SMRA Decent Value for Sound Fundamental - Indopremier

The company is fundamentally solid and set for new round of major investment. It is expected to assume higher leverage for the investment but balance sheet shall remain strong at 0.96 D/E ratio bands. RNAV valuation guides for BUY with decent 14.41% upside potential and TP of Rp 1,350.

Competently Planned Development
SMRA organizes the development four townships to go into different phases with Kelapa Gading focus on vertical construction, Serpong goes for landed residential, Bekasi with new mall and finally Bandung Gedebage doing land bank acquisition. This endeavor is a positive effort to balance marketing sales, recurring income and capital expenditure.

Gearing Up for Land Acquisition and Capital Expenditure
The company shall need approximately IDR 3 trillion for land acquisition in Bandung Gedebage and capital expenditure for office and apartment in Kelapa Gading, Mall in Bekasi and Serpong as well as residential in Serpong. With only IDR ~1 trillion cash on balance sheet, we anticipate an increase in leverage over the next two years to fund the development, yet it still within acceptable debt to equity ratio of 0.96.

Strong Marketing Sales Amid Cyclical Industry
Since 2006 to 2010, marketing sales has experienced solid growth by 38.89% CAGR. Going forward we forecast steady growth in marketing sales despite at lower 15-20% rate. Anchoring on Q1-2011 reported sales is IDR 660, we anticipate year-end figure to reach IDR 2.27 trillion.

BUY with 14.41% upside potential and TP of Rp 1,350
We initiate coverage with TP of Rp 1,350 derived by sum-of-the-part RNAV valuation. On relative basis, we prefer to use EV/EBITDA to lessen depreciation effect on competing real estate developers, the ratio indeed support our target price for decent price appreciation.