Summarecon Agung - Growing - (SMRA-BUY-IDR1,200-TP:IDR1,450) - Bahana

Raised net earnings by 3-4% in 2011-12 following 4Q10 results
Adjusting for the release of 4Q10 results of Summarecon Agung (SMRA), we have increased 2011-12 top line by 4-5% and bottom line by 3-4% over the same period. The company reported 28% q-q revenue growth stemming from houses/plots and shop houses. While SMRA reported lower 4Q10 margins across the board resulting from 50% q-q higher 4Q10 COGS on the back of infrastructure development for its new project in Bekasi, the company’s earnings were still above our expectations. Hence, we have increased our operating profit by 7-9% in 2011-12. High interest income coupled with less interest expense brought 2010 net margin to remain relatively flat at 13.8% from 14% in 2009.

2011 revenue +21.3% y-y; Operating margin expansion ahead
We estimate 2011 revenue to reach IDR2t (+21.3% y-y) with major contribution from housing, shop houses and land plots (IDR1.45t). Recurring revenue, which contributes 29% to 2011 revenue, will grow 7% y-y coming from additional revenue of Harris Hotel (Kelapa Gading) of IDR47b and rental rates adjustment in existing retail malls and commercial areas. Taking into account higher materials prices and more infrastructure developments this year, we estimate 2011-12 gross margins to increase slightly to 44.6% and 45.7% respectively. However, we think 2011-12 operating margin has more room to expand to 24.2% and 25.2% on greater efficiencies, we believe. This will pave the way for 2011 bottom line to grow to IDR307b, up 31%y-y.

IDR510b marketing sales ytd, 22% of 2011 target
By 3M11, SMRA had launched two strips of shop houses in Kelapa Gading and Serpong and booked total marketing sales of IDR330b. Recently, the company launched Golf View land plots in Serpong, Cluster Tiara with 20% higher selling price and estimated total marketing sales of IDR180b. Overall, the company booked total marketing sales of IDR510b Ytd, some 22% of the company’s total 2011 target of IDR2.3t.

Growing sales to support earnings growth; Reiterate BUY
SMRA, in recent years, has a proven track record to sustain performance amid volatilities in the property market, helped by its balanced recurring contribution. That said, we expect the company’s share price to maintain its outperformance (exhibit 5) and reach our target price of IDR1,450 (21% upside potential) on a 12M view. Based on our estimate, the stock is trading on 33.5% discount to its NAV. SMRA is our second top pick among property counters under our coverage. The company has the second highest organic growth after ASRI with 2011 EPS growth of 28%, which is higher than sector average of 25%. With 852ha land bank reserves, 10% debt to asset ratio and high ROAE of 13.5% (sector 8.6%), we reiterate our BUY recommendation on the counter.