Alam Sutera Realty (ASRI IJ; BUY; TP IDR 400): Stellar 1Q11 Showing - OSK

ASRI’s 1Q11 net profit expanded 2.5 times to IDR 159bn, slightly above our and consensus expectation, thanks to a 97.5% y-o-y and 140.7% q-o-q surge in revenue to IDR 405bn. Some 89% of the company’s revenue came from sales of its residential properties. The value of its properties, which may appreciate owing to their direct access to the Jakarta-Merak toll road, could also bolster gross and net margins to 52% and 39% respectively.

Additional 6.1ha in Bali. The company recorded a cash outflow of IDR 221bn, being cash paid as advance for land purchases, including land in South Denpasar, Bali bought at 61,364 sq m for IDR 199.4bn, equivalent to IDR 3.25m/sq m. It also obtained the licence to build condotels, but on 5 Jan 2011, Bali’s governor slapped a moratorium on hotel developments in Denpasar, Badung and Gianyar up to 2015. As ASRI’s licence will expire within a few years, it may consider selling the land. Since the sale price for property facing the sea in Bali could reach IDR4-5m per sq m, the company may be able to at least fetch a 20% gross margin.

Strong profits. The company’s FY11f revenue booking will come mainly from the 2010 pre-sales of IDR 1.6trn. Although some 63% of its FY10 pre-sales is from residential properties where margins are 7% lower than the 58% garnered from commercial sales, we believe that it should be able to maintain gross margin at above 50% considering that the 1Q11 gross margin from housing reached 51% versus 30% in 1Q10. Also, the company still holds advances from customers totaling IDR 1.5trn in 1Q11 which is potential accounting revenue. Elsewhere, ASRI has net cash of IDR 46bn.

May pre-sales hit IDR 852bn. This is up by 7% y-o-y, making up 50% of our FY11f pre-sales target of IDR 1.7trn. Some 71% of the pre-sales is from residential sales, with the remainder from commercial and apartment sales. The selling price of land for residential development is currently at IDR 5.2m/sq m, doubling from IDR 2.6m/sq m in FY09. Around 9ha has been sold and we expect another 11ha in Serpong and 20ha from Pasar Kemis to be sold up to the end of this year.

Maintain BUY, TP 400. We remain conservative and keep our forecasts intact even though the 1Q11 results already reached 32% of our FY11f. Our TP is also held steady at IDR 400 per share since the additional 6.1ha in acquired in Bali – bought in exchange for ASRI’s 41ha in Cikarang, Bekasi (valued at IDR 59.6bn) - only enhanced the company’s NAV by 1%. As such, we believe that the demand for more affordable housing in the fringes of Jakarta will remain strong as among Indonesia’s 61m families out of a total population of 240m, some 22% still live with their parents or are still renting a house.