Summarecon Agung - Solid progress (SMRA-BUY-IDR1,130-TP:1,450) - Bahana

Ytd marketing sales reached IDR730b or 32% of full year expectation
Based on our latest conversation with management, SMRA has booked around IDR730b marketing sales Ytd, some 32% of 2011 company’s marketing sales target of IDR2.3t. After its success to sell 73 units of land plots worth IDR200b in Serpong last month, SMRA has launched 98 units shop houses in Bekasi this month, located at the main road of Summarecon Bekasi, bringing additional total marketing sales of IDR200b. It is interesting to note that the company has priced the land for shop house/commercial at substantial premium (200%) to that of for residential (exhibit 8).

More property launches coming up, selling at premium
SMRA plans more launches in the coming months. Recently, SMRA has introduced apartment units in Serpong with the average price per unit starting from IDR250m, targeted to the students of Universitas Multimedia Nusantara, home of 3,000 students. Next month, new apartment towers in Kelapa Gading will be launched at IDR12m/sqm selling price. Moving to 2H11, the company will sell land plots in Grand Orchard (Kelapa Gading) with 15% premium to previous prices in 2010, capitalizing its developed road infrastructure. At the same time, 3 residential clusters in Serpong and Bekasi will be chipping in to SMRA’s 2H11 marketing sales.

2011-12 bottom line to move ahead at CAGR of 33%
We estimate 2011-12 revenue to reach IDR2t and IDR2.4t, up 21% and 19% y-y on higher selling volume and selling prices coming mainly from housing, shop houses and land plots. Recurring incomes, which contribute 25 to 29% to 2011-12 revenue, will grow 7% and 11% y-y in 2011-12 stemming from additional revenue of Harris Hotel (Kelapa Gading) and rental rates adjustment in existing retail malls and commercial areas. We estimate 2011-12 gross margins of 44.6% and 45.7% following the expected higher input materials prices and extensive cost of infrastructure development. Despite the fact, SMRA’s improved operating efficiency would support operating margin to continue expanding to reach 24.2% and 25.2% in 2011 and 2012 respectively, from 22.3% in 2010, paving the way 2011-12 bottom lines to move ahead at CAGR of 33%.

Strong sales to continue; Reiterating BUY rating with TP of IDR1,450
SMRA has proven track record amid volatilities in the property market, stemming from its strong sales and balance recurring contribution to its operating profit. It also has the capability to maintain its product quality and create repeat and loyal buyers, which has enjoyed the gain of developed property products in its township development. We expect strong sales combined with solid fundamental will support share price out performance (exhibit 5) going forward. We maintain SMRA as our second top pick after ASRI as we expect SMRA is likely to book higher than the industry’s average EPS growth of 28%. With 32% upside potential from our discount-to-NAV TP of IDR1,450, we reiterate our BUY call on the counter.