Indonesian Property - 4Q10 results remain strong - MACQUARIE RESEARCH

Event
§ The Indonesian property companies have reported their 4Q10 results, in which net profit grew 42% yoy and 11% qoq, helped by better 4Q10 performance, as well as higher than expected margins. As a result, FY10 net profit exceeded our expectations by 19%. Operationally, we believe that the companies remain strong as gross margins remain healthy and the sector is in a net cash position. We maintain our Overweight on the sector, with Alam Sutera and Summarecon Agung our top picks.

Impact
§ FY10 results exceeded our expectations by 19%. This is because the 3 companies below reported better than expected net margins:
o Ciputra Development: higher than expected 4Q10 revenues due to Ciputra World Jakarta condominium recognition; higher net margins due to gain from investment sales and reduced forex exposure.
o Bakrieland Development: higher 4Q10 revenue from high rise projects, higher interest income due to gain in derivative transactions, and lower than expected interest expense due to capitalization.
o Lippo Karawaci: the recognition of Rp145bn extraordinary profit in 4Q10 as fees for arranging third party asset sales.
Two other companies under our coverage, Alam Sutera and Summarecon Agung, reported net profit in line with our expectations.

§ Operations remain strong, reflected in gross margins. The sector's 4Q10 gross margin of 45% is better than our expectation of 41%. The sector gross margin did drop, from 50% in 3Q10 to 45% in 4Q10, mainly because of declining margins at Alam Sutera, Bakrieland, and Summarecon. However, we view this positively, since the current margin level is healthier than before, which indicates an improved revenue mix: Alam Sutera and Summarecon is recognizing more landed houses than landplots, while Bakrieland is delivering more condominiums which should drive value further for its CBD project.

§ The sector is currently in a net cash position. All developers, except Bakrieland, had a net cash position by December 2010. This is helped by strong FY10 pre-sales for the sector, which grew 62% yoy, as well as a capital raising in 4Q10 by Lippo Karawaci. Thus, we believe that the sector still has flexibility to gear up for future development

Outlook
§ We maintain our Overweight recommendation on the sector. The sector is currently trading at a 51% discount to NAV. We remain positive on the sector as the pre-sales track record remains strong in the first 2 months of this year. We also remain comfortable in our FY11 earning forecasts, because the majority of revenue will be the recognition of 2010 pre-sales