Summarecon Agung - Upgrade to Buy – Looks Inexpensive After Market Correction; Transfer of Coverage - Citigroup

Transfer of coverage X We hereby transfer coverage responsibility for Summarecon Agung shares to Steve Wirawan from Alex Wreksoremboko, who has left Citi.

ޠUpgrade to Buy after recent price decline X We upgrade our rating from Sell (3M) to Buy (1M) following the recent share price decline (-19% in the past one month) amid broad-based foreign outflows. Current discount to NAV/share has plunged to historical mean of 54% vs. 38% two months ago. Meanwhile share price has underperformed the index by 13% and its peers by 1% YTD.

ޠAttractively priced X We reiterate our target price of Rp1,113 as we believe net asset value remains unchanged and still reflects current market valuation. Our TP suggests a 28.9% upside (including 0.9% dividend yield) assuming a target discount to NAV of 40% from the current 54%.

ޠRobust growth still intact in 2011E X We believe that marketing sales this year will grow 33%y-y to Rp2,895bn as the company launches more clusters, while also supported by the 2010 sales backlog. Some portion of sales in 2010 were delayed due to a lag in sales booking as homebuyers typically require 1-2 months to sign their purchase agreements.

ޠSmall impact of BI rate hikes on sales X We believe the impact of BI rate hikes will be minimal given that 30% of revenues are generated from recurring income and only 50% of homebuyers use mortgages. Major banks also have ample liquidity to continue to provide loans. We believe major banks will only begin to reassess when the BI rate reaches 8%. The current spread between mortgage rate and BI rate stands at 325bps, which is still wide compared to the high inflation
period in mid-2008 at 100bps