We recently made a 2-day company site visit to two major Sinarmas Land (SML) projects in Jakarta and returned with more confidence on the company’s outlook. The land development sales performance has been optimistic with average selling price improving steadily over the recent years. With greater clarity in the business climate of Indonesia following the denouement of the presidential election, we believe Sinarmas Land will continue to post healthy margins with the positive real estate market outlook as new President Mr Jokowi will likely push for more probusiness policies and infrastructure developments in coming future.

In this trip, we visited the 2 major land projects: Kota Deltamas and BSD City. We met up with the General Manager of Sales & Marketing of Kota Deltamas, Mr Stefanus Sehonanda, the Head of Investor Relations of PT Bumi Serpong Damai TbK., Ms Christy Grassela, the Executive Director, Mr Robin Ng, the Executive Director and Chief Financial Officer, Mr Ferdinand Sadeli, and Head of Corporate Investment Department, Mr Aswin A. Gunawan.

Budding sales growth from the abundant land bank development

Kota Deltamas is a mixed-use industrial development project between SML and Sojitz Corp. The accessibility of Kota Deltamas with neighbouring areas coupled with superb infrastructure for industrial estates has resulted in strong demand for the industrial land, with ASP increasing at a 35% CAGR in the past 2 years. As more companies move into the factory premises, the demand will grow for residential units in the surrounding vicinity. The 2014 target yearly sales is estimated to be USD 170mn.

BSD City is the flagship development project for SML and covers an area of 6000 ha. Within this space, BSDE would build residential clusters, office buildings and retail malls. BSD City is developed in 3 phases, with the 1 st phase (covering 1500 ha) currently near its completion stage. Development for 2 nd phase started in mid-2008. Upcoming residential cluster projects include dePark, Greenwich Park, Eminent and Nava Park. BSD City also launched the Green Office Park (25 ha) and secured anchor tenant Unilever Indonesia with 2 office towers. As Jakarta becomes more densely populated and the residential prices in Jakarta escalating, BSD City will benefit from the rising demand of residential properties outside of Jakarta.

Returning to Jakarta City

SML has recently acquired 3 lots of lands (over 5 ha) in Epicentrum Kuningan in Jakarta City. See Figure 1. One of the larger lots will be for commercial purposes while the balance 2 lots will be used for residential developments. The launch for the first residential project in lot 16 is expected to be in early 2015. SML will likely form joint ventures for the development of the balance 2 projects. The total GDV for the 3 projects is estimated to be USD 2bn.

Investment Action

We remain positive on the outlook for SML for (1) the potential bottom-line growth with land sales from the huge land bank, (2) solid balance sheet with a strong cash holding and (3) expansion of international portfolio for recurring income. Our rating is BUY with target price $0.97 by previous analyst. The target price may alter with the change of analyst coverage.

Source: Phillip Securities Research - 25 Sep 2014