Alam Sutera (ASRI IJ; BUY; TP IDR 530): 2Q11 Results Review - Riding on Buoyant Prices - OSK

We have raised our TP from IDR 400 previously to IDR 530 to reflect: i) rolling forward of our base year from 2011 to 2012; ii) additional 400ha landbank in Pasar Kemis. ASRI remains the top pick in our property universe, with its share price gaining traction and putting on 52% in 2Q11. The stock is currently trading at a 42% discount to company’s new NAV of IDR 762 per share, with a 12x PE12f, 2.5x PBV12f. It’s a BUY.

Strong 1H11 showing. ASRI’s 1H11 results definitely reflected the strong demand in the Serpong area in the past few years. The company managed to book revenue of IDR 706bn in 1H11 (+78% y-o-y), with gross margins expanding to 43% in 2Q11, up by 400bps from 39% in 1Q11. This was lifted by sales of land plots, which contributed 34% of revenue, or IDR 232bn, from which margins can be as high as 65%. As a result, 1H11 earnings grew two-fold to IDR 289bn, accounting for 59% of our FY11f forecast of IDR 489bn. This is deemed in line since 63% of the company’s FY10 pre-sales was achieved within a 6-month period last year. The company still holds IDR1.4trn in customers’ advance payment in its balance sheet which can potentially be regarded as revenue. In 1H11, it was in a net cash position, and has a considerably low gearing of 24%.

Demand in Serpong still strong. On 28 July 2011, the company successfully launched the residential subcluster “Pelangi” in Serpong. Some 87% of the 62 housing units were sold out, adding IDR 146bn to ASRI’s pre-sales, which stood at IDR 1trn up to June 2011. The price range is IDR 2.3bn to IDR 5.2bn per unit, or equivalent to a land selling price of IDR 6.1-6.5m per sq m. As the land is Serpong is diminishing, we expect the group’s 2H11 pre-sales to come from its 2nd township projects in Pasar Kemis.

29% of ASRI’s value, or IDR 3.8trn, lies in Pasar Kemis. This is based on the development cost (including land acquisition) of IDR 400,000/sq m. However, we expect value in Pasar Kemis to increase in the near term as the project is ready for launch sometime in October 2011. The land selling price is estimated to start from IDR 1m/sq m, which is still at a discount if we compare it with that in neighbouring Talaga Bestari estate (owned by Intiland–DILD IJ), currently going for IDR 1.5m/sq m. The price per unit will be about IDR 200m-300m per unit, with a gross floor area (GFA) of around 125 sq m.