Indo Property, Sector Outlook, High Beta Play, CLSA

Property sales are still going strong, but sector has been under pressure.
As real asset, property is inflation-hedge, but stocks are high beta play,
correlated to interest rate movement. Rising policy risk may deter future
FDI but consumption growth story remains the alluring factor. We are
cautious on currency and its implication, but maintain positive view for
long term. Sector has become more investable due to growing size, and
now cheaper due to recent correction. Top picks: BSDE and CTRS.


Property sales still doing well
 FY12 aggregate marketing sales set at Rp29tn for FY12, +25% YoY; twice FY10’s.
 Sales boosted by higher ASP. BSDE’s 4M ASP in Serpong rose 12.5% YoY to
Rp4.5m psm, SMRA’s Bekasi will be at Rp4m psm after flyover is done in 4Q (ASP
2011: Rp3m psm). ASRI’s latest launch in Serpong is at Rp9.5m psm (+40% YoY).
 Big developers usually apply higher DP (than the 20% norm); nonetheless some
developers started to provide schemes to counter the potential impact to demand.

Property stocks are high beta play
 Real property is an inflation-hedge, but not the stocks, given their high correlation
with inflation/interest rate movement. Moreover, volatility is high due to small size.
 Disc to NAV widened to as high as 70-80% during downturns (2006 and 2009), as
rising rate pushed demand lower with banks tightened lending and business
confidence dropped. However, through control in supply, ASP rise was maintained.
 Nonetheless, during upturn, demand recovery was swift, and sector outperformed.
 Currency can be a culprit. It took 10 years for US$-term ASP back to pre-Asean
crisis level, rising only 3% cagr from 1996 to 2011, while grew at 13% cagr in IDR.

Will strong FDI continue?
 1Q industrial land sales at 193ha; with ASP rising by 10% QoQ due to limited land.
 Net-FDI is projected to grow 4% (FY12) and 12% (FY13).
 Rising policy risk may deter investment, but likely be compensated by the lure of
consumption growth story. Recent surge in FDI is also a result of long period of
under-investment post Asean crisis. Beneficiaries: SSIA, LPCK, KIJA and BEST.

Cautiously optimistic
 Cautiously optimistic in the medium term, but maintain positive long term outlook.
 Top picks: BSDE and CTRS. BSDE is a liquid proxy with ample, good quality land
bank. Trades at 50% disc to NAV, and at mktcap of US$49 psm (vs ASP US$490).
 We initiated CTRS with a BUY; cheapest stock in our coverage with 60% disc to
NAV (Rp4,150/sh), 10.7 PE13, 1.65x PB13; at Mktcap US$45 psm (ASP US$390).
 Sector becomes more investable: 3.5% of JCI (1.4% in 2004, but 8% pre-crisis).

Download file : Indonesia Property Sector