.
Floating rates are typically 300bps above fixed rates.
Prefer housing development and
Jakarta lease retail assets
Long-term positive, given
potential structural changes
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08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
We expect Indonesia property stocks to trade at one standard deviation above their
historical average discount within the next 12 months, or unchanged from current
valuation levels. Stock prices have partly reflected optimism regarding:
The enforcement of regulatory changes in stages.
The potential emergence of structural changes in 2015, which would create
positive sentiment for the sector.
A stable mortgage rate outlook that supports pre-sales growth.
Figure 3: Sector outperformance vs. JCI YTD
Source: J.P. Morgan estimates, Company data.
Figure 4: Pre-sales versus mortgage rate
Sector catalysts
Positives
Rebound in housing pre-sales soon. The housing mortgage disbursement
scheme reached in 1QFY14 between property developers and banks lifted an
overhang on sales and hence should be positive for the sector, in our view. We
expect pre-sales to show signs of a rebound in 2QFY14 and a more pronounced
rebound in 2HFY14 due to increasing confidence among developers to launch
projects once election noise subsides.
Consolidation likely in FY15, given how policy-ridden the sector is. We believe
consolidation would likely favor the major property companies, which are the
companies in our coverage. Companies with stronger balance sheets will be the
most ready to acquire landbank or projects from midsize to smaller companies.
Infrastructure reformremains the long-awaited catalyst. The land acquisition
for public infrastructure law becomes effective January 2015. Any significant
pickup in infrastructure construction will likely be seen only in September 2015
at the earliest or 3QFY16 at the latest, in our view. The timeframe to clear land
acquisition issues is limited to 260-520 days, based on the law.
Negatives
A two-round presidential election would increase political uncertainty and
hence short-term negative sentiment toward the Indonesia equity market, in our
view. Indonesia property stocks, among other recently hyped infrastructure
beneficiary-themed sectors, may underperform non-infrastructure beneficiary-
90
105
120
135
150
1/1/ 2014 2/ 1/ 2014 3/1/2014 4/ 1/ 2014
JCI (re-based) Sector ( re-based)
Mar 14th,
Jokowi
announce
d as
president
candidate
Banks and developers agreed
on housing mortgage
disbursement
Apr 9th,
PDIP
parliam
entary
votes
disappo
ints
presi denti al
disappoi nt
the market
0%
5%
10%
15%
20%
-50%
0%
50%
100%
150%
200%
Pre-sales growth YoY Mortgage rate (RHS)
Sector expected to trade at 1SD
above average discount to RNAV
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08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
themed sectors. Our base-case scenario does not assume a two-round presidential
election.
Mortgage disbursements for high-rise residential continue to stall. The
specifics of the mortgage disbursement scheme for high-rise development
construction are still being discussed by developers and banks. We think
agreement will not be reached easily, as the construction of high-rise
developments requires higher technical skills. While there is a potential
alternative solutioni.e., developers opting for construction loans, with the
mortgage-provider banks to aid funding for constructionit is not appealing
from developers cash flow perspective, in our view.
Mortgage rates may rise following a 25bps forecasted increase for benchmark
interest rates this year. A mortgage rate increase of 25-50bps following an
interest rate rise would pose significantly less risk to pre-sales than would a 50-
100bps increase. The stock performance of property companies with high
exposure to development properties are at higher risk. Our base-case scenario
assumes that mortgage rates remain at current levels, an average of 9%, until the
end of 2014 and no fuel subsidy removal until 2015.
Sector risks
We identify several upside and downside risks to our view of the Indonesia property
sector, summarized in the following table.
Table 2: Upside/downside risks
Area of risk Type of risk
1. Potential for a new government Upside
2. Issuance of supporting regulations on Housing Law Downside short-term; Upside long-term
3. Another round of fuel subsidy removals Downside short-term; Upside long-term
4. Policy on government-subsidized housing Downside
5. Scarcity of contractors Downside (applicable only to high-rise development)
6. Further tightening measures issued by Bank Indonesia Downside (applicable only to development properties)
We rank the probability of risks materializing, from highest and lowest, as follows:
1. The potential for a new government: We believe the Indonesia stock market,
including the property sector, may re-rate near-term if the current favorite in
opinion polls is elected as Indonesias new president. Beyond that, Cabinet
composition will be key. An incoming Administration could introduce crucial
reforms that are positive for the Indonesian economy long-term.
2. Issuance of supporting regulations on Housing Law (UU no. 1/2011): We
think the initial round of supporting regulation issuance is likely to address city
planning for residential, commercial, industrial and public facility zoning. Jakarta
province is scheduled to release supporting regulation based on Housing Law
2011 by mid-2014.
3. Another round of fuel subsidy removals: Fuel subsidy removals are positive
for Indonesias economy in the long term, in our view, but we expect another
round of inflation hikes and potentially higher interest rates in response to such a
move. We think there is a smaller probability of another round of fuel subsidy
removals this year than next year.
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Felicia Tandiyono
(62-21) 5291-8574
4. Policy on government-subsidized housing: Government-subsidized housing has
long been debated by private developers for its unattractive returns, given fixed
selling prices. If fixed selling prices are amended, we believe there is likely to be
another push from government to pass on more obligations for private developers
to deliver subsidized housing. The specific obligations of private developers to
deliver the units of subsidized housing have not been clearly stated in prior
regulations.
5. Scarcity of contractors: This risk is relevant only for high-rise projects, in our
view. Housing construction typically employs midsize to small contractors, of
which there are many in Indonesia. High-rise project construction requires skilled
contractors, who are typically employed by the top few construction companies in
the country. These companies may be occupied with several national
infrastructure projects.
6. Further tightening measures issued by Bank Indonesia (BI): We think this
risk is low for now, as we believe BI has no strong reason to pursue further
tightening. The new loan-to-value and mortgage disbursement scheme effective
October 2013 seem to have successfully suppressed mortgage lending. Mortgage
growth has remained in the 0-3% range MoM and declined YoY. BI survey data
on residential prices suggest that housing prices have declined since September
2013. Our data on residential pre-sales growth suggest that transactions have also
declined significantly since September 2013.
Figure 5: Loan growth YoY, by type
Source: CEIC.
Figure 6: Loan growth MoM, by type
Source: CEIC.
Figure 7: BI survey on residential prices (14 cities)
Source: CEIC.
Figure 8: Quarterly pre-sales growth YoY*
Source: J.P. Morgan estimates, Company data. * For property companies under our coverage.
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
Housing + Apartment + Shophouses Vehicles
-15%
-10%
-5%
0%
5%
10%
15%
20%
Housing + Apartment + Shophouses Vehicles
0%
2%
4%
6%
8%
10%
12%
14%
16%
-100%
-50%
0%
50%
100%
150%
200%
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Felicia Tandiyono
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Sector performance drivers
Indonesia property stock performance is sensitive to pre-sales. Property companies
typically announce pre-sales data monthly or quarterly in the following one to three
months. Pre-sales data are a key driver of stock performance, as many Indonesian
property companies NAVs are driven largely by their development properties.
We have created a property sector index to track the share price movements of the
five property companies under our coverage. We believe Indonesia stocks do not
generally respond to results announcements due to the time lag between the booking
of earnings and pre-sales. Development property pre-sales are booked one to three
years late, depending on construction rates.
Ciputra Development and Summarecon announce pre-sales monthly. Bumi Serpong
Damai, Pakuwon and Lippo Karawaci announce pre-sales quarterly, although there
have been times their when pre-sales data were announced monthly.
Figure 9: Indonesia property sector index tracks pre-sales growth
Property share price performance is also driven by events like:
Significant landbank acquisitions
Sizeable project acquisitions
Major development launches
These events drive share prices because they add to future pre-sales growth
expectations, in our view.
We believe intraday base IDR lending rates issued by BI are the best leading
indicator of property pre-sales growth. Pre-sales growth has a strong negative
correlation with BI lending rates, at 0.7, the strongest correlation among economic
data.
Intraday base lending rate changes eventually translate into mortgage rate changes, as
well as in-house rates of installments to developers. This is the main reason why the
correlation with pre-sales is the strongest, in our view.
-50%
0%
50%
100%
150%
200%
-100%
-50%
0%
50%
100%
150%
200%
250%
300%
Sector index performance Pre-sales growth YoY
Pre-sales announcement drives
stock performance most
Major acquisitions and launches
matter
Base IDR lending rates as
leading indicator of mortgage
rates
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08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
Figure 10: Pre-sales versus inverted BI intraday base lending rate
Source: Bloomberg, J.P. Morgan estimates, Company data.
Stock investment summary
Sector strategy
Our 12-month view differs by property segment:
We are most positive on housing development and the Jakarta lease retail
outlook.
We are neutral on the Jakarta lease office outlook.
We are negative on the apartment development outlook.
Stock preferences
Our preferred stock is Summarecon (SMRA), followed by Ciputra Development
(CTRA). Both companies strategies focus on housing developments. SMRAs
revenue from housing development is around 70%, with 20% from lease retail.
CTRAs revenue from housing development is around 90%.
We employ a scoring system to determine our stock preferences. Our scoring system
considers growth outlooks, profitability, leverage and current valuations. These four
variables are the important variables in determining Indonesia property stock
performance, in our view.
Table 3: Indonesia property stocks scoring
Scores Growth Profitability Leverage Valuation
Sum of
scores
SMRA 4 3 3 5 15
CTRA 3 2 5 4 14
PWON 2 4 4 2 12
BSDE 1 5 2 3 11
LPKR 5 1 1 1 8
Data
Pre-sales
2014E
EBIT margin
2014E
Net DE
2014E
RNAV disc.
2015E
SMRA 38% 34% 0.04 -59%
CTRA 14% 32% 0.28 -58%
PWON 12% 43% 0.05 -18%
BSDE -1% 47% 0.04 -26%
LPKR 68% 28% (0.14) -14%
Source: J.P. Morgan estimates. Pricing data as of 6 May 2014.
0.05
0.06
0.06
0.07
0.07
0.08
0.08
-
2
4
6
8
10
12
14
Quarterly pre-sales Rp trn Inverted BI intraday base lending rate (RHS)
Preferred stocks: SMRA, then
CTRA
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08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
Table 4: Indonesia property stocks RNAV contribution per segment
Development Investment
Low-rise High-rise Office Retail Hotels Others
SMRA 77% 1% 1% 18% 4% 0%
CTRA 95% 2% 0% 2% 1% 0%
PWON 21% 34% 5% 36% 4% 0%
BSDE 94% 0% 3% 1% 2% 0%
LPKR 69% 5% 0% 5% 7% 15%
Source: J.P. Morgan estimates. Note: Blue shading = We have a positive view on the segment; light grey shading = We have a
cautious view on the segment; dark grey shading = We have a negative view on the segment.
Investment thesis summary
The following summarizes our investment thesis by stock, based on our order of
preference:
Summarecon (SMRA): Replicating successful township model
We initiate coverage of SMRA with an Overweight rating and Jun-15 PT of
Rp1,900. SMRA plans to add its fourth township before the end of 2014. The fourth
township in Bandung could contribute 20% of SMRAs RNAV in three years time.
The fourth township is situated to benefit from tollroad construction plans within the
area. We are positive on the rental rate outlook of SMRAs lease retail assets in
Jakarta and Greater Jakarta.
Ciputra Development (CTRA): Housing focus
We initiate coverage of CTRA with an Overweight rating and Jun-15 PT of Rp1,700.
CTRA should benefit the most from the finalization of the housing mortgage
disbursement scheme between banks and property developers, in our view.
Management continues to focus on growing pre-sales nationally through joint
venture projects. These projects allow for higher pre-sales growth without additional
funding needs, as landbank is provided by the joint venture partners. The joint
venture strategy has proven to be as profitable as CTRAs non- joint venture projects
since 2011.
Figure 11: SMRA share price
performance
Source: Bloomberg.
Figure 12: CTRA share price
performance
Source: Bloomberg.
500
700
900
1100
1300
1500
1700
SMRA share price
JCI re-based
500
700
900
1100
1300
1500
1700
CTRA share price
JCI re-based
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08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
Pakuwon Jati (PWON): Crucial time to expand
We initiate coverage of PWON with a Neutral rating and Jun-15 PT of Rp385. We
believe the positive outlook for PWONs lease retail assets in Jakarta is largely
reflected in the share price. Company plans for landbank acquisitions have yet to
translate into significant additions to project pipelines. We also think the market has
partly reflected potential positive news from the landbank acquisition plan, as this
plan was announced by management some time ago.
Bumi Serpong Damai (BSDE): Early stage of diversification
We initiate coverage of BSDE with a Neutral rating and Jun-15 PT of Rp1,500. We
think BSDEs share price does not fully reflect the potential of the companys
strategy to expand across different property segments and different project locations.
We believe this diversification is likely to support the companys near-term growth
as growth prospects from BSDEs large flagship project in BSD City, west Greater
Jakarta area, start to decline.
Lippo Karawaci (LPKR): Hospital versus developing property
We initiate coverage of LPKR with a Neutral rating and Jun-15 PT of Rp900. We
think there are opportunity costs to LPKRs strategy of focusing on hospital and
lease retail in Tier 2 and Tier 3 cities across Indonesia. LPKR appears to have been
forgoing opportunities in housing development and Jakarta investment property,
which provide higher returns and profitability, in our opinion. LPKRs ambition to
grow hospital and lease retail is weighing on its balance sheet and profitability, as
evidenced by its having the weakest ROE and margin among companies under our
coverage. However, we think the monetization of hospital or lease retail assets,
though infrequent, may provide one-off gains and much-needed capital.
Figure 13: PWON share price
performance
Source: Bloomberg.
Figure 14: BSDE share price
performance
Source: Bloomberg.
Figure 15: LPKR share price
performance
Source: Bloomberg.
200
250
300
350
400
450
500
PWON share price
JCI re-based
1000
1500
2000
2500
BSDE share price
JCI re-based
500
1000
1500
2000
LPKR share price
JCI re-based
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08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
Valuation metrics
We derive Indonesia property stocks Restated Net Asset Value (RNAV) using a
DCF methodology for development properties, assuming continuous pre-sales and
applying a single cap rate for investment properties. We do not use market values
because they are not publicly available, and property transactions data are also not
transparent.
We set companies price targets at either one or two standard deviations above the
average sector discount to respective RNAV. The bases for our discounts are:
Companies with higher development property exposure should trade at least at
1SD above the average sector discount a year from now because: (1) the
mortgage rate outlook is unchanged at 9%in FY14-15; and (2) pre-sales are
expected to grow c20% in FY14-15, similar to FY13. We expect sector pre-sales
to grow 21% in 2014 and 19% in 2015 vs. 23% in 2013. 1QFY14 pre-sales
reached only 15% of our FY14 estimate, but we expect c65% of pre-sales to be
achieved in 2HFY14.
Companies with higher investment property exposure should trade at least at 2SD
above the average sector discount a year from now because: (1) investment
property companies have historically traded at 1SD above developers; and (2) our
12-month 10-year bond yield outlook of 8% is approximately where current
yields are trading.
Indonesia property stocks currently trade at almost one standard deviation above
their historical average discount. The sector had traded at an average 40% discount to
RNAV, with a 6% discount to RNAV at the peak and a 61% discount to RNAV at
the bottom since FY06. We calculate that one standard deviation is equivalent to a
15% discount, based on available historical data.
Figure 16: Indonesia property stocks historical discount to RNAV
-80%
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
Sector average Mean +1SD -1SD +2SD -2SD
Sector is almost at a +1SD
discount to RNAV
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08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
Table 5: Indonesia property stock coverage
RNAV/share (Rp) Pre-sales (Rp tn)
Investment
prop./gross RNAV
Price
(Rp) PT (Rp) % to PT Rating
Mkt cap
(US$ M)
Avg. TO
3 mos.
(US$ M) FY14E FY15E FY14E FY15E FY14E FY15E
YTD
perf.
BSDE 1,525 1,500 -2% N 2,317 3.7 1,982 2,063 7.2 8.9 5% 6% 21%
CTRA 990 1,700 72% OW 1,304 2.5 2,196 2,372 10.2 11.8 4% 3% 37%
LPKR 1,050 900 -14% N 2,104 8.8 1,164 1,225 6.9 8.5 11% 11% 18%
PWON 365 385 5% N 1,526 1.6 408 446 3.4 3.9 42% 45% 30%
SMRA 1,095 1,900 74% OW 1,372 2.1 2,395 2,694 5.1 5.9 19% 22% 40%
Table 6: Indonesia property sector valuation metrics
Prem. (disc.)
to RNAV
P/E - overall
(x) EPS growth P/B (x) ROE
Pre-sales
growth
P/E -
development
only (x)
Net cash
(debt)/equity EBIT margin
FY14E FY15E FY14E FY15E FY14E FY15E FY14E FY15E FY14E FY15E FY14E FY15E FY14E FY15E FY14E FY15E FY14E FY15E
BSDE -23% -26% 9.9 9.8 0% 1% 1.7 1.5 17% 15% -1% 23% 9.1 8.3 0.04 0.09 47% 41%
CTRA -55% -58% 11.1 8.9 39% 25% 1.3 1.1 12% 12% 14% 16% 8.2 7.3 0.28 0.37 32% 30%
LPKR -10% -14% 8.2 15.3 140% -46% 1.4 1.3 17% 9% 68% 23% 12.6 20.9 (0.14) (0.18) 28% 21%
PWON -10% -18% 12.3 10.3 26% 19% 3.3 2.7 27% 26% 12% 16% 8.4 7.2 0.05 0.12 43% 42%
SMRA -54% -59% 13.3 9.9 8% 34% 2.8 2.3 21% 23% 38% 14% 10.7 10.0 0.04 0.01 34% 28%
Avg. -31% -35% 11.0 10.8 42% 7% 2.1 1.8 19% 17% 26% 18% 9.8 10.8 0.05 0.08 37% 33%
Figure 17: Regional property sector valuation matrix
NAV Core EPS growth Dividend yield P/B (x)
Net
gearing EPS/BVPS
discount FY14E FY15E FY13 FY14E FY14E FY14E FY14E
China property
Sector average (market cap weighted) -46% 23.3% 17.2% 5.1% 5.3% 0.9 44% 16.2%
Hong Kong property
Developer average (market cap weighted) -39% 0.4% -4.0% 3.2% 3.2% 0.7 11% 6.0%
Investor average (market cap weighted) -33% 4.0% 7.7% 3.0% 2.9% 0.7 15% 3.8%
REIT average (market cap weighted) -12% 9.9% 5.7% 4.4% 4.6% 0.7 19% 4.0%
Singapore property and REITs
Developer average (market cap weighted) -21% 13.6% 9.4% 0.9% 1.9% 1.1 31% 4.9%
REIT average (market cap weighted) -4% -2.1% 1.4% 5.8% 6.0% 1.0 34% 6.1%
Malaysia property
Developer average (market cap weighted) -37% 39.2% 15.3% 2.4% 2.7% 1.4 19% 8.4%
REIT average (market cap weighted) 4% 6.4% 5.5% 4.8% 5.2% 1.0 22% 6.2%
Thailand property
Sector average (market cap weighted) NA 0.4% 17.7% 4.2% 4.5% 2.2 66% 17.7%
Philippines property
Sector average (market cap weighted) -26% 26.5% 14.2% 1.4% 1.8% 2.9 27% 12.8%
Indonesia property
Sector average (market cap weighted) -27% 48.3% -0.5% 1.2% 1.7% 2.0 3% 18.9%
Source: J.P. Morgan estimates, Bloomberg. Pricing data as of 29 April 2014.
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Felicia Tandiyono
(62-21) 5291-8574
Industry analysis
Demand drivers
We expect a rebound in housing pre-sales within the next two to three quarters.
Developers and banks agreed in 1QFY14 on a simple, yet effective mortgage
disbursement scheme for housing, in compliance with the new Bank Indonesia
regulations.
Housing construction progress and mortgage disbursements are now split into four
stages. The new mortgage disbursement scheme issued by Bank Indonesia in
September 2013, effective October 2013, is based on construction progress for any
individuals first mortgage, rather than an upfront lump sum payment to developers.
Table 7: Mortgage disbursement for housing
Developers deliver construction of Banks disburse mortgage principal portion
Post-1Q14 Foundation 50%
Roof 30%
House completion 10%
Change of ownership title 10%
Pre-3Q13 None 100%
Source: Company data.
Pre-sales declined in the past two quarters as developers prefer that housing buyers
pay using installments to developers, rather than mortgages, since September 2013.
Housing buyers are delaying purchases due to this payment method preference.
We believe the use of mortgages as a payment method should rise and contribute up
to 50% of developers pre-sales within the next two to three quarters. The use of
mortgages as a payment method for housing purchases declined to an average 10%
of total housing transactions in 4QFY13 and 1QFY14 from an average 55% prior to
the introduction of the new mortgage disbursement scheme.
Figure 18: Quarterly pre-sales (Rp tn)
Figure 19: BIs IDR intraday base lending rate
Source: Bloomberg.
We calculate that the national housing affordability ratio has been low since 2006,
suggesting positive support for housing demand in FY14 and FY15. We expect
mortgage rates to remain at 9%, near the record-low average of 8.5% in FY12.
Our definition of the housing affordability ratio is the proportion of household
income employed to service mortgages. The lower the ratio, the better affordability
-
2
4
6
8
10
12
14
16
8.0%
8.5%
9.0%
9.5%
10.0%
10.5%
11.0%
11.5%
Housing pre-sales expected to
rebound in next two to three
quarters
Supportive affordability
14
08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
is. Aside from the mortgage rates assumed, we also assume three working persons
per household, a 70% loan-to-value with 15 years mortgage duration and an average
of 60-120 sqm houses.
Figure 20: National housing affordability ratio
Source: Bloomberg, J.P. Morgan estimates.
Figure 21: Pre-sales growth*
Source: Company data, J.P. Morgan estimates. * For property companies under our coverage.
Figure 22: Change of employment in Indonesia (000s)
Source: CEIC.
Figure 23: Average YoY wage growth in Indonesia
Source: BPS, J.P. Morgan estimates.
Agreement on a mortgage disbursement scheme for apartment sales has yet to be
reached. We believe a solution can be reached by the end of 2014. We expect the
contribution of apartment pre-sales to total pre-sales to recover to 20% in 2015 from
an estimated 10% in FY14.
We also do not foresee a structural change in apartment demand near-term. An
estimated 50% of apartment demand should continue to be driven by end user
demand, with the remaining 50% investor-driven. We believe structural changes for
apartment demand in Indonesia, which is 95% dominated by apartments in Jakarta,
will emerge only when there is a meaningful progress on Jakarta MRT construction.
Table 8: Jakarta MRT construction schedule
MRT line Length of line (km) Target operation Current status
South-North 1 15.7 2018 Construction of 13
stations (6 underground
and 7 above ground)
South-North 2 8.1 2020 Completed due diligence
East West N/A 2027 Conducting due diligence
Source: www.jakartamrt.com.
30%
40%
50%
60%
70%
80%
90%
100%
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
140%
160%
(1,000)
-
1,000
2,000
3,000
4,000
5,000
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
No sign of near-term apartment
pre-sales rebound
15
08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
Figure 24: Pre-sales, by type
We expect demand for lease retail floors to continue its healthy run since early 2013.
Pre-committed space in lease retail assets in Jakarta to date is high, with vacancy
rates remaining low, at below 5%. No new lease retail building permits have been
issued for Jakarta since late 2012, so there is no new supply of lease retail starting
2015.
There are several demand drivers for lease retail space, which supports our bullish
view on lease retail assets:
Foreign retailers expansion. Competition in the retail sector continues to
intensify, with more foreign companies trying to serve the large and young
population in Indonesia. The most recent foreign competition was Sephora from
the U.S., which plans to open in Kota Casablanca mall, Jakarta, this year.
J.P. Morgans ASEAN consumer analyst Princy Singh believes there is potential
for upward revisions in retailers capital expenditures once the election is over.
We expect new store space growth of 5% YoY in 2015 after a potential 20%
decline in 2014.
Domestic retailers same-store sales growth has recovered steadily after
bottoming in 1Q13. We expect a normalization of same-store sales growth
between 5% and 10%, depending on target consumer segments.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1
Q
0
6
2
Q
0
6
3
Q
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6
4
Q
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6
1
Q
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2
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8
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8
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1
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4
Q
1
3
High-rise Non high-rise
Positive on Jakarta lease retail
demand over lease office
16
08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
Figure 25: New store expansion plan growth (%)
Figure 26: Same store sales growth*
Source: J.P. Morgan estimates, Company data. * Same-store sales growth of retail companies
under our coverage, excluding Ramayana (typically does not rent retail floor).
Lease office demand is likely to be negatively affected by the slowdown in
Indonesias economy, as well as lower business expansion demand prior to the
election wrap-up, in our view. We believe the appetite for strata office will continue
to be irrational, as it has always been, and provide support and reduce rental rate
volatility near-term.
Figure 27: Indonesia GDP growth and FDI trend
Source: Bloomberg.
Supply drivers
We believe the volume of housing development launches is likely to increase starting
2Q14, now that there is an agreement on mortgage disbursement stages for housing.
We see no reason why most developers will not be ready to launch more products in
2H14.
There is no inventory concern in the market because housing supply is determined
purely by developers pre-sales rates. Developers typically do not run the risk of
over-supply because pre-selling activities are conducted prior to construction.
The majority of property companies in Indonesia rely significantly on housing
development pre-sales to generate cash. Four out of five property companies under
our coverage are likely at net cash to equity. Election noise should start to abate in
October 2014, in our view, as soon as more clarity emerges on the shape of the new
government.
-0.6
-0.4
-0.2
0
0.2
0.4
0.6
0.8
1
1.2
FY11 FY12 FY13 FY14E FY15E
Average new store space Y/Y growth, (RHS)
0%
100%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
Average
0
1000
2000
3000
4000
5000
6000
7000
4
4.5
5
5.5
6
6.5
7
FDI in US$ millions (RHS) Real GDP YoY growth
Developers control supply;
expect more launches in 2H14
17
08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
Figure 28: Indonesia property companies net cash (debt) to equity
Table 9: Indonesia 2014 election schedule
7-9 May Legislative election final result announced
11-18 May Legislative seats allocation; Presidential and Vice Presidential candidates announced
June-September New legislative parliament members announced
9 July Presidential and Vice Presidential election; quick count of presidential election
July-October Induction of new legislative parliament members
October Induction of new President and Vice President, assuming no second-round election
October-November Presidential cabinet ministers announcement and induction, assuming no second-round
election
Source: www.pemilu.com,
Apartment developments in Jakarta, which represents around 95% of apartment
developments in the country, have gone under provincial government scrutiny.
Jakartas governor has been restricting building permit issuance for high-rise
buildings that do not follow the citys town planning since his term started in
October 2012.
We are positive on apartment selling prices and the lease retail rental outlook in 2015
due to the lack of new supply. The impact of the slowdown in building permits
issuance is likely to be most pronounced for lease retail, followed by apartment
supply in 2015 on, in our view.
We are neutral on the lease office rental outlook in 2015. The supply of lease offices
will be less affected, in our view. Some lease office development with older building
permits has recently been completed or has started construction, with target
completion scheduled to start from 2013.
Figure 29: Strata apartment (grade B+ and above) unsold rate Figure 30: Service apartment (grade B+ and above) vacancy rate
(0.5)
(0.4)
(0.3)
(0.2)
(0.1)
-
0.1
0.2
0.3
0.4
0.5
BSDE CTRA LPKR PWON SMRA
FY12 FY13 FY14E FY15E
0%
5%
10%
15%
20%
25%
30%
2005 2006 2007 2008 2009 2010 2011 2012 2013
0%
5%
10%
15%
20%
25%
30%
2005 2006 2007 2008 2009 2010 2011 2012 2013
High-rise building permits issue
Positive 2015 outlook for lease
retails rental and apartment pre-
sales
18
08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
Source: Real Estate Intelligence Service, JLL. Source: Real Estate Intelligence Service, JLL.
Figure 31: Lease retail (grade B+ and above) vacancy rate
Source: Real Estate Intelligence Service, JLL.
Figure 32: Lease office (grade B+ and above) vacancy rate
Source: Real Estate Intelligence Service, JLL.
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
2005 2006 2007 2008 2009 2010 2011 2012 2013
0%
5%
10%
15%
20%
25%
30%
2005 2006 2007 2008 2009 2010 2011 2012 2013
19
08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
C
o
m
p
a
n
i
e
s
www.jpmorganmarkets.com
08 May 2014
Summarecon
Initiation
Overweight
SMRA.JK, SMRA IJ
Replicating successful township model; initiate with
Overweight
Price: Rp1,115
Price Target: Rp1,900
Indonesia
Indonesia Research
Felicia Tandiyono
AC
(62-21) 5291-8574
Aditya Srinath, CFA
(62-21) 5291-8573
Cusson Leung
(852) 2800-8526
Joy Wang
(65) 6882-2312
Limited
700
900
1,100
1,300
1,500
Rp
May-13 Aug-13 Nov-13 Feb-14 May-14

Price Performance
SMRA.JK share price (Rp)
JCI (rebased)
YTD 1m 3m 12m
Abs 36.0% -1.3% 18.0% -18.2%
Rel 23.6% -0.1% 9.1% -14.6%
Summarecon (Reuters: SMRA.JK, Bloomberg: SMRA IJ)
Rp in bn, year-end Dec FY12A FY13A FY14E FY15E FY16E
Revenue (Rp bn) 3,463 4,094 5,120 7,623 8,707
Net Profit (Rp bn) 798 1,102 1,192 1,602 1,667
EPS (Rp) 114.89 76.40 82.60 111.06 115.52
DPS (Rp) 11.50 21.50 19.10 20.65 33.32
Revenue growth (%) 46.8% 18.2% 25.1% 48.9% 14.2%
EPS growth (%) 101.4% (33.5%) 8.1% 34.5% 4.0%
ROCE 71.8% 61.8% 44.1% 48.0% 60.8%
ROE 26.1% 27.3% 24.4% 26.7% 23.0%
P/E (x) 9.7 14.6 13.5 10.0 9.7
P/BV (x) 2.1 3.5 2.9 2.3 2.0
EV/EBITDA (x) 11.0 7.6 18.1 15.8 15.8
Dividend Yield 1.0% 1.9% 1.7% 1.9% 3.0%
Source: Company data, Bloomberg, J.P. Morgan estimates.
Company Data
Shares O/S (mn) 14,427
Market Cap (Rp bn) 16,085.86
Market Cap ($ bn) 1.40
Price (Rp) 1,115
Date Of Price 07 May 14
Free Float(%) -
3M - Avg daily vol (mn) 27.58
3M - Avg daily val (Rp mn) 29,093.85
3M - Avg daily val ($ mn) 2.5
JCI 4862.07
Exchange Rate 11,519.41
Price Target End Date 30-Jun-15
firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor
in making their investment decision.
We initiate coverage of Summarecon (SMRA) with an OW rating and a
Jun-15 PT of Rp1,900. SMRA is trading at 54% and 59% discounts to our
FY14 and FY15 RNAV estimates, respectively. We are positive on
housing development and the Jakarta retail lease outlook. Our FY15E
RNAV for SMRA is 77% driven by housing development from its four
townships and 18% driven by its retail leases.
SMRAs business strategy. SMRAs management is preparing to
launch its fourth housing township by the end of 2014 and fifth township
in 2015. The company continues to replicate its successful strategy of
developing townships like its Kelapa Gading in North Jakarta to other
land banks. SMRA's malls anchor each of its township developments
and are likely to enjoy positive rental rate growth, on our estimates.
Positive on SMRA's strategy to deliver growth. We expect SMRAs
pre-sales momentum to be the best versus its peers, given the launch of
its fourth housing township, among other factors. We are also bullish on
its Jakarta malls rental rate outlook. We expect retail lease floor
expansion located in new townships to add contributions to the
companys growth in three to four years' time.
Key catalysts. The announcement of initial housing launches in the fourth
township, expected around 4Q14, will be key for the pre-sales growth
outlook in 2015-16. We believe continuously strong pre-sales growth in
the next few years is yet to be reflected in SMRAs share price.
Valuation and price target. We initiate coverage of Summarecon
(SMRA) with an OW rating. We set our PT at a 25% discount to our
Jun-15 RNAV. Our RNAV is calculated using DCF methodology for
development properties and applying cap rate for investment properties.
21
08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
Key catalyst for the stock price: Upside risks to our view: Downside risks to our view:
Positive pre-sales momentum in 1Q14
continues
Launch of fourth township, Bandung project,
scheduled in 1Q14
Lack of new mall supply in Jakarta starting
2015
Land or project acquisitions
Ability to pass on higher high-rise development
cost to buyers
Better-than-expected pre-sales from
development project launches
Town-planning permit issues
Scarcity of contractors to build high-rise
projects
Potential over-supply of residential units in
Bekasi
Key financial metrics FY13A FY14E FY15E FY16E Valuation and price target basis
Revenues (Rp bn) 4,094 5,120 7,623 8,707 Our PT of Rp1,900 is set at a 25% discount to our Jun-15 RNAV
estimate. Our PT assumes that SMRAs shares will trade one standard
deviation above the average sector discount to RNAV. Our RNAV
estimate is derived using a DCF methodology for development
properties assuming a 17.7% WACC and applying a single cap-rate for
investment properties assuming a 9.9% blended cap-rate.
Revenue growth (%) 18% 25% 49% 14%
EBITDA (Rp bn) 1,510 1,914 2,472 2,751
EBITDA margin (%) 37% 37% 32% 32%
Effective tax rate (%) 17% 18% 20% 21%
Net profit (Rp bn) 1,102 1,192 1,602 1,667
EPS (Rp) 76 83 111 116
EPS growth (%) 38% 8% 34% 4% Share Price discount to RNAV (Rp)
DPS (Rp) 22 19 21 33
-
500
1,000
1,500
2,000
2,500
-2 SD -1SD
SMRA share price Rp +1 SD
+2 SD
BVPS (Rp) 323 389 482 567
Operating cash flow (Rp bn) (1) 1,715 1,750 2,070
Free cash flow (Rp bn) (758) 639 230 276
Interest cover (X) 56 8 25 18
Net margin (%) 27% 23% 21% 19%
Sales/assets (X) 0.3 0.3 0.5 0.5
Debt/equity (%) 0.54 0.69 0.47 0.34
Net debt/equity (%) (0.01) (0.04) (0.01) 0.03
ROE (%) 27% 24% 27% 23%
Key model assumptions FY13A FY14E FY15E FY16E
Housing ASP growth 49% 11% 0% 10%
Housing land sale growth -26% 12% 6% 11%
Mall average rental rate growth 6% 10% 16% 13%
Source: Bloomberg, Company and J.P. Morgan estimates. Source: Bloomberg, Company and J.P. Morgan estimates.
Sensitivity analysis RNAV EPS JPMe vs. consensus, change in estimates
Sensitivity to FY14E FY15E FY14E FY15E EPS FY14E FY15E
1% chg in ASP growth (all segments) 5.9% 6.2% 0.7% 3.0% JPMe old
NA NA
1% chg in volume sales grth (all segments) 4.0% 4.3% 0.1% 0.1% JPMe new 83 111
1% chg in rental rate grth (all segments) 0.2% 0.4% 0.4% 0.9% % chg NA NA
Consensus 80 87
Comparative metrics
Rating
Mkt Cap
RNAV
prem.(disc.) Inv.Prop./Gross RNAV P/E (development) YTD
$Mn FY14E FY15E FY14E FY15E FY14E FY15E
BSDE N 2,371 -21% -24% 5% 6% 9.3 8.6 21%
CTRA OW 1,353 -53% -57% 4% 3% 8.5 7.6 37%
LPKR N 2,138 -8% -13% 11% 11% 12.8 21.3 18%
PWON N 1,460 -14% -22% 42% 45% 8.0 6.9 30%
SMRA OW 1,362 -54% -60% 19% 22% 10.6 10.0 40%
Source: Bloomberg, Company and J.P. Morgan estimates. Prices are as of 5 May 2014
22
08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
Investment summary
We initiate coverage of SMRA with an Overweight rating and a Jun-15 PT of
Rp1,900. SMRA is our preferred stock in the Indonesia property sector. We
believe SMRAs share price is likely to outperform most, amid issues clouding the
broader Indonesia property sector. Our positive stance on SMRA is due to:
1. Best pre-sales momentum. 1QFY14 pre-sales grew 75% QoQ, while sector pre-
sales declined 59% QoQ. The launch of its fourth development in 4QFY14 will
be vital in contributing to FY14 and FY15 pre-sales growth. The agreement
between banks and developers on the mortgage fund disbursement scheme for
housing development should further support SMRAs pre-sales, in our view.
2. Bullish on SMRA's retail lease assets. We believe Kelapa Gading mall in
Jakarta will benefit from the scarcity of new retail lease floor space in 2015.
SMRAs Serpong township will add a new leased commercial area, adding 20%
to retail lease space in the township. The new Bekasi mall, opened mid-2013,
should provide a higher contribution to total revenue in 2014, given strong
occupancy at 92% as of December 2013.
3. Attractive valuation. SMRA last traded at a 59% discount to 2015E NAV vs the
sector at a 33% discount. SMRAs share price has mostly underperformed the
sector index in the past 12 months, except for April 2014 when 1QFY14 pre-sales
were announced. We believe SMRA can outperform the sector index over the next
12 months, given its property segment exposure and township expansion plans.
Investment risks
The key risks for SMRA mainly come from political and regulatory events which
partly influence economic outcomes and sentiment towards the property sector
(please refer to the sector section for more details). The two other main risks to our
investment thesis are land or project acquisition and town-planning permit issues.
Management is searching for potential land bank or project acquisitions, preferably
in Jakarta, Greater Jakarta or nearby cities, to replicate its successful township
development further. Such acquisitions historically have added 20% upside to NAV
within the following two to three years.
Potential delays in launching SMRA's fourth township would likely be related to
town-planning permit issues, in our view. Management is, however, confident that
this risk is under control. Any delay from its scheduled 4QFY14 launch could create
up to 5% downside risk to our RNAV estimates for each delayed quarter.
Valuation and share price analysis
Our PT of Rp1,900 is set at a 25% discount to our Jun-15 estimated RNAV. We apply
a 25% discount to our June 2015E RNAV to reflect sector sentiment in 12 months
time. We argue property companies with high exposure to development properties
should trade one standard deviation above the sector average discount to RNAV.
Company description
SMRA was established in Nov 1975,
started operations in 1976 and was
listed in Aug 1996. SMRA is owned by
the Nagaria family. Members of
founding family are also currently
members of SMRAs Board of
Directors. SMRAs main land bank is
located in Serpong, west Greater
Jakarta. SMRAs current main projects
are its retail lease in flagship land
bank, Kelapa Gading, North Jakarta,
and residential township projects in
Serpong and Bekasi, west and east
Greater Jakarta, respectively.
Figure 33: RNAV 2015E breakdown
Low-
rise,
77%
High-
rise,
1%
Office,
1%
Retail,
18%
Hotels
, 4%
Upside risks
Downside risks
PT at sector mean +1SD
23
08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
Our RNAV forecast for SMRA is calculated using the following assumptions:
DCF methodology for development properties. We assume a 17.7% WACC on
net cash flow after sales tax generated from development activities. Our WACC
rate assumes:
30:70 debt to equity, which reflects what we believe to be the comfortable level
of leverage for SMRAs management
8% risk free rate, which is in line with Indonesias 10-year bond yield
1.6x beta, which is the historical two-year average beta
5% long-term growth rate, in line with the long-term inflation rate in Indonesia
Single cap-rate for investment properties. We apply a 9.9% blended cap-rate on
net effective rent. Our blended cap-rate is calculated from weighted-average of:
8% cap-rate for lease office, in line with current cap-rate for grade B offices
10% cap-rate for lease retail, in line with current cap-rate for grade-A malls
10% cap-rate for hotel, in line with current cap-rate for grade B hotels
Table 10: SMRA RNAV breakdown
Rp bn 2014E 2015E
Development properties 27,856 30,481
Low-rise 27,717 30,258
High-rise 139 222
Investment properties 6,739 8,603
Office 193 208
Retail 5,420 6,855
Hotels 1,126 1,540
Others - -
Gross Asset Value 34,595 39,084
Net cash (debt) + minority adj. 120 (61)
RNAV 34,714 39,024
RNAV per share 2,406 2,705
Gross RNAV breakdown by segment
Low-rise 80% 77%
High-rise 0% 1%
Office 1% 1%
Retail 16% 18%
Hotels 3% 4%
Others 0% 0%
Risks to our price target
Our RNAV is largely driven by SMRAs housing development. A delay or failure in
the launch of any housing projects, existing or new townships, creates a downside
risk to our price target. Better-than-expected pre-sales achieved from launches within
the next 12 months would be positive for our RNAV FY15 estimates.
Table 11: SMRA's PT sensitivity to change in valuation assumptions
+/- 1.0% change Change in TP
Rf -/+ 4.4%
Beta -/+ 0.3%
LT g +/- 1.9%
WACC -/+ 6.6%
Cap rate -/+ 1.6%
24
08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
Share price analysis
SMRA share price has underperformed the JCI by 13% over the past one year and is
relatively in line with the property sector index performance. SMRA's stock
underperformance to the JCI was due to general weakness in the property sector
rather than due to company-specific reasons, in our view.
Property sector weakness in 3QFY13 and 4QFY13 was mainly due to the negative
impact from BI's LTV policy issued in September 2013. Pre-sales momentum started
to slow in 4QFY13 and slowed significantly in 1QFY14.
Table 12: Sector news events
3QFY13 BI issued new LTV requirement for mortgage & more restrictive mortgage fund disbursement
4QFY13 Data released on property sector pre-sales +85% QoQ in 3QFY13
1QFY14
Data released on property sector pre-sales -12% QoQ in 4QFY13
The scheme on housing mortgage disbursement was agreed between banks and developers
Jokowi was announced as a presidential candidate, widely seen to be reformist on infrastructure
matters among others
2QFY14
Jakarta provincial government is formulating new building permit policy
Source: J.P. Morgan, Company data, Bloomberg
The period when SMRAs share price underperformed the property sector index the
most was in 3QFY13. We think this is because SMRAs pre-sales growth was
weaker than the sector, on a YoY and QoQ basis.
Figure 34: SMRA share price performance versus JCI and Property sector index
40
50
60
70
80
90
100
110
120
SMRA JCI index Property sector index
3QFY13 4QFY13 1QFY14 2QFY14...
Source: Bloomberg.
25
08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
Figure 35: Pre-sales growth YoY
-40%
-20%
0%
20%
40%
60%
80%
Sector pre-sales SMRA pre-sales
Figure 36: SMRA's RNAV discount to share price
200
400
600
800
1,000
1,200
1,400
1,600
-1 SD SMRA share price Rp +1 SD
Company analysis
Management strategy
SMRA's management is focused on replicating its successful flagship project,
Summarecon Kelapa Gading township, into other land bank locations. Management
is aware and has focused great effort in building Summarecon as a brand for property
buyers in Jakarta and Greater Jakarta.
SMRA also owns and manages retail leases in each township, which contributes a
steady recurring income for the company. Its retail lease in Jakarta is known as one
of the malls with the high foot-traffic during weekdays and weekends. Management
is charging close to grade A+ mall rates in prime CBD area for Summarecon Kelapa
Gading mall as a result. Management continues its retail lease expansion to other
land bank. Summarecon Mal Serpong has been garnering good credibility with
tenants amid rising competition in the area since it opened three years ago.
Figure 37: SMRA RNAV breakdown in 2013
79%
5%
1%
14%
2% 0%
Figure 38: SMRA RNAV breakdown in 2018E
65%
11%
0%
20%
4% 0%
Focused on replication strategy
26
08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
Location exposure
SMRAs property portfolio is mainly located around Jakarta and Greater Jakarta. The
fourth development will be located in Bandung, outside of Jakarta and Greater
Jakarta, around 150 km from Jakarta or around 130 km from Greater Jakarta.
Figure 39: Map of SMRA's project locations
Financial analysis
Income statement
We forecast 38% pre-sales growth for SMRA in 2014. Pre-sales for SMRAs low-
rise development are typically booked as revenue after 1.5 years onwards, upon
house handover. Pre-sales for SMRAs high-rise development are typically booked
as revenue based on the percentage of construction completion.
Two main revenue drivers for SMRA are housing developments and retail leases. We
estimate around 50% of housing developments to continue to be mainly driven by
pre-sales from Serpong and Bekasi townships. Around 50% of retail lease revenue is
driven by Mal Kelapa Gading, SMRA's first mall.
27
08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
Figure 40: Pre-sales trend
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
140%
-
500
1,000
1,500
2,000
2,500
SMRA Quarterly pre-sales (Rp bn) Pre-sales growt h YoY
Figure 41: Revenue breakdown
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2011 2012 2013 2014E 2015E 2016E
Source: J.P. Morgan estimates., Company data
We forecast gross profit margin to decline starting 2014 as pre-sales being booked
are of newer housing and apartment projects. We expect both projects to book lower
margin due to recently higher construction cost. Construction costs, especially for
high-rise developments, have been on the rise in the past 12 months.
Table 13: Margin and growth
FY12 FY13 FY14E FY15E FY16E
GPM 46% 53% 60% 52% 51%
OPM 29% 33% 34% 28% 27%
EBITDA margin 33% 37% 37% 32% 32%
NIM 23% 27% 26% 22% 20%
Sales growth 47% 18% 25% 49% 14%
COGS growth 43% 4% 6% 79% 15%
EBITDA growth 71% 32% 27% 29% 11%
EBIT growth 79% 33% 28% 25% 8%
NI growth 104% 38% 22% 22% 7%
Balance sheet
We do not foresee balance sheet issues for SMRA. Current project pipelines should
be sufficiently financed by internal funding for the next 12 months, on our estimates.
We think the 2013 bond issuance and the April 2014s loan facility signed were
timely. Net cash build-up in 2014 is likely to decline in 2015 and 2016 as cash is
deployed for land acquisitions, apartment construction working capital and
investment property construction.
SMRA may need to seek external funding in 2016 if there is a sizeable land bank or
project acquisition opportunity within the next 12 months, in our opinion. This is
especially true if the acquisition pushes net gearing levels to above 0.3x, in our view.
28
08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
Figure 42: Net gearing (x)
(0.05)
-
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
'12 '13 '14E '15E '16E
Figure 43: Net cash/debt (Rp bn)
(1,500)
(1,000)
(500)
-
500
1,000
1,500
'12 '13 '14E '15E '16E
Figure 44: Dilution history
-
20
40
60
80
100
120
140
FY08 FY09 FY10 FY11 FY12 FY13
Basic EPS Fully diluted EPS
Cash flow
We estimate around one-third of 50% of SMRAs capex within the next three years
is allocated for land acquisition and preparation in fourth and potentially fifth
township in Bogor, Greater Jakarta. Another one-third of SMRA's capex is likely to
be spent on its investment property pipeline, i.e. commercial building in Serpong and
4-star hotel in Kelapa Gading.
Table 14: Cash flow key items
CAPEX (Rp bn) (658) (782) (1,261) (1,599) (1,912)
CAPEX/Sales 19% 19% 25% 21% 22%
FCF 673 (758) 639 230 276
CFO 1,310 (1) 1,715 1,750 2,070
29
08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
Summarecon: Summary of Financials
Income Statement Cash flow statement
Rp in billions, year end Dec FY12 FY13 FY14E FY15E FY16E Rp in billions, year end Dec FY12 FY13 FY14E FY15E FY16E
Revenues 3,463 4,094 5,120 7,623 8,707 EBIT 1,011 1,347 1,722 2,153 2,327
% change Y/Y 46.8% 18.2% 25.1% 48.9% 14.2% Depr. & amortization 132 163 193 319 424
EBITDA 1,143 1,510 1,914 2,472 2,751 Change in working capital 499 (1,243) 299 (212) (67)
% change Y/Y 70.6% 32.2% 26.7% 29.1% 11.3% Taxes - - - - -
EBIT 1,011 1,347 1,722 2,153 2,327 Cash flow from operations 1,310 (1) 1,715 1,750 2,070
% change Y/Y 79.1% 33.3% 27.8% 25.0% 8.1%
EBIT Margin 29.2% 32.9% 33.6% 28.2% 26.7% Capex (658) (782) (1,261) (1,599) (1,912)
Net Interest (25) (27) (227) (98) (150) Disposal/(purchase) 1 2 0 0 0
Earnings before tax 986 1,319 1,495 2,055 2,177 Net Interest (25) (27) (227) (98) (150)
% change Y/Y 85.8% 33.8% 13.3% 37.4% 6.0% Other (104) (243) 0 0 0
Tax (194) (224) (272) (412) (465) Free cash flow 653 (781) 454 151 158
as % of EBT 19.7% 16.9% 18.2% 20.0% 21.3%
Net income (reported) 798 1,102 1,192 1,602 1,667 Equity raised/(repaid) 527 0 0 0 0
% change Y/Y 103.5% 38.1% 8.1% 34.5% 4.0% Debt raised/(repaid) (13) 1,356 1,394 (616) (535)
Shares outstanding 6,944 14,427 14,427 14,427 14,427 Other 41 92 0 0 0
EPS (reported) 114.89 76.40 82.60 111.06 115.52 Dividends paid (158) (310) (276) (298) (481)
% change Y/Y 101.4% (33.5%) 8.1% 34.5% 4.0% Beginning cash 1,496 2,428 2,545 4,117 3,355
Ending cash 2,428 2,545 4,117 3,355 2,497
DPS 11.50 21.50 19.10 20.65 33.32
Balance sheet Ratio Analysis
Cash and cash equivalents 2,428 2,545 4,117 3,355 2,497 EBITDA margin 33.0% 36.9% 37.4% 32.4% 31.6%
Accounts receivable 106 179 224 333 380 Operating margin 29.2% 32.9% 33.6% 28.2% 26.7%
Inventories 2,820 3,058 3,108 2,303 1,458 Net margin 23.0% 26.9% 23.3% 21.0% 19.1%
Others 491 674 674 674 674
Current assets 5,846 6,456 8,123 6,664 5,009
. Sales per share growth 45.3% (43.1%) 25.1% 48.9% 14.2%
LT investments 597 844 844 844 844 Sales growth 46.8% 18.2% 25.1% 48.9% 14.2%
Net fixed assets 1,884 3,210 4,436 5,665 7,305 Net profit growth 103.5% 38.1% 8.1% 34.5% 4.0%
Total Assets 10,876 13,659 16,394 16,215 16,048 EPS growth 101.4% (33.5%) 8.1% 34.5% 4.0%
.
Liabilities Interest coverage (x) 46.6 55.5 8.5 25.2 18.4
Short-term loans 444 244 221 140 175
Payables 184 63 63 63 63 Net debt to equity (34.2%) (0.9%) (4.0%) (1.1%) 3.0%
Others 4,569 4,735 4,971 4,426 3,907 Sales/assets 36.5% 33.4% 34.1% 46.8% 54.0%
Total current liabilities 5,197 5,042 5,255 4,629 4,146 Assets/equity 310.9% 304.0% 307.4% 271.8% 222.7%
. ROE 26.1% 27.3% 24.4% 26.7% 23.0%
Long-term debt 678 2,257 3,674 3,139 2,569 ROCE 71.8% 61.8% 44.1% 48.0% 60.8%
Other liabilities 1,185 1,702 1,859 1,496 1,150
Total Liabilities 7,061 9,001 10,788 9,264 7,865
Shareholder's equity 3,815 4,658 5,606 6,951 8,183
BVPS (Rp) 528.93 322.85 388.56 481.80 567.18
Source: Company reports and J.P. Morgan estimates.
08 May 2014
Ciputra Development
Initiation
Overweight
CTRA.JK, CTRA IJ
Housing focus; initiate with Overweight
Price: Rp1,020
Indonesia
Property
Felicia Tandiyono
AC
(62-21) 5291-8574
Aditya Srinath, CFA
(62-21) 5291-8573
Cusson Leung
(852) 2800-8526
Joy Wang
(65) 6882-2312
Limited
600
800
1,000
1,200
1,400
1,600
Rp

Price Performance
CTRA.JK share price (Rp)
JCI (rebased)
YTD 1m 3m 12m
Abs 30.8% -13.6% 10.3% -25.0%
Rel 18.4% -12.4% 1.4% -21.4%
Ciputra Development (Reuters: CTRA.JK, Bloomberg: CTRA IJ)
Revenue (Rp bn) 3,323 5,077 7,806 9,989 11,842
Net Profit (Rp bn) 589 977 1,353 1,685 1,766
EPS (Rp) 38.84 64.40 89.21 111.10 116.42
DPS (Rp) 7.00 12.00 19.32 19.32 26.76
Revenue growth (%) 52.5% 52.8% 53.7% 28.0% 18.6%
EPS growth (%) 81.4% 65.8% 38.5% 24.5% 4.8%
ROCE 71.2% 65.0% 89.0% 139.0% 196.9%
ROE 11.0% 16.3% 19.6% 20.7% 18.6%
P/E (x) 26.3 15.8 11.4 9.2 8.8
P/BV (x) 1.8 1.6 1.3 1.1 1.0
EV/EBITDA (x) 12.6 7.7 12.3 10.6 10.3
Dividend Yield 0.7% 1.2% 1.9% 1.9% 2.6%
Company Data
Price (Rp) 1,020
Free Float(%) -
JCI 4862.07
We initiate coverage of Ciputra Development (CTRA) with an OW rating
and Jun-15 price target of Rp1,700, at a 25% discount to our RNAV
estimate. CTRA last traded at a 55% and 58% discount to our FY14 and
FY15 RNAV estimates, respectively. We are positive on the housing
development and Jakarta lease retail outlook. 95% of our FY15E RNAV
comes from housing development at residential projects in 33 cities across
Indonesia, and less than 1% fromlease retail assets in Jakarta.
CTRAs business strategy. Management plans to launch 11 new joint
ventures (JVs), three of which will be located in Jakarta. Its JV strategy
implemented since 2011 has been mainly to develop housing in tier-2
and tier-3 cities across Indonesia. The housing JV strategy has brought
strong pre-sales growth for CTRA since 2011.
Positive on CTRAs strategy. Among Indonesian developers, a JV
strategy is unique to CTRA, and allows faster pre-sales activity without
much capex. CTRAs Jakarta apartment JVs in 2014 are unlikely to be
as successful as its housing JVs, given mortgage disbursement and
building permit issues. However, CTRA does not fully own the
apartment projects, limiting downside risk potential.
Main event to watch. CTRAs share price has underperformed the JCI
and property sector index, particularly since September 2013, due to BI
LTV policy. We believe any sign of a turnaround in CTRAs monthly
pre-sales in 2Q or 3Q FY14 will be positively received as it suggests two
things: 1) the mortgage issue no longer weighs on pre-sales activity, and
2) returned confidence in launching projects after the election.
Valuation and price target. We initiate on CTRA with an OW rating
and Jun-15 PT of Rp1,700, at a 25% discount to our RNAV estimate.
Our RNAV estimate uses DCF to value development properties and
applies a cap rate for investment properties.
31
08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
Key catalysts for the stock price: Upside risks to our view: Downside risks to our view:
Turnaround in monthly pre-sales figures
Mixed-use project launches in Jakarta
Mortgage fund disbursement scheme
agreement for apartment projects
Better-than-expected pre-sales and
profitability contribution from joint venture
projects
Ability to pass on higher construction costs
for planned high-rise projects in Jakarta
Potential further increase in stake of
subsidiaries, Ciputra Surya and/or Ciputra
Property
Jakarta high-rise building permit issues
Expansion into budget hotels
Clinic/hospital development in owned townships
Revenues (Rp bn) 5,077 7,806 9,989 11,842 Our Jun-15 PT of Rp1,700 is at a 25% discount to our Jun-15 RNAV
estimate. Our PT assumes that CTRA will trade at one standard deviation
above the average sector discount to RNAV. Our RNAV estimate uses
DCF to value development properties assuming a 19.5% WACC and
applying a blended cap-rate of 10.7% for investment properties.
Revenue growth (%) 53% 54% 28% 19%
EBITDA (Rp bn) 1,810 2,771 3,380 3,670
EBITDA margin (%) 36% 35% 34% 31%
Net profit (Rp bn) 977 1,353 1,685 1,766
EPS (Rp) 64 89 111 116
EPS growth (%) 66% 39% 25% 5% Share price discount to RNAV (Rp)
DPS (Rp) 12 19 19 27
(1,000)
-
1,000
2,000
3,000
-2 SD -1 SD
CTRA share price Rp +1 SD
+2 SD
BVPS (Rp) 644 756 900 1,050
Operating cash flow (Rp bn) 308 5,028 5,194 6,532
Free cash flow (Rp bn) (1,301) 2,856 2,068 2,608
Interest cover (X) (34) 25 (662) (27)
Net margin (%) 19% 17% 17% 15%
Sales/assets (X) 0.3 0.4 0.4 0.4
Debt/equity (%) 0.28 0.17 0.12 0.06
Net debt/equity (%) (0.08) (0.28) (0.37) (0.46)
ROE (%) 16% 20% 21% 19%
ASP growth for projects in JKT and G.JKT -34% 10% 10% 10%
Land sales growth for projects in JKT and
G.JKT 202% 5% 5% 5%
NA NA
1% chg in volume sales growth (all
segments) 3.5% 4.1% 0.1% 0.1% JPMe new
89 111
1% chg in rental rate growth (all segments) 0.0% 0.0% 0.1% 0.1% % chg NA NA
Consensus 79 97
Source: J.P. Morgan estimates. Source: Bloomberg, J.P. Morgan.
Comparative metrics
Rating
Mkt Cap
RNAV
prem.(disc.) Inv. Prop./Gross RNAV P/E (development) YTD
$MM FY14E FY15E FY14E FY15E FY14E FY15E
BSDE N 2,339 -22% -25% 5% 6% 9.2 8.4 19%
CTRA OW 1,330 -53% -57% 4% 3% 8.5 7.6 35%
LPKR N 2,124 -9% -13% 11% 11% 12.7 21.1 16%
PWON N 1,514 -11% -19% 42% 45% 8.3 7.1 34%
SMRA OW 1,372 -54% -59% 19% 22% 10.7 10.0 40%
32
08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
Investment summary
We initiate on CTRA with an Overweight rating and Jun-15 PT of Rp1,700. CTRA
is our second-most preferred stock in the Indonesia property sector, after
Summarecon (SMRA). We believe CTRA will outperform, despite issues clouding
the Indonesia property sector. Our positive stance on CTRA is due to:
1. Turnaround in pre-sales. We expect CTRAs pre-sales to recover from the 1Q
FY14 low in the next few quarters. Housing buyers delay their purchases when
mortgages were not CTRAs preferred payment method in 4Q FY13 and 1Q
FY14. We believe CTRA can realize the delayed pre-sales now that the mortgage
disbursement scheme has been addressed.
2. Expansion through its JV strategy. CTRA continues to monetize its strong
housing brand nationally by inviting JV partners, who are land bank owners,
since 2011. This strategy supports a higher pre-sales growth outlook without
requiring intensive capital expenditure. We believe this JV strategy, which is
unique among Indonesian developers, was made possible by CTRAs founders
prominence in the Indonesia property sector and the companys position as one of
the oldest developers in the country.
3. Attractive valuation. CTRA last traded at a 58% discount to our 2015 RNAV
estimate, versus the sectors 34% discount. CTRAs share price typically leads
that of other property companies during the turning point of sentiment towards
the Indonesia property sector. We believe this is because CTRAs property
portfolio serves all consumer segments across many cities in Indonesia.
Investment risks
Key risks for CTRA mainly come from political and regulatory events which partly
influence the economic outcome and sentiment towards the property sector (please
refer to our sector report for more details). There are two other main risks to our
CTRA investment thesis, i.e. higher pre-sales and profitability contribution from JV
projects and its Jakarta apartment projects building permit issues.
We see 12% upside risk to our RNAV estimate if housing sold in its JV projects can
deliver the same gross margin as those in its own projects. Many expect CTRAs
gross margin from development property to decline because of the nature of the JV
projects. JV partners typically share 30% of revenue, or 50% of projects profit as a
form of compensation for the land bank provided.
We see 5% downside risk to our RNAV estimate if there is a delay in Jakarta
apartment development projects launching this year. Delays in Jakarta apartment
projects could be caused by: 1) no agreement on the mortgage disbursement scheme
for apartments, and 2) high-rise building permit issues in Jakarta. To date, only one
of the three CTRA JVs in the Jakarta apartment market is close to obtaining a
building permit.
Company description
CTRA was established on
October 1981, started operating
in 1984, and was listed on the
Jakarta Stock Exchange in
January 1994. CTRA is owned by
the Ciputra family. Members of
the founding family are currently
also members of CTRA's Board
of Directors. CTRAs main land
bank is located in west and
south east Greater Jakarta.
CTRA currently operates 69
projects in 33 cities across
Indonesia
Figure 45: 2015E RNAV breakdown
Low-
rise,
95%
High-
rise,
2%
Office,
0%
Retail,
2%
Hotels
, 1%
Upside risks
Downside risks
33
08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
We set our Jun-15 price target of Rp1,700 at a 25% discount to our RNAV estimate.
The 25% discount is to reflect our expectation of sector sentiment in 12 months time.
We argue that property companies with high exposure to development properties will
trade at one standard deviation above the sectors average discount to RNAV.
We estimate RNAV using:
rate assumes:
of leverage for CTRAs management
8% risk-free rate, which is in line with Indonesias 10-year bond yield
5% long-term growth rate, which is in line with the long-term inflation rate in
Indonesia
net effective rent. Our blended cap-rate is calculated from the weighted average
of:
7% cap-rate for lease office, in line with the current cap-rate for grade A offices
11% cap-rate for lease retail, in line with the current cap-rate for grade B malls
10% cap-rate for hotel, in line with the current cap-rate for grade B hotels.
Table 15: CTRA: RNAV breakdown
Rp B 2014E 2015E
Low-rise 31,233 33,997
High-rise 1,634 584
Office - -
Retail 947 833
Hotels 306 396
Others - -
Net cash (debt) + minority adj. (823) 166
NAV 33,297 35,975
NAV per share 2,196 2,372
Gross NAV breakdown by segment
Low-rise 92% 95%
High-rise 5% 2%
Office 0% 0%
Retail 3% 2%
Hotels 1% 1%
Others 0% 0%
34
08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
Our RNAV estimate is largely driven by CTRAs housing developments. A delay or
failure in the launch of any housing projects, in existing or new townships, is a
downside risk to our price target. A better-than-expected pre-sales achieved from
launches within the next 12 months will be positive for CTRAs RNAV.
Table 16: CTRA: PT sensitivity to changes in valuation assumptions
Rf -/+ 4.4%
Beta -/+ 0.6%
LT g +/- 2.3%
WACC -/+ 1.6%
Cap rate -/+ 0.1%
CTRAs share price performance has generally underperformed the JCI and property
sector index since 3Q FY13. We believe the stocks underperformance relative to the
JCI was due to general weakness in the property sector as well as the companys high
reliance on mortgages in driving pre-sales. We forecast 95% of CTRAs 2015 RNAV
will be driven by housing development.
Property sector weakness in 3Q FY13 and 4Q FY13 was mainly due to the negative
impact from BIs LTV policy issued in September 2013. Pre-sales momentum started
to slow down in 4Q FY13, and slowed down significantly in 1Q FY14.
1QFY14
Jokowi was announced as president candidate, seen to be reformist on infrastructure matter among
others
2QFY14
Source: J.P. Morgan estimates, Company data, Bloomberg
The period when CTRAs share price performance narrowed its gap with the
property sector index performance was in 1Q FY14. We believe this was due to a
change in sentiment on housing development, as a mortgage disbursement scheme
was agreed on in 1Q FY14, which should bode positively for pre-sales in the next
few quarters.
35
08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
Figure 46: CTRA: Share price performance versus JCI and property sector index
40
50
60
70
80
90
100
110
120
CTRA JCI index Propert y sector index
Source: Bloomberg.
Figure 47: CTRA: Pre-sales growth YoY
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
Sector pre-sales SMRA pre-sales
Figure 48: CTRA: Share Price discount to RNAV (Rp)
200
700
1,200
1,700
2,200
-1 SD CTRA share price Rp +1 SD
Source: Company data, J.P. Morgan estimates.
Company analysis
Management strategy
CTRA management is focused on developing housing projects through its JV
strategy. The strategy started in 2011, did not require intensive capital expenditure,
generated cash faster, and helped deliver the highest pre-sales growth among peers in
2011 and 2012. The consecutive success in delivering pre-sales growth stopped in
2013, due to BI regulations on mortgages introduced in September 2013.
CTRA might continue to increase its stake ownership in subsidiary Ciputra Surya
(CTRS) and Ciputra Property (CTRP) if management sees value in doing so. CTRS
contributes 28% to our gross RNAV estimate for CTRA in 2015, and CTRP
contributes 5%. CTRA had a 63% stake in CTRS and 58% in CTRP as of
December 2013.
Leveraging its brand
36
08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
Figure 49: CTRA: RNAV breakdown in 2013
80%
17%
0%
3% 1% 0%
Source: Company data, J.P. Morgan calculations.
Figure 50: CTRA: RNAV breakdown in 2018E
91%
4% 0%
3%1% 0%
Location exposure
Figure 51: Map of CTRA's project locations
37
08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
Financial analysis
Income statement
We forecast pre-sales to grow by 14% in 2014 and 16% in 2015. Pre-sales for
CTRAs low-rise developments are typically booked as revenue after two years,
upon changes in land title. Pre-sales of CTRA high-rise developments are typically
booked as revenue, based on percentage of construction completion.
The main revenue driver for CTRA is housing developments. We estimate around
75% of total development revenue, which contributes over 90% of CTRAs total
revenue, is from the booking of housing pre-sales. The increasing contribution of
housing development to revenue is mainly due to the strong pre-sales growth
achieved since 2011.
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
140%
-
1,000
2,000
3,000
4,000
5,000
6,000
1
Q
1
0
2
Q
1
0
3
Q
1
0
4
Q
1
0
1
Q
1
1
2
Q
1
1
3
Q
1
1
4
Q
1
1
1
Q
1
2
2
Q
1
2
3
Q
1
2
4
Q
1
2
1
Q
1
3
2
Q
1
3
3
Q
1
3
4
Q
1
3
1
Q
1
4
CTRA Quarterly pre-sales (Rp bn) Pre-sales growth YoY
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2011 2012 2013 2014E 2015E 2016E
We forecast gross profit margin to decline slightly in 2014, as pre-sales being booked
are in joint-venture housing and apartment projects. We estimate both projects to
book lower margins due to recent increases in construction costs. Construction costs,
especially for high-rise developments, have risen in the past 12 months.
GPM 50% 50% 51% 49% 46%
OPM 30% 33% 32% 30% 26%
EBITDA margin 33% 36% 35% 34% 31%
NIM 18% 19% 17% 17% 15%
Sales growth 53% 53% 54% 28% 19%
COGS growth 46% 53% 51% 33% 27%
EBITDA growth 77% 65% 53% 22% 9%
EBIT growth 82% 68% 51% 19% 4%
NI growth 81% 66% 39% 25% 5%
38
08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
Balance sheet
CTRAs balance sheet is the strongest among its peers, based on our calculations.
We believe this is mainly due to the strong cash generation from joint-venture
projects. CTRA has been raising debt through bank loans since 2011. The bank loans
are mostly committed to working capital for high-rise construction, for both
development and investment properties.
We believe CTRAs management will be the most ready to internally fund land or
project acquisition opportunities due to balance sheet strength. CTRA can increase
leverage when needed, but we believe management is comfortable with a low
gearing level, up to 0.15x.
-
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
0.45
0.50
'12 '13 '14E '15E '16E
Figure 55: Net cash/debt (Rp B)
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
'12 '13 '14E '15E '16E
-
10
20
30
40
50
60
70
Basic EPS Diluted EPS
Cash flow
Capex should be comfortably funded by internal cash and bank loan facilities, based
on our projections. Most of CTRAs capex within the next few years will be
committed to building high-rise development and investment property projects, with
the majority located on CTRPs land in prime Jakarta areas.
Strong cash generation due to
JV housing projects
39
08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
CAPEX (Rp bn) (1,609) (1,568) (2,266) (3,122) (3,810)
CAPEX/Sales 48% 31% 29% 31% 32%
FCF 85 (1,301) 2,856 2,068 2,608
CFO 1,728 308 5,028 5,194 6,532

40
08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
Ciputra Development: Summary of Financials
Revenues 3,323 5,077 7,806 9,989 11,842 EBIT 980 1,652 2,486 2,962 3,077
EBITDA 1,094 1,810 2,771 3,380 3,670 Change in working capital 813 (1,392) 2,751 2,301 3,254
% change Y/Y 77.4% 65.5% 53.1% 22.0% 8.6% Taxes - - - - -
EBIT 980 1,652 2,486 2,962 3,077 Cash flow from operations 1,728 308 5,028 5,194 6,532
% change Y/Y 81.7% 68.5% 50.5% 19.1% 3.9%
EBIT Margin 29.5% 32.5% 31.9% 29.7% 26.0% Capex (1,609) (1,568) (2,266) (3,122) (3,810)
Net Interest 47 53 (113) 5 135 Disposal/(purchase) 5 3 0 0 0
Earnings before tax 1,029 1,709 2,374 2,967 3,212 Net Interest 47 53 (113) 5 135
% change Y/Y 66.4% 66.1% 38.9% 25.0% 8.3% Other (149) (80) 0 0 0
Tax (180) (296) (381) (492) (528) Free cash flow 124 (1,257) 2,762 2,072 2,721
as % of EBT 17.5% 17.3% 16.1% 16.6% 16.4%
Net income (reported) 589 977 1,353 1,685 1,766 Equity raised/(repaid) 0 0 0 0 0
% change Y/Y 81.4% 65.8% 38.5% 24.5% 4.8% Debt raised/(repaid) 628 1,289 (764) (374) (569)
% change Y/Y 81.4% 65.8% 38.5% 24.5% 4.8% Beginning cash 2,109 2,708 3,464 5,169 6,574
Ending cash 2,708 3,464 5,169 6,574 8,320
DPS 7.00 12.00 19.32 19.32 26.76
Accounts receivable 467 498 766 981 1,163 Operating margin 29.5% 32.5% 31.9% 29.7% 26.0%
Others 500 788 788 788 788
Current assets 7,024 9,653 11,429 12,448 12,849
. Sales per share growth 52.5% 52.8% 53.7% 28.0% 18.6%
LT investments 1,341 1,729 1,729 1,729 1,729 Sales growth 52.5% 52.8% 53.7% 28.0% 18.6%
Total Assets 15,023 20,115 23,873 27,596 31,214 EPS growth 81.4% 65.8% 38.5% 24.5% 4.8%
.
Liabilities Interest coverage (x) NM NM 24.6 NM NM
Short-term loans 134 629 579 575 592
Payables 524 663 1,000 1,327 1,683 Net debt to equity (14.6%) (7.5%) (28.0%) (36.5%) (45.8%)
. ROE 11.0% 16.3% 19.6% 20.7% 18.6%
Long-term debt 1,337 2,099 1,385 1,016 430 ROCE 71.2% 65.0% 89.0% 139.0% 196.9%
Other liabilities 702 1,122 1,619 1,936 2,247
BVPS (Rp) 559.20 643.92 755.99 899.87 1,050.10
08 May 2014
Pakuwon
Initiation
Neutral
PWON.JK, PWON IJ
Crucial time to expand; initiate with Neutral
Price: Rp361
Price Target: Rp385
Indonesia
Indonesia Research
Felicia Tandiyono
AC
(62-21) 5291-8574
Aditya Srinath, CFA
(62-21) 5291-8573
Cusson Leung
(852) 2800-8526
Joy Wang
(65) 6882-2312
Limited
250
300
350
400
450
Rp

Price Performance
PWON.JK share price (Rp)
JCI (rebased)
YTD 1m 3m 12m
Abs 28.9% -4.5% 10.4% -8.6%
Rel 16.5% -3.3% 1.5% -5.0%
Pakuwon (Reuters: PWON.JK, Bloomberg: PWON IJ)
Revenue (Rp bn) 2,165 3,030 3,959 4,932 6,320
Net Profit (Rp bn) 748 1,133 1,429 1,700 1,955
EPS (Rp) 15.53 23.52 29.67 35.31 40.59
DPS (Rp) 1.45 3.45 5.88 7.42 10.59
Revenue growth (%) 46.5% 39.9% 30.7% 24.6% 28.1%
EPS growth (%) 115.6% 51.4% 26.1% 19.0% 15.0%
ROCE 40.7% 54.1% 118.0% 3354.7% 5145.2%
ROE 29.1% 33.4% 32.1% 29.9% 27.6%
P/E (x) 23.2 15.3 12.2 10.2 8.9
P/BV (x) 5.5 4.2 3.3 2.6 2.1
EV/EBITDA (x) 9.7 7.5 10.1 8.7 7.6
Dividend Yield 0.4% 1.0% 1.6% 2.1% 2.9%
Company Data
Price (Rp) 361
Free Float(%) -
JCI 4862.07
We initiate coverage of Pakuwon (PWON) with a Neutral rating and a Jun-
15 PT of Rp385. We are positive on housing development and Jakartas
lease retail outlook. We are neutral on Jakartas lease office outlook. We
are negative on the apartment development outlook. Our PWON RNAV
FY15E is 36% driven by lease retail assets in Jakarta and Surabaya, 34%
driven by apartment projects in Jakarta and Surabaya, 21% driven by its
housing developments in Surabaya and 5% driven by lease office assets,
which are mainly in Jakarta. PWON trades at a 10% and 18% discount to
our RNAV FY14 and FY15 estimates, respectively.
PWONs business strategy. PWONs management has been searching
for new land bank opportunities in Jakarta to add growth to the project
pipeline. Meanwhile, PWON continues to monetize existing land bank in
Jakarta and Surabaya with the launch of a series of high-rise
developments. PWONs malls anchor each of its land banks in Jakarta and
Surabaya, and should enjoy a positive rental growth outlook, we believe.
Positive on PWON's strategy, but timing is crucial. We believe this
year is a crucial time for PWON to realize its planned land bank
acquisition. Pre-sales growth will be at risk in 2015E and lease retail
expansion will only be limited to rental rate growth, in our opinion.
Main event to watch. The announcement of an initial launch of new
land bank is crucial to watch. We believe the expectation on land bank
acquisition has partly been built-up year to date, evidenced in the share
price outperformance versus its property peers.
Valuation and price target. We initiate coverage of Pakuwon (PWON)
with a Neutral rating. We set PWONs PT at a 10% discount to our Jun-
15 RNAV estimate. Our RNAV estimate is calculated using a DCF
methodology for development properties and applying a cap rate to its
investment properties.
42
08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
Delayed launch of new land bank in Jakarta in
2014
Lack of new mall supply in Jakarta
starting 2015
Securing new and high-quality anchor
tenants in malls
Ability to pass on higher construction and
permit costs for high-rise development in
Jakarta
Meaningful land or project acquisitions to
add to development pipeline aside from
announced plans
Dilution risk from mandatory convertible notes
High-rise building permit issues
Weaker-than-expected lease retail activity causing
delayed or cancellation on mall take-up rate
Revenues (Rp bn) 3,030 3,959 4,932 6,320 PWONs PT at Rp385 is set at a 10% discount to our Jun-15 RNAV
estimate. Our PWON PT assumes that PWONs share price will
trade at two standard deviations above the average sector discount
to RNAV. Our PWON RNAV estimate is derived using DCF
methodology for development properties assuming 15.0% WACC
and applying single cap-rate for investment properties assuming a
9.7% blended cap-rate.
Revenue growth (%) 40% 31% 25% 28%
EBITDA (Rp bn) 1,709 1,941 2,420 2,869
EBITDA margin (%) 56% 49% 49% 45%
Net profit (Rp bn) 1,133 1,429 1,700 1,955
EPS (Rp) 24 30 35 41
EPS growth (%) 51% 26% 19% 15% Share price discount to RNAV (Rp)
DPS (Rp) 3 6 7 11
-
200
400
600
-2 SD -1 SD
PWON share price Rp +1 SD
+2 SD
BVPS (Rp) 85 109 138 168
Operating cash flow (Rp bn) 2,103 1,891 2,362 2,258
Free cash flow (Rp bn) 1,619 849 933 344
Net margin (%) 37% 36% 34% 31%
Sales/assets (X) 0.4 0.4 0.5 0.6
Debt/equity (%) 0.59 0.01 0.01 0.00
Net debt/equity (%) 0.07 (0.05) (0.12) (0.07)
ROE (%) 33% 32% 30% 28%
High-rise development ASP growth 49% -2% 11% 7%
High-rise development floor sale
growth -12% 16% 7% 17%
Source: Bloomberg, Company data and J.P. Morgan estimates. Source: Bloomberg, Company data and J.P. Morgan estimates.
NA NA
30 35
1% chg in rental rate growth (all
segments) 0.3% 0.6% 0.4% 0.7% % chg
NA NA
Consensus 31 39
Source: Bloomberg, Company data and J.P. Morgan estimates. Source: Bloomberg, Company data and J.P. Morgan estimates.
Comparative metrics
Rating
Mkt
Cap
RNAV prem
(disc) Inv.Prop./Gross RNAV P/E (development) YTD
$Mn FY14E FY15E FY14E FY15E FY14E FY15E Stock perf.
BSDE N 2,371 -21% -24% 5% 6% 9.30 8.55 21%
CTRA OW 1,353 -53% -57% 4% 3% 8.52 7.57 37%
LPKR N 2,138 -8% -13% 11% 11% 12.80 21.32 18%
PWON N 1,460 -14% -22% 42% 45% 8.03 6.87 30%
SMRA OW 1,362 -54% -60% 19% 22% 10.61 9.96 40%
Source: Bloomberg, Company data and J.P. Morgan estimates. Prices are as of 5 May 2014
43
08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
Investment Summary
We initiate coverage of PWON with a Neutral rating and a Jun-15 PT of Rp385.
Our neutral stance on PWON is due to:
1. Weak development property pipeline. PWON mainly relies on existing projects
for pre-sales; in doing so, PWON can only rely on property price increases in
order to achieve stronger pre-sales growth. Adding extra units for sale would risk
a faster decline in the company's development property project pipeline,
especially without any new land bank acquisitions soon.
2. Strong rental growth outlook of its investment property. PWONs existing
malls have enjoyed more than 10% rental growth since 2012. This is partly due to
healthy retail sales activity and managements expertise in managing lease retail
space. We expect the positive rental rate growth momentum for PWON's mall to
continue in 2015 as there is a lack of lease retail supply in Jakarta.
3. Fairly valued. PWON trades at a 10% and 18% discount to RNAV for 2014E
and 2015E, which does not provide sufficient upside return or downside
potential, in our opinion. We expect PWONs share price to remain range-bound
for now, unless a key catalyst emerges in the near term.
Investment risks
We think the key risks for PWON mainly come from political and regulatory events,
which partly influence economic outcome and sentiment towards the property sector
(please refer to the sector report section for more details). There are two other
company-specific risks to our PWON investment thesis, i.e., delayed launch of new
land bank in Jakarta in 2014 and a lack of new supply in Jakarta starting 2015.
We believe any more delay in the launch of new land bank will reduce management
credibility in executing its land bank acquisition plan. PWON management has been
guiding for new land bank acquisition in Jakarta for some time. This new land bank
acquisition is crucial for PWON in order to add growth to the companys
development pipeline in two years time. We estimate a potential 14% downside risk
to our RNAV estimate if the launch of new land bank is delayed until 2015.
On the positive side, we think there is upside risk to our RNAV estimates if PWON
is able to raise its malls average rental by more than 15% in 2014 and 2015. The
rental growth upside would highly depend on how scarce Jakartas lease retail floor
will be and how much appetite from retail tenants there is in 2015.
PWON's price target at Rp385 is set at a 10% discount to our RNAV Jun-15
estimate. We apply a 10% discount to our Jun 2015 RNAV estimate to reflect sector
sentiment in 12 months time. We argue that property companies with high exposure
to investment properties should trade at two standard deviations above the sectors
average discount to RNAV.
Company description
PWON was established in September
1982, started operations in 1986 and
was listed on the Jakarta Stock
Exchange in August 1989. PWON is
owned by the Tedja family. Members
of the founding family are also
currently members of PWON's Board
of Directors. PWONs main land bank
is located in Surabaya, the capital city
of East Java province. PWONs main
projects are mixed-use high rise
developments (apartments, office and
lease retail) in prime Jakarta and
prime Surabaya areas currently.
Low-
rise,
21%
High-
rise,
34%
Office,
5%
Retail,
36%
Hotels
, 4%
44
08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
Our RNAV estimate is calculated using:
rate assumes:
of leverage for PWONs management
1.5x beta, which is an historical two-year average beta
5% long-term growth rate, in line with the long-term inflation rate in Indonesia
net effective rent. Our blended cap-rate is calculated using the weighted-average
of:
8% cap-rate for lease office, in line with current cap-rate for grade B offices
10% cap-rate for lease retail, in line with current cap-rate for grade A malls
9% cap-rate for hotel, in line with current cap-rate for grade A hotels
Table 20: PWON RNAV breakdown
Rp bn 2014E 2015E
Low-rise 5,329 4,370
High-rise 6,058 7,193
Office 1,023 1,120
Retail 6,500 7,516
Hotels 703 775
Others - -
Net cash (debt) + minority adj. 24 526
NAV 19,637 21,501
NAV per share 408 446
Low-rise 27% 21%
High-rise 31% 34%
Office 5% 5%
Retail 33% 36%
Hotels 4% 4%
Others 0% 0%
Our PWON RNAV estimate is largely driven by apartment development and lease
retail in Jakarta and Surabaya. A delay or failure in the launch of any apartment
projects and a loss in lease retail occupancy or inability to pass on higher lease retail
operational cost creates a downside risk to our price target. Better-than-expected pre-
sales achieved from apartment launches and higher effective net rental rate within the
next 12 months would be positive for our PWON 2015 RNAV estimate.
45
08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
Table 21: PWONs PT sensitivity to changes in valuation assumptions
Rf -/+ 2.4%
Beta -/+ 0.8%
LT g +/- 1.3%
WACC -/+ 1.6%
Cap rate -/+ 2.1%
PWON share price has underperformed the JCI in the past one year and has been
relatively in line with property sector index performance. PWON's stock
underperformance relative to the JCI was due to general weakness in the property
sector rather than any company-specific reasons, in our view.
Property sector weakness in 3QFY13 and 4QFY13 were mainly due to the negative
1QFY14
Jokowi announced as presidential candidate, seen to be reformist on infrastructure matters among others
2QFY14
Source: J.P. Morgan estimates, Company data, Bloomberg.
Figure 58: PWON share price performance versus JCI and Property sector index
40
50
60
70
80
90
100
110
120
PWON JCI index Property sector index
Source: Bloomberg.
Periods when PWON share price underperformed the property sector index the most
was in 4QFY13. We think this is because PWONs pre-sales from apartments are
affected by the mortgage disbursement scheme. However, the company was fast to
adjust preferred customers' payment method and encourage more installment
method; hence, closing the gap with sector index performance within the quarter.
We believe the short periods when PWON share price outperformed the property
sector index in 1QFY14 and 2QFY14 were due to anticipation of a new land bank
acquisition. We believe if new land bank acquisition completion is not announced by
mid-2014, then PWON share price performance should track more closely to
property sector index performance.
46
08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
-40%
-20%
0%
20%
40%
60%
80%
Sector pre-sales PWON pre-sales
Figure 60: PWONs RNAV discount to share price
150
200
250
300
350
400
450
500
-1 SD PWON share price Rp +1 SD
Company analysis
Management strategy
We welcome PWON managements strategy in focusing on identifying land bank
opportunities in Jakarta and Surabaya. However, we need to see a better execution
track record in land bank acquisitions, particularly in Jakarta, where many property
players have struggled to date.
We believe PWONs strength in managing malls in Jakarta and Surabaya is enviable
for many property players. Management has a solid track record in managing lease
retail occupancy and collecting effective net rental rate. Lease retail provides steady
recurring income which helps PWON ride through cyclical downturns in
development property better. However, revenue growth from lease retail growth will
not be competitive enough in Indonesias property industry as development pre-sales
were growing at 7-year CAGR of 45% pa.
Figure 61: PWON RNAV breakdown in 2013
22%
41%
3%
30%
3% 0%
Figure 62: PWON RNAV breakdown in 2018E
25%
19%
4%
47%
4% 0%
Apartments and malls in Jakarta
and Surabaya
47
08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
Location exposure
PWONs property portfolio is mainly located in Jakarta and Surabayas valuable
prime area. PWON has no intention to look for land bank opportunities outside of
Jakarta and Surabaya at present.
Figure 63: Map of PWON's project locations
Financial analysis
Income statement
We forecast 12% pre-sales growth for PWON in 2014. Pre-sales for PWONs
apartment development are typically booked as revenue based on percentage of
construction completion. Pre-sales for PWON's housings developments are typically
booked as revenue after 1.5 years onward upon hand-over to customers.
Two main revenue drivers for PWON are apartment development and lease retail.
We estimate around 75% of PWON's development revenue to continue to be mainly
driven by apartment pre-sales in Jakarta. Around 60% of PWONs lease retail
revenue is driven by its Jakarta malls, the rest from Surabaya.
48
08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
0%
20%
40%
60%
80%
100%
120%
-
200
400
600
800
1,000
1,200
1,400
1,600
1,800
1
Q
1
0
2
Q
1
0
3
Q
1
0
4
Q
1
0
1
Q
1
1
2
Q
1
1
3
Q
1
1
4
Q
1
1
1
Q
1
2
2
Q
1
2
3
Q
1
2
4
Q
1
2
1
Q
1
3
2
Q
1
3
3
Q
1
3
4
Q
1
3
1
Q
1
4
PWON Quarterly pre-sales (Rp bn) Pre-sales growt h YoY
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2011 2012 2013 2014E 2015E 2016E
We forecast gross profit margin to start to decline in 2014 as the contribution from
high-margin Kota Kasablanka apartment units booking finishes. Rising construction
costs, especially for high-rise development in the past 12 months, are likely to
pressure margins going forward.
GPM 57% 58% 56% 56% 52%
OPM 49% 50% 43% 42% 38%
EBITDA margin 56% 56% 49% 49% 45%
NIM 35% 37% 36% 35% 31%
Sales growth 46% 40% 31% 25% 28%
COGS growth 25% 36% 39% 23% 41%
EBITDA growth 64% 41% 14% 25% 19%
EBIT growth 71% 42% 11% 23% 16%
NI growth 116% 51% 26% 19% 15%
Balance sheet
PWON should have sufficient funding to purchase at least one land bank acquisition
this year, in our view. Funding for acquisitions has been secured by rising debt and
equity issuance since 2011.
We estimate PWON to return to a net cash position this year despite its land bank
acquisition plan as its lease retail assets continue to generate healthy cash flow.
PWONs two malls in Jakarta will be renegotiating rental rates as some tenants
leases are approaching expiry. We do not think there is a risk for its malls' occupancy
level amid renegotiations.
Ready to acquire
49
08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
(0.40)
(0.30)
(0.20)
(0.10)
-
0.10
0.20
'12 '13 '14E '15E '16E
(1,500)
(1,000)
(500)
-
500
1,000
'12 '13 '14E '15E '16E
(5.00)
-
5.00
10.00
15.00
20.00
25.00
Cash flow
We forecast PWON's capex in 2014 and 2015 to be mainly preparing for its new land
bank acquisitions as well as supporting working capital of its apartment
developments in Jakarta. We expect the company to comfortably pay a 25% dividend
payout amid expansions given strong cash generation from its lease retail assets.
CAPEX (Rp bn) (847) (548) (1,053) (1,486) (1,963)
CAPEX/Sales 39% 18% 27% 30% 31%
FCF 634 1,619 849 933 344
CFO 1,368 2,103 1,891 2,362 2,258
50
08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
Pakuwon: Summary of Financials
Revenues 2,165 3,030 3,959 4,932 6,320 EBIT 1,067 1,516 1,689 2,077 2,403
EBITDA 1,209 1,709 1,941 2,420 2,869 Change in working capital 481 713 193 301 (179)
% change Y/Y 63.9% 41.3% 13.6% 24.7% 18.6% Taxes - - - - -
EBIT 1,067 1,516 1,689 2,077 2,403 Cash flow from operations 1,368 2,103 1,891 2,362 2,258
% change Y/Y 71.3% 42.1% 11.4% 23.0% 15.7%
EBIT Margin 49.3% 50.0% 42.7% 42.1% 38.0% Capex (847) (548) (1,053) (1,486) (1,963)
Net Interest (131) (73) (13) (67) (58) Disposal/(purchase) 0 1 0 0 0
Earnings before tax 936 1,433 1,676 2,010 2,345 Net Interest (131) (73) (13) (67) (58)
% change Y/Y 96.4% 53.1% 17.0% 20.0% 16.6% Other (100) (395) 0 0 0
Tax (135) (195) (231) (292) (374) Free cash flow 521 1,556 838 876 295
as % of EBT 14.4% 13.6% 13.8% 14.5% 15.9%
Net income (reported) 748 1,133 1,429 1,700 1,955 Equity raised/(repaid) 0 0 0 0 0
% change Y/Y 115.6% 51.4% 26.1% 19.0% 15.0% Debt raised/(repaid) 283 (164) (2,361) (1) (26)
% change Y/Y 115.6% 51.4% 26.1% 19.0% 15.0% Beginning cash 627 1,323 2,126 320 837
Ending cash 1,315 2,126 320 837 596
DPS 1.45 3.45 5.88 7.42 10.59
Cash and cash equivalents 1,315 2,126 320 837 596 EBITDA margin 55.8% 56.4% 49.0% 49.1% 45.4%
Inventories 963 1,051 1,220 979 536 Net margin 34.5% 37.4% 36.1% 34.5% 30.9%
Others 206 237 237 237 237
Current assets 2,709 3,710 2,119 2,443 1,827
LT investments 348 773 773 773 773 Sales growth 46.5% 39.9% 30.7% 24.6% 28.1%
Total Assets 7,566 9,298 8,508 9,975 10,856 EPS growth 115.6% 51.4% 26.1% 19.0% 15.0%
.
Liabilities Interest coverage (x) 9.2 23.4 153.1 36.1 49.6
Short-term loans 263 374 0 0 0
Payables 34 55 55 55 55 Net debt to equity 35.4% 7.0% (5.1%) (11.8%) (7.0%)
. ROE 29.1% 33.4% 32.1% 29.9% 27.6%
Long-term debt 2,162 2,041 54 52 26 ROCE 40.7% 54.1% 118.0% 3354.7% 5145.2%
Other liabilities 251 305 509 564 286
BVPS (Rp) 65.09 85.19 109.31 137.57 167.91
08 May 2014
Bumi Serpong Damai
Initiation
Neutral
BSDE.JK, BSDE IJ
Early stage of diversification; initiate with Neutral
Price: Rp1,565
Indonesia
Property
Felicia Tandiyono
AC
(62-21) 5291-8574
Aditya Srinath, CFA
(62-21) 5291-8573
Cusson Leung
(852) 2800-8526
Joy Wang
(65) 6882-2312
Limited
1,200
1,400
1,600
1,800
2,000
2,200
Rp

Price Performance
BSDE.JK share price (Rp)
JCI (rebased)
YTD 1m 3m 12m
Abs 18.6% -4.9% 1.6% -13.1%
Rel 6.2% -3.7% -7.3% -9.5%
Bumi Serpong Damai (Reuters: BSDE.JK, Bloomberg: BSDE IJ)
Revenue (Rp bn) 3,728 5,741 6,936 8,024 10,370
Net Profit (Rp bn) 1,286 2,691 2,685 2,725 2,625
EPS (Rp) 73.50 153.82 153.46 155.72 150.01
DPS (Rp) 10.00 15.00 30.76 30.69 38.93
Revenue growth (%) 32.8% 54.0% 20.8% 15.7% 29.2%
EPS growth (%) 53.0% 109.3% (0.2%) 1.5% (3.7%)
ROCE 136.0% 97.4% 83.7% 109.3% 108.8%
ROE 17.4% 29.7% 23.8% 20.2% 16.9%
P/E (x) 21.3 10.2 10.2 10.1 10.4
P/BV (x) 2.6 2.0 1.7 1.5 1.4
EV/EBITDA (x) 12.7 8.1 11.0 10.3 9.8
Dividend Yield 0.6% 1.0% 2.0% 2.0% 2.5%
Company Data
Price (Rp) 1,565
Free Float(%) -
JCI 4862.07
We initiate coverage of Bumi Serpong Damai (BSDE) with a Neutral
rating and Jun-15 PT of Rp1,500, at a 25% discount to our RNAV
estimate. BSDE last traded at a 23% and 26% discount to our FY14 and
FY15 RNAV estimates, respectively. We are positive on housing
development and the Jakarta lease retail outlook, but neutral on the Jakarta
lease office outlook, and negative on the apartment development outlook.
94% of our FY15 RNAV estimate comes from housing development,
which is mainly in BSD City, West Greater Jakarta. BSDE has no
significant exposure to high-rise developments, lease offices or lease retail.
The company is building exposure to other property segments, potentially
raising its exposure to investment property to 20% in the long term.
BSDEs business strategy. BSDEs management intends to add
diversification by adding other property segments and land bank
locations to the companys portfolio. The diversification is done through
land bank acquisitions and/or related-party entity acquisitions.
Risk-reward on diversification plan. We are concerned about the risk-
reward of diversifying into other property segments, other than housing
and Jakarta lease retail. However, we are positive about BSDEs plan to
acquire land in order to develop housing projects outside Java.
Main catalyst to watch. We believe related-party acquisition is the
fastest way, and likely to be the chosen method, for BSDE to diversify.
However, the main risk lies in the valuation assigned to the potential
assets or entities.
Valuation and price target. We initiate coverage of BSDE with a
Neutral rating. We set our Jun-15 PT at a 25% discount to our Jun-15
RNAV estimate. Our RNAV estimate uses DCF to value development
properties and applies a cap rate for investment properties.
52
08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
agreement for apartment project
Surabaya land acquisition plan completion
Lease retail executions: 1) Aeon mall BSD
City to open in 4Q14, 2) Turnaround of
Rasuna Epicentrum mall located in prime
Jakarta area
Increase stake up to majority ownership and
control in Plaza Indonesia Realty, which owns
Grade A+ mall in prime Jakarta area
Sizeable block-land sale in BSD City in 2014
Better-than-expected pre-sales from new
project launches
Related-party transaction valuation
Delay launching of apartment project in Rasuna
Epicentrum, prime Jakarta area
Dilution from additional 5% non-preemptive rights
issuance
Revenues (Rp bn) 5,741 6,936 8,024 10,370 Our Jun-15 PT of Rp1,500 is at a 25% discount to our Jun-15
RNAV estimate. Our PT assumes that BSDEs share price will
trade at one standard deviation above the average sector discount
to RNAV. Our RNAV estimate uses DCF to value development
properties, assuming 16.4% WACC, and applies a blended cap-
rate of 9.1% for investment properties.
Revenue growth (%) 54% 21% 16% 29%
EBITDA (Rp bn) 3,003 3,403 3,711 3,933
EBITDA margin (%) 52% 49% 46% 38%
Net profit (Rp bn) 2,691 2,685 2,725 2,625
EPS (Rp) 154 153 156 150
EPS growth (%) 109% 0% 1% -4% Share Price discount to RNAV (Rp)
DPS (Rp) 15 31 31 39
-
500
1,000
1,500
2,000
2,500
-2 SD -1 SD
BSDE share price Rp +1 SD
+2 SD
BVPS (Rp) 767 899 1,035 1,157
Operating cash flow (Rp bn) 3,708 4,045 3,877 3,812
Free cash flow (Rp bn) (787) 976 1,497 1,127
Net margin (%) 47% 39% 34% 25%
Sales/assets (X) 0.3 0.3 0.3 0.4
Debt/equity (%) 0.31 0.18 0.15 0.13
Net debt/equity (%) (0.02) (0.04) (0.09) (0.09)
ROE (%) 30% 24% 20% 17%
BSD City ASP growth 11% 9% 9% 9%
BSD City area sales growth 50% 0% 5% 5%
Office average rental rate growth 3% 3% 7% 7%
NA NA
153 156
segments) 0.0% 0.0% 0.0% 0.1% % chg
NA NA
Consensus 117 132
Source: J.P. Morgan estimates. Source: Bloomberg, J.P. Morgan.
Comparative metrics
Rating
Mkt Cap RNAV prem.(disc.) Inv.Prop./Gross RNAV P/E (development) YTD
$MM FY14E FY15E FY14E FY15E FY14E FY15E Stock perf.
BSDE N 2,371 -21% -24% 5% 6% 9.3 8.6 21%
CTRA OW 1,353 -53% -57% 4% 3% 8.5 7.6 37%
LPKR N 2,138 -8% -13% 11% 11% 12.8 21.3 18%
PWON N 1,460 -14% -22% 42% 45% 8.0 6.9 30%
SMRA OW 1,362 -54% -60% 19% 22% 10.6 10.0 40%
53
08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
Investment summary
We initiate coverage of BSDE with a Neutral rating and Jun-15 PT of Rp1,500. Our
Neutral rating on BSDE is due to our view that:
1. Plan to diversify into other property segments is negative in the short term.
We do not think adding exposure outside of housing developments and Jakarta
lease retail is positive at the moment. BSDEs plans to add exposure to other
property segments, i.e. high-rise developments in Jakarta, and industrial estates
and lease retail in Greater Jakarta, are likely to weigh on the companys balance
sheet and profitability in the near term.
2. Plan to diversify into other locations is positive. BSDEs plan to develop other
locations is positive, in our opinion. Adding development locations allows for
higher pre-sales growth. Other development locations allow BSDE to grow pre-
sales without putting too much pressure on pre-selling volume and prices in BSD
City, BSDEs flagship project.
3. The stock is fairly valued. BSDEs share price last traded at an 18% and 21%
discount to our 2014 and 2015 RNAV estimates, respectively, which does not
provide sufficient upside return nor downside potential for an OW or UW rating,
in our opinion. We expect BSDEs share price to stay range-bound for now,
unless a key catalyst emerges in the near term.
Investment risks
Key risk for BSDE is mainly coming from political and regulatory events which
partly influence the economic outcome and sentiment towards the property sector
(please refer to sector report for more details). There are two other main risks to our
BSDE investment thesis, i.e. more related-party transactions and a stake increase up
to majority ownership as well as control in Plaza Indonesia Realty.
We believe the market is likely to react negatively to any related-party transaction
news given BSDEs track record. BSDE has acquired stakes in related-party entities
since 2010; the transactions were historically done at an unattractive valuation, based
on our calculations. Most recently, BSDE acquired Epicentrum Walk from Bakrie in
Feb 2014. BSDEs investment cost for the 10,722sqm NLA was Rp297 billion,
implying a 3% cap-rate assumption, which is significantly below our grade-A mall
cap-rate assumption at 10%.
We believe sentiment can turn positive in the short term given land block sales news
in BSD City. Land block sales positively contributes to pre-sales and margin within
the year. We are likely to also be positive on the potential increase of ownership and
control in Plaza Indonesia Realty which owns the most premium mall in Jakarta,
assuming a fair-to-attractive valuation. BSDEs total cost for 34% ownership of
Plaza Indonesia Realty was Rp2.6 trillion, implying a 12% cap rate. The valuation
was attractive, in our view, considering the prime investment property assets owned
by Plaza Indonesia Realty.
Company description
BSDE was established in January
1984, started operating in 1989, and
was listed on the Indonesia Stock
Exchange in June 2008. BSDE is
owned by Sinarmas Land, which is
owned by Sinarmas group, founded
by the Widjaja family. One member of
the founding family is currently a
member of BSDE's Board of
Directors. BSDE acquired related-
party entities Duta Pertiwi, Sinar Mas
Wisesa and Sinar Mas Teladan in
2010. BSDEs main land bank and
project is BSD City, which is located in
west Greater Jakarta
Figure 69: RNAV: 2015E breakdown
Low-
rise,
94%
High-
rise,
0%
Office,
3%
Retail,
1%
Hotels
, 2%
Downside risks
Upside risks
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08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
Our Jun-15 price target of Rp1,500 is at a 25% discount to our Jun-15 RNAV
estimate. The 25% discount reflects our expectation of sector sentiment in 12
months time. We argue that property companies with high exposure to development
properties will trade at one standard deviation above the sectors average discount to
RNAV.
We estimate RNAV using:
rate assumes:
of leverage for BSDEs management
5% long-term growth rate, which is in line with the long-term inflation rate in
Indonesia
net effective rent. Our blended cap-rate is calculated from the weighted average
of:
8% cap-rate for lease office, in line with the current cap-rate for grade B offices
11% cap-rate for lease retail, in line with the current cap-rate for grade B malls
10% cap-rate for hotel, in line with the current cap-rate for grade B hotels
Table 25: BSDE: RNAV breakdown
Rp B 2014E 2015E
Low-rise 35,625 35,834
High-rise - 131
Office 997 1,030
Retail 85 414
Hotels 677 680
Others - -
Net cash (debt) + minority adj. (2,700) (1,989)
NAV 34,684 36,101
Low-rise 95% 94%
High-rise 0% 0%
Office 3% 3%
Retail 0% 1%
Hotels 2% 2%
Others 0% 0%
We set our PT at the sector
mean +1SD
55
08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
Our RNAV estimate is largely driven by BSDEs housing development, particularly
in BSD City. A delay or failure in the launch of housing projects is a downside risk
to our price target. Better-than-expected pre-sales achieved from launches in the next
12 months would be positive for our RNAV estimate.
Table 26: BSDE's PT sensitivity to changes in valuation assumptions
Rf -/+ 5.1%
Beta -/+ 0.5%
LT g +/- 1.9%
WACC -/+ 2.4%
Cap rate -/+ 0.3%
BSDE has mostly underperformed the JCI but has outperformed the property sector
index in the past year. BSDEs underperformance of the JCI was due to general
weakness in the property sector rather than to company-specific reasons, in our view.
Property sector weakness in 3Q FY13 and 4Q FY13 was mainly due to the negative
impact from BIs LTV policy issued in September 2013. Pre-sales momentum started
to slow in 4Q FY13 and slowed significantly in 1Q FY14.
1QFY14
others
2QFY14
Source: J.P. Morgan estimates, Company data, Bloomberg
Figure 70: BSDE share price performance versus JCI and Property sector index
40
50
60
70
80
90
100
110
120
130
BSDE JCI index Property sector index
Source: Bloomberg.
BSDE has generally outperformed the property sector index. We believe this is due
to BSDEs ability to deliver stronger pre-sales than did the sector in FY13. BSDE
sold a block of land to Hongkong Land as part of the companys residential joint
venture strategy.
56
08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
Land block sale was an unusual event. We believe BSDE share price performance
should be more in line with the sector as the market realizes that the possibility of a
similar-sized land block sale is unlikely to be repeated this year. There is low
visibility on whether land block sales of such a size can be repeated from 2015
onwards.
-50%
0%
50%
100%
150%
200%
250%
Sector pre-sales BSDE pre-sales
Source Company data.
Figure 72: BSDE: Share price discount to RNAV (Rp)
500
1,000
1,500
2,000
2,500
-1 SD BSDE share price Rp +1 SD
Company analysis
Management strategy
BSDEs management has been diversifying into other locations and other property
segment exposures since 2010. The diversification is done through the acquisition of
related-party entities or through land acquisitions. Valuations assigned to the
majority of past acquisitions were on the expensive side, in our view, which might
not benefit minority shareholders in the near term.
We think the rapid monetization of BSD Citys land bank is positive for cash
generation and pre-sales growth. This was first done through a 68ha land block sale
transaction to Hongkong Land, which contributed almost 20% to 2013 pre-sales. We
believe management is timely in adding development exposure in other parts of its
land bank as pre-sales growth is likely to slow down in BSD City, which is BSDEs
flagship project.
57
08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
Figure 73: BSDE: RNAV breakdown in 2013
96%
0% 3%
0%
2%
Low-rise High-rise Office Retail Hotels
Figure 74: BSDE: RNAV breakdown in 2018E
90%
3%
3%
1% 2%
Low-rise High-rise Office Retail Hotels
Location exposure
BSDEs property portfolio is mainly located in BSD City, Greater Jakarta area.
Figure 75: Map of BSDE's project locations
58
08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
Financial analysis
Income statement
We forecast -1% and 23% pre-sales growth for BSDE in 2014 and 2015,
respectively. Pre-sales for BSDEs housing developments are typically booked as
revenue at 1.5 years after completion. The revenue booking time-lag is shorter for
land sales, which typically can be booked in the quarter after the transaction is
completed.
The main revenue driver for BSDE is still pre-sales from BSD City. We estimate
around 75% of BSDEs development revenue is from BSD City sales. The
diversification effort will only translate into revenue in 2017 at the earliest, based on
our estimates.
-50%
0%
50%
100%
150%
200%
250%
-
1,000
2,000
3,000
4,000
5,000
6,000
1
Q
1
0
2
Q
1
0
3
Q
1
0
4
Q
1
0
1
Q
1
1
2
Q
1
1
3
Q
1
1
4
Q
1
1
1
Q
1
2
2
Q
1
2
3
Q
1
2
4
Q
1
2
1
Q
1
3
2
Q
1
3
3
Q
1
3
4
Q
1
3
1
Q
1
4
BSDE Quarterly pre-sales (Rp bn) Pre-sales growth YoY
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2011 2012 2013 2014E 2015E 2016E
We forecast gross profit margin to start to decline as the land block sales strategy is
unlikely to be sustainable. Land block sales are positive for short-term margins and
cash inflows; however, this is likely to depress long-term selling prices of the land
bank. BSDE is also diversifying into other property segments in other locations in
Indonesia, which we believe will post lower gross margins than BSD Citys
residential gross margin in its earlier phase.
GPM 64% 73% 72% 72% 63%
OPM 38% 51% 47% 41% 31%
EBITDA margin 40% 52% 49% 46% 38%
NIM 34% 47% 39% 34% 25%
Sales growth 33% 54% 21% 16% 29%
COGS growth 32% 17% 21% 19% 69%
EBITDA growth 45% 100% 13% 9% 6%
EBIT growth 47% 106% 11% 2% -2%
NI growth 53% 109% 0% 1% -4%
Land block sales supports
margin
59
08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
Balance sheet
We think the Rp2.75 trillion bond issuance in 2013 was timely given the opportunity
to acquire stakes in Plaza Indonesia Realty. BSDE might need external funding again
if a similar-sized opportunity recurs within the next 12 months, assuming no large
land block-sale transactions. BSDE has room to increase leverage if necessary within
the next 12 months.
-
0.05
0.10
0.15
0.20
0.25
0.30
'12 '13 '14E '15E '16E
Figure 79: Net cash/debt (Rp B)
-
500
1,000
1,500
2,000
2,500
3,000
'12 '13 '14E '15E '16E
-
20.00
40.00
60.00
80.00
100.00
120.00
140.00
160.00
180.00
Cash flow
We forecast around half of BSDEs capex within the next two years to be spent on
land acquisition, and the other half to be spent on preparing land for development.
We estimate the capex-to-sales ratio to decrease as the land to be acquired is mostly
located outside of BSD City. We have not assumed any further stake acquisition in
Plaza Indonesia Realty.
60
08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
Rp B FY12 FY13 FY14E FY15E FY16E
CAPEX (2,225) (4,504) (3,091) (2,436) (2,780)
CAPEX/Sales 60% 78% 45% 30% 27%
FCF 353 (787) 976 1,497 1,127
CFO 2,467 3,708 4,045 3,877 3,812
61
08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
Bumi Serpong Damai: Summary of Financials
Revenues 3,728 5,741 6,936 8,024 10,370 EBIT 1,412 2,910 3,234 3,311 3,252
EBITDA 1,502 3,003 3,403 3,711 3,933 Change in working capital 1,062 1,018 1,027 559 312
% change Y/Y 44.6% 99.9% 13.3% 9.1% 6.0% Taxes - - - - -
EBIT 1,412 2,910 3,234 3,311 3,252 Cash flow from operations 2,467 3,708 4,045 3,877 3,812
% change Y/Y 47.0% 106.0% 11.2% 2.4% (1.8%)
EBIT Margin 37.9% 50.7% 46.6% 41.3% 31.4% Capex (2,225) (4,504) (3,091) (2,436) (2,780)
Net Interest 116 (8) (24) (62) (106) Disposal/(purchase) 211 2 0 0 0
Earnings before tax 1,571 2,949 3,210 3,250 3,146 Net Interest 116 (8) (24) (62) (106)
% change Y/Y 42.6% 87.7% 8.9% 1.2% (3.2%) Other (367) (1,671) 0 0 0
Tax (218) (373) (361) (332) (327) Free cash flow 452 (794) 955 1,441 1,033
as % of EBT 13.9% 12.7% 11.3% 10.2% 10.4%
Net income (reported) 1,286 2,691 2,685 2,725 2,625 Equity raised/(repaid) 0 0 0 0 0
% change Y/Y 53.0% 109.3% (0.2%) 1.5% (3.7%) Debt raised/(repaid) 471 2,978 (1,330) (85) 0
% change Y/Y 53.0% 109.3% (0.2%) 1.5% (3.7%) Beginning cash 3,479 3,961 4,332 3,418 4,237
Ending cash 3,961 4,332 3,418 4,237 4,589
DPS 10.00 15.00 30.76 30.69 38.93
Others 313 519 519 519 519
Current assets 7,803 10,119 9,067 9,846 9,432
Net fixed assets 6,935 7,685 10,732 12,887 15,098 Net profit growth 53.0% 109.3% (0.2%) 1.5% (3.7%)
Total Assets 16,757 22,572 24,175 26,834 28,654 EPS growth 53.0% 109.3% (0.2%) 1.5% (3.7%)
.
Liabilities Interest coverage (x) NM 381.8 142.1 60.1 37.3
Short-term loans 91 1,330 85 0 479
Payables 178 96 96 96 96 Net debt to equity (26.9%) (1.8%) (4.2%) (8.6%) (9.4%)
. ROE 17.4% 29.7% 23.8% 20.2% 16.9%
Long-term debt 1,034 2,763 2,678 2,678 2,199 ROCE 136.0% 97.4% 83.7% 109.3% 108.8%
BVPS (Rp) 601.91 766.72 898.78 1,034.85 1,157.06
08 May 2014
Lippo Karawaci
Initiation
Neutral
LPKR.JK, LPKR IJ
Hospital versus developing property; Initiate with
Neutral
Price: Rp1,060
Price Target: Rp900
Indonesia
Property
Felicia Tandiyono
AC
(62-21) 5291-8574
Aditya Srinath, CFA
(62-21) 5291-8573
Cusson Leung
(852) 2800-8526
Joy Wang
(65) 6882-2312
Limited
800
1,200
1,600
2,000
Rp

Price Performance
LPKR.JK share price (Rp)
JCI (rebased)
YTD 1m 3m 12m
Abs 2.9% 2.9% 2.9% -26.4%
Rel -9.5% 4.1% -6.0% -22.8%
Lippo Karawaci (Reuters: LPKR.JK, Bloomberg: LPKR IJ)
Revenue (Rp bn) 6,160 6,666 11,848 13,080 14,079
Net Profit (Rp bn) 1,060 1,228 2,946 1,582 1,662
EPS (Rp) 46.48 53.94 127.66 68.57 72.03
DPS (Rp) 7.79 11.85 13.73 31.92 17.14
Revenue growth (%) 47.0% 8.2% 77.7% 10.4% 7.6%
EPS growth (%) 47.3% 16.1% 136.7% (46.3%) 5.0%
ROCE 26.6% 23.3% 33.0% 24.7% 37.0%
ROE 10.9% 10.5% 20.9% 10.0% 9.8%
P/E (x) 22.8 19.7 8.3 15.5 14.7
P/BV (x) 2.1 1.7 1.4 1.3 1.2
EV/EBITDA (x) 14.0 9.3 8.1 10.2 9.7
Dividend Yield 0.7% 1.1% 1.3% 3.0% 1.6%
Company Data
Price (Rp) 1,060
Free Float(%) -
JCI 4862.07
We initiate coverage of Lippo Karawaci (LPKR) with a Neutral rating and
Jun-15 PT of Rp900. LPKR last traded at 10%/14% discount to our FY14/
FY15 RNAV estimates. While we are positive on housing development
and Jakarta lease retail outlook, we are neutral on Jakarta lease office
outlook, and negative on apartment development outlook. Our RNAV
FY15 for LPKR is 69% driven by residential and industrial estate
development in Greater Jakarta and Cikarang, West Java, 5% driven by
apartment projects in Jakarta, 5% driven by lease retail and 15% driven by
hospital assets across Indonesia.
LPKRs business strategy. Management intends to return to its existing
landbank in order to generate pre-sales. This is besides the continuous
effort in expanding the hospital business in tier-2 and tier-3 cities in
Indonesia. Management also aims to grow lease retail assets; however,
the progress has been slow.
Trade-off development for hospitals. We believe LPKR is foregoing
capital and human resources in development properties to pursue its
hospital and lease retail ambitions. We think return and profitability on
the development properties was and will likely continue to be higher
than hospital and lease retail businesses.
Main catalyst to watch. We think the monetization of Kemang Village
lease retail in Jakarta to REIT is likely to be positive for LPKR's balance
sheet. We believe the cash will be used to pursue opportunities in other
development or investment properties.
Valuation and price target. We initiate on Lippo Karawaci (LPKR)
with a Neutral rating and our PT is set at a 25% discount to our Jun-15
RNAV estimate, which is calculated using DCF for development
properties and applying cap rate for investment properties.
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08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
Materialization of assets sale plan starting
2Q14E, hence booking one-off gain in 2014E
Pre-sales recovery as planned apartment
launches proceed in 2H14
Positive sentiment return on industrial estate,
which benefits subsidiary Lippo Cikarang
Meaningful land or project acquisitions to
add to development pipeline
High-rise building permit and town planning permit issues
IDR depreciation against USD
Valuation of asset sale to related-party REITs
Revenues (Rp bn) 6,666 11,848 13,080 14,079 LPKR PT at Rp900 is set at a 25% discount to our Jun15 RNAV estimate. Our
PT assumes that LPKRs share price will trade at one standard deviation above
the average sector discount to RNAV. The RNAV is derived using DCF
methodology for development properties assuming 15.3% WACC and applying
single cap-rate for investment properties assuming 11.3% blended cap-rate.
Revenue growth (%) 8% 78% 10% 8%
EBITDA (Rp bn) 2,282 3,626 3,113 3,618
EBITDA margin (%) 34% 31% 24% 26%
Net profit (Rp bn) 1,228 2,946 1,582 1,662
EPS (Rp) 53 128 69 72
EPS growth (%) 16% 140% -46% 5% LPKR RNAV discount to share price (Rp)
DPS (Rp) 12 14 32 17
-
500
1,000
1,500
2,000
2,500
-2 SD -1 SD
LPKR share price Rp +1 SD
+2 SD
BVPS (Rp) 614 746 803 881
Operating cash flow (Rp bn) (2,079) 2,384 1,523 1,719
Free cash flow (Rp bn) (2,553) 4,240 (35) 79
Net margin (%) 18% 25% 12% 12%
Sales/assets (X) 0.2 0.4 0.4 0.4
Debt/equity (%) 0.55 0.53 0.49 0.23
Net debt/equity (%) 0.42 0.14 0.18 0.20
ROE (%) 10% 21% 10% 10%
High-rise development ASP growth -14% 3% 35% 14%
High-rise floor sale growth 23% 77% -4% 12%
Growth of no. of owned hospital beds 24% 31% 7% 2%
Source: Company, J.P. Morgan estimates. Source: Bloomberg, Company and J.P. Morgan estimates.
NA NA
128 69
segments) 0.1% 0.3% 0.1% 0.3% % chg
NA NA
Consensus 71 75
Source: J.P. Morgan estimates. Source: Bloomberg, Company and J.P. Morgan estimates.
Comparative metrics
Rating
Mkt Cap
RNAV
prem.(disc.) Inv.Prop./Gross RNAV P/E (development) YTD
$Mn FY14E FY15E FY14E FY15E FY14E FY15E
BSDE N 2,339 -22% -25% 5% 6% 9.2 8.4 19%
CTRA OW 1,330 -53% -57% 4% 3% 8.5 7.6 35%
LPKR N 2,124 -10% -14% 11% 11% 12.7 21.3 16%
PWON N 1,514 -11% -19% 42% 45% 8.3 7.1 34%
SMRA OW 1,372 -54% -59% 19% 22% 10.7 10.0 40%
64
08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
Investment Summary
We initiate coverage on LPKR with a Neutral rating and Jun-15 PT of Rp900. Our
Neutral stance on LPKR is due to the following:
1. Hospital and lease retail ambition is short-term negative, long-term positive.
We believe LPKR is foregoing opportunities in property development and Jakarta
investment property, which provide better returns and profitability than building
hospitals and malls outside Jakarta. We think this strategy might benefit the
Lippo group at large, however it might not necessarily benefit LPKRs minority
shareholders. LPKRs balance sheet is the most leveraged compared to peers,
which means the company is least ready in competing for landbank and project
acquisitions among peers within the next 12 months.
2. Development property pipeline. We are positive on LPKR refocusing its efforts
on developing the Lippo Village landbank in Greater Jakarta. We are also
positive about managements plan to build and sell office space in prime Jakarta
area. However, we believe building permits might be an issue particularly for
high-rise plans in Jakarta. A delay or failure in obtaining permits is likely to
disappoint pre-sales expectations, in our opinion.
3. Fairly valued. LPKR's share price last traded at 10% and 14% discount to our
2014 and 2015 RNAV estimates, which does not provide sufficient potential
upside return or downside potential, in our opinion. We expect LPKRs share
price to be range-bound for now, unless a key catalyst emerges in the near term.
Investment risks
We believe the key risk for LPKR is mainly political and regulatory events, which
partly influence economic outcomes and sentiment towards the property sector
(please refer to the Sector report for more details). Two other main risks to our
investment thesis, i.e. high rise building permit issuance and potential sentiment
returns on industrial estate.
LPKR has not secured building permits for its 2 high-rise projects in Jakarta, which
is estimated to contribute to 30% of pre-sales in 2014. We think the more the delay in
procuring building permits, the greater the likelihood for potential delays in project
launches. We also expect higher costs of building permits for projects.
We think the current market conditions might pose greater risks for Singapore REITs
in general in obtaining funding for asset purchases. This might also pose another
downside risk for LPKR, regarding its lease retail monetization plan.
We think there is greater potential upside for LPKRs subsidiary Lippo Cikarang
with a potentially more reformist new government that supports FDI sentiment.
Lippo Cikarang has been LPKR's pre-sales growth driver in recent years with 2013
as an exception. Infrastructure construction and further landbank acquisition in
Cikarang is needed to ensure pre-sales growth, in our view.
Company description
LPKR was established in
October 1990 under the name
of PT Tunggal Reksakencana,
began operations in 1993 and
was listed on the Jakarta Stock
Exchange in June 1996. LPKR
is owned by the Lippo group,
founded by Riyadi family.
LPKR acquired and merged
with several Lippo group
companies in July 2004. The
companys main landbank is
located in Cikarang, West
Java, owned under the
subsidiary Lippo Cikarang.
LPKRs main projects are
currently spread across several
property segments and
locations in Indonesia.
Low-
rise,
69%
High-
rise,
5%
Office,
0%
Retail,
5%
Hotels
, 7%
Hospit
als,
15%
Downside risk
Delay in Building permits
Upside risk
Cikarang development
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Our Jun15 price target of Rp900 is set at a 25% discount to our Jun15 RNAV
estimate. We apply a 10% discount to our Jun 2015 RNAV estimate to reflect the
sector sentiment in 12 months time. We argue that property companies with high
exposure in development properties will trade at one standard deviation above the
sector's average discount to RNAV.
Our LPKR RNAV is calculated using:
DCF methodology for development properties. We assume 15.3% WACC on net
cash flow after sales tax generated from development activities. Our WACC rate
assumes:
50:50 debt to equity, which reflects what we believe is the comfortable level of
leverage for LPKR
8% risk free rate, which is in line with Indonesia 10-year bond yield
1.4x beta, which is a historical 2-year average beta
5% long-term growth rate, which is inline with long-term inflation rate in
Indonesia
net effective rent. Our blended cap-rate is calculated from weighted-average of
11% cap-rate for lease retail, inline with current cap-rate for grade B malls
10% cap-rate for hotel, inline with current cap-rate for grade B hotels
Figure 82: LPKR's RNAV breakdown
Rp bn 2014E 2015E
Low-rise 15,661 21,736
High-rise 6,593 1,665
Office - -
Retail 1,325 1,501
Hotels 1,935 2,062
Others 3,797 4,725
Net cash (debt) + minority adj. (2,451) (3,426)
NAV 26,860 28,263
Low-rise 53% 69%
High-rise 22% 5%
Office 0% 0%
Retail 5% 5%
Hotels 7% 7%
Others 13% 15%
Our LPKRs RNAV is largely driven by its low-rise development, comprising
apartment development and Lippo Cikarang development. A delay or failure in
launching any housing projects creates a downside risk to our price target. A better
PT is set at sector mean +1SD
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than expected pre-sales achieved from the launches within the next 12 months will be
positive for our LPKRs 2015 RNAV estimate.
Table 30: LPKR's PT sensitivity to change in valuation assumptions
Rf -/+ 3.9%
Beta -/+ 0.9%
LT g +/- 2.0%
WACC -/+ 2.9%
Cap rate -/+ 1.6%
LPKR's share price performance has mostly underperformed the JCI but relatively in
line with the property sector index in the past one year. LPKR's stock
underperformance to JCI was due to general weakness in the property sector rather
than due to company-specific reasons, in our view.
Property sector weakness in 3QFY13 and 4QFY13 was mainly due to the negative
1QFY14
others
2QFY14
Source: J.P. Morgan, Company data, Bloomberg
Figure 83: LPKR share price performance versus JCI and Property sector index
40
60
80
100
120
140
160
LPKR JCI index Property sector index
Source: Bloomberg.
In 3QFY13, LPKRs share price outperformed the property sector index as well as
the JCI the most. We think this period coincides with the listing of LPKRs
subsidiary, Siloam International Hospital, which manages its hospital assets. The
listing provided LPKR with cash needed to materialize its hospital ambitions.
Underperformed JCI by 20% in
last 1 year
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-40%
-20%
0%
20%
40%
60%
80%
Sector pre-sales LPKR pre-sales
Source: Company data
Figure 85: LPKRs RNAV discount to share price
200
700
1,200
1,700
2,200
-1 SD LPKR share price Rp +1 SD
Source: J.P. Morgan estimates, Company data
Company analysis
Management strategy
LPKR management has been growing hospitals with the intention to monetize the
assets to related-party REITs once the hospital assets EBITDA stabilizes in three to
five years. Management aims at growing the companys lease retail exposure at a
similar rate to hospitals; however, we believe its execution has lagged due to balance
sheet constraints.
Managements recent strategy is to focus more on developing projects in existing
landbank or locations owned. It is guiding for a more aggressive pre-sales target in
Lippo Village housing projects located in Greater Jakarta and Lippo Cikarang in
West Java. We think this strategy is chosen in order to maintain annual pre-sales as
LPKR has not acquired significant landbank to replace Kemang Village and St.
Moritz mixed-use development projects this year.
Figure 86: LPKR RNAV breakdown in 2013
53%
20%
0%
4%
6%
17%
Source: J.P. Morgan estimates, Company data; Note: Others = hospitals
Figure 87: LPKR RNAV breakdown in 2018E
99%
-32%
0%
5%
6%
22%
Source: J.P. Morgan estimates; Note: Others = hospitals
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Location exposure
LPKRs development portfolios are spread across 5 locations in Indonesia.
Exposures in other locations are mainly in hospitals.
Figure 88: Map of LPKR's project locations
Financial analysis
Income statement
We forecast 68% and 28% pre-sales growth for LPKR in 2014 and 2015. Pre-sales
for LPKR's low-rise developments are typically booked as revenue after one year lag
on average. Revenue bookings of industrial land sales are faster than housing sales
because industrial estates do not require much development preparation nor
construction.
The main revenue drivers for LPKR are from residential, industrial pre-sales and
hospital revenues. We categorize one-off asset sales as development revenue, hence
the 18% higher contribution from development revenue in 2014 versus 2013.
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-40%
-20%
0%
20%
40%
60%
80%
100%
-
500
1,000
1,500
2,000
2,500
3,000
3,500
1
Q
1
0
2
Q
1
0
3
Q
1
0
4
Q
1
0
1
Q
1
1
2
Q
1
1
3
Q
1
1
4
Q
1
1
1
Q
1
2
2
Q
1
2
3
Q
1
2
4
Q
1
2
1
Q
1
3
2
Q
1
3
3
Q
1
3
4
Q
1
3
1
Q
1
4
LPKR Quarterly pre-sales (Rp bn) Pre-sales growth YoY
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2011 2012 2013 2014E 2015E 2016E
Development Investment Others
We forecast gross profit margin to start to decline in 2014 and 2015 due to hospital
business operation and increase in high-rise development booking. We estimate the
early phase of hospital assets typically generate at least 10% lower EBITDA margin
from its full potential margin. The rising construction costs, especially for high-rise
development in the past 12 months, are likely to pressure margins as well.
GPM 46% 46% 42% 35% 39%
OPM 25% 29% 28% 21% 22%
EBITDA margin 30% 34% 31% 24% 26%
NIM 17% 18% 25% 12% 12%
Sales growth 47% 8% 78% 10% 8%
COGS growth 46% 8% 89% 23% 2%
EBITDA growth 53% 22% 59% -14% 16%
EBIT growth 58% 25% 71% -17% 13%
NI growth 50% 16% 140% -46% 5%
Balance sheet
LPKR's balance sheet is affected by IDR/USD exchange rate movement. The
company has US$653mn USD denominated bond as of December 2013. We believe
the reason for the recent increase of borrowing appetite is likely due to slower than
expected monetization of hospital assets to REITs hence slower access to cash.
We think LPKR is least positioned versus its peers to consider any sizeable landbank
or project acquisition. This might negatively affect LPKR's development projects
pipeline in three years time, in our view.
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(0.45)
(0.40)
(0.35)
(0.30)
(0.25)
(0.20)
(0.15)
(0.10)
(0.05)
-
'12 '13 '14E '15E '16E
(7,000)
(6,000)
(5,000)
(4,000)
(3,000)
(2,000)
(1,000)
-
'12 '13 '14E '15E '16E
-
10
20
30
40
50
60
Cash flow
We expect capex to be comfortably financed by existing financing. We think capex
to sales ratio may slow as monetization of hospital assets has not been as fast as
predicted by the company.
Figure 94: Cash flow key items
CAPEX (Rp bn) (2,225) (4,504) (3,091) (2,436) (2,780)
CAPEX/Sales 60% 78% 45% 30% 27%
FCF 353 (787) 976 1,497 1,127
CFO 1,289 (2,079) 2,384 1,523 1,719
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Lippo Karawaci: Summary of Financials
Revenues 6,160 6,666 11,848 13,080 14,079 EBIT 1,549 1,943 3,330 2,775 3,126
EBITDA 1,878 2,282 3,626 3,113 3,618 Change in working capital 222 (3,401) (275) (850) (972)
% change Y/Y 53.5% 21.5% 58.9% (14.1%) 16.2% Taxes - - - - -
EBIT 1,549 1,943 3,330 2,775 3,126 Cash flow from operations 1,289 (2,079) 2,384 1,523 1,719
% change Y/Y 57.6% 25.4% 71.4% (16.7%) 12.6%
EBIT Margin 25.1% 29.1% 28.1% 21.2% 22.2% Capex (952) (1,311) (1,566) (1,762) (1,976)
Net Interest 2 (27) (504) (253) (414) Disposal/(purchase) 468 815 3,000 0 0
Earnings before tax 1,577 1,925 2,826 2,522 2,711 Net Interest 2 (27) (504) (253) (414)
% change Y/Y 60.1% 22.0% 46.8% (10.7%) 7.5% Other (1,221) (84) 0 0 0
Tax (254) (332) (463) (488) (512) Free cash flow 805 (2,575) 3,818 (239) (257)
as % of EBT 16.1% 17.3% 16.4% 19.3% 18.9%
Net income (reported) 1,060 1,228 2,946 1,582 1,662 Equity raised/(repaid) (155) 0 0 0 0
% change Y/Y 49.7% 15.8% 139.9% (46.3%) 5.0% Debt raised/(repaid) 1,880 113 1,273 0 (4,451)
Shares outstanding 22,812 22,772 23,078 23,078 23,078 Other (11) 1,299 0 0 0
% change Y/Y 47.3% 16.1% 136.7% (46.3%) 5.0% Beginning cash 2,175 3,337 1,855 6,629 5,654
Ending cash 3,337 1,855 6,629 5,654 551
DPS 7.79 11.85 13.73 31.92 17.14
Cash and cash equivalents 3,337 1,855 6,629 5,654 551 EBITDA margin 30.5% 34.2% 30.6% 23.8% 25.7%
Accounts receivable 594 772 1,372 1,514 1,630 Operating margin 25.1% 29.1% 28.1% 21.2% 22.2%
Others 439 714 714 714 714
Current assets 19,479 24,013 29,292 27,837 23,714
Net fixed assets 3,152 4,422 5,707 6,945 8,323 Net profit growth 49.7% 15.8% 139.9% (46.3%) 5.0%
Total Assets 24,869 31,300 35,780 36,147 33,506 EPS growth 47.3% 16.1% 136.7% (46.3%) 5.0%
.
Liabilities Interest coverage (x) NM 85.4 7.2 12.3 8.7
Short-term loans 16 17 0 0 0
Payables 576 398 398 398 398 Net debt to equity 23.3% 42.0% 14.2% 18.5% 20.1%
. ROE 10.9% 10.5% 20.9% 10.0% 9.8%
Long-term debt 5,998 7,791 9,080 9,080 4,630 ROCE 26.6% 23.3% 33.0% 24.7% 37.0%
BVPS (Rp) 497.02 614.34 746.35 802.60 880.75
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Companies Discussed in This Report (all prices in this report as of market close on 07 May 2014)
Bumi Serpong Damai (BSDE.JK/Rp1565/Neutral), Ciputra Development (CTRA.JK/Rp1020/Overweight), Lippo Karawaci
(LPKR.JK/Rp1060/Neutral), Pakuwon (PWON.JK/Rp361/Neutral), Summarecon (SMRA.JK/Rp1115/Overweight)
Analyst Certification: The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple research
analysts are primarily responsible for this report, the research analyst denoted by an AC on the cover or within the document
individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views
expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of
any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views
expressed by the research analyst(s) in this report. For all Korea-based research analysts listed on the front cover, they also certify, as per
KOFIA requirements, that their analysis was made in good faith and that the views reflect their own opinion, without undue influence or
intervention.
Important Disclosures
Client: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: Lippo Karawaci.
Client/Non-Investment Banking, Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following
company(ies) as clients, and the services provided were non-investment-banking, securities-related: Lippo Karawaci.
Non-Investment Banking Compensation: J.P. Morgan has received compensation in the past 12 months for products or services
other than investment banking from Lippo Karawaci.
Company-Specific Disclosures: Important disclosures, including price charts, are available for compendium reports and all J.P. Morgan
covered companies by visiting https://jpmm.com/research/disclosures, calling 1-800-477-0406, or e-mailing
research.disclosure.inquiries@jpmorgan.com with your request. J.P. Morgans Strategy, Technical, and Quantitative Research teams may
screen companies not covered by J.P. Morgan. For important disclosures for these companies, please call 1-800-477-0406 or e-mail
research.disclosure.inquiries@jpmorgan.com.
Date Rating Share Price
(Rp)
Price Target
(Rp)
24-Feb-12 OW 645 1900
12-Apr-12 OW 810 2100
03-Oct-12 OW 845 2300
31-Oct-12 OW 860 2500
29-Jul-13 NR 1000 --
0
418
836
1,254
1,672
2,090
2,508
Price(Rp)
Feb
09
Nov
09
Aug
10
May
11
Feb
12
Nov
12
Aug
13
May
14

Summarecon (SMRA.JK, SMRA IJ) Price Chart
OW Rp2,100 OW Rp2,500
OW Rp1,900 OW Rp2,300 NR
Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.
Initiated coverage Feb 24, 2012.
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Felicia Tandiyono
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(Rp)
Price Target
(Rp)
21-Aug-07 OW 350 500
15-Nov-07 OW 390 575
25-Feb-08 OW 350 550
29-May-08 OW 250 300
15-Aug-08 UW 250 220
17-Dec-08 OW 81 162
14-Feb-09 OW 168 385
24-Jun-09 OW 330 500
31-Aug-09 OW 380 550
14-Jan-10 OW 335 500
16-Mar-10 OW 360 525
22-Jul-10 OW 365 505
10-Nov-10 OW 370 495
01-May-12 OW 780 860
29-Jul-13 NR 1190 --
0
466
932
1,398
1,864
2,330
2,796
Price(Rp)
Jun
07
Dec
08
Jun
10
Dec
11
Jun
13

Ciputra Development (CTRA.JK, CTRA IJ) Price Chart
UW Rp220
OW Rp575 OW Rp300OW Rp385 OW Rp550 OW Rp525
OW Rp500 OW Rp550OW Rp162.5 OW Rp500 OW Rp500 OW Rp505 OW Rp495 OW Rp860 NR
Initiated coverage Aug 21, 2007.
0
98
196
294
392
490
588
686
Price(Rp)
Apr
11
Jul
11
Oct
11
Jan
12
Apr
12
Jul
12
Oct
12
Jan
13
Apr
13
Jul
13
Oct
13
Jan
14
Apr
14

Pakuwon (PWON.JK, PWON IJ) Price Chart
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08 May 2014
Felicia Tandiyono
(62-21) 5291-8574
(Rp)
Price Target
(Rp)
25-Feb-08 OW 700 770
27-Mar-08 N 800 730
09-Jul-08 N 730 770
18-Dec-08 N 760 790
24-Jun-09 N 680 750
25-Aug-09 OW 660 840
14-Jan-10 OW 560 850
16-Mar-10 OW 520 830
30-Jul-10 OW 485 800
21-Mar-12 OW 710 900
29-Jul-13 NR 1310 --
The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire
period.
J.P. Morgan ratings or designations: OW = Overweight, N= Neutral, UW = Underweight, NR = Not Rated
Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe:
J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the
average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Neutral [Over the next six to twelve
months, we expect this stock will perform in line with the average total return of the stocks in the analysts (or the analysts teams)
coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of
the stocks in the analysts (or the analysts teams) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if
applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy
reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a
recommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stocks expected total return is
compared to the expected total return of a benchmark country market index, not to those analysts coverage universe. If it does not appear
in the Important Disclosures section of this report, the certifying analysts coverage universe can be found on J.P. Morgans research
website, www.jpmorganmarkets.com.
0
516
1,032
1,548
2,064
2,580
3,096
3,612
Price(Rp)
Apr
11
Jul
11
Oct
11
Jan
12
Apr
12
Jul
12
Oct
12
Jan
13
Apr
13
Jul
13
Oct
13
Jan
14
Apr
14

Bumi Serpong Damai (BSDE.JK, BSDE IJ) Price Chart
0
485
970
1,455
1,940
2,425
2,910
Price(Rp)
Oct
06
Apr
08
Oct
09
Apr
11
Oct
12
Apr
14

Lippo Karawaci (LPKR.JK, LPKR IJ) Price Chart
N Rp730 OW Rp840 OW Rp830
OW Rp770 N Rp770 N Rp790 N Rp750 OW Rp850 OW Rp800 OW Rp900 NR
Initiated coverage Feb 25, 2008.
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J.P. Morgan Equity Research Ratings Distribution, as of March 31, 2014
Overweight
(buy)
Neutral
(hold)
Underweight
(sell)
J.P. Morgan Global Equity Research Coverage 44% 44% 11%
IB clients* 58% 49% 40%
JPMS Equity Research Coverage 45% 48% 7%
IB clients* 78% 67% 60%
*Percentage of investment banking clients in each rating category.
For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold
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Felicia Tandiyono
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Copyright 2014 JPMorgan Chase & Co. All rights reserved. This report or any portion hereof may not be reprinted, sold or
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Felicia Tandiyono
(62-21) 5291-8574

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