Summarecon Agung (SMRA IJ; Buy; TP IDR1,450) Results Review: Conservative Guidance

Please use the following link to download the report:

http://rhbosk.ap.bdvision.ipreo.com/NSightWeb_v2.00/Files/GetFile.aspx?FileVersionID=17034&ieHack=.&_nsz=55%3B55%3B10b01c08-9557-4fa6-80e8-afdd3b4b3d9d%3Ben-US%3BSE%20Asia%20Standard%20Time

Summarecon Agung (SMRA IJ; Buy; TP IDR1,450) Results Review: Conservative Guidance

SMRA’s 4Q13 net profit slid 17% q-o-q and 34% y-o-y to IDR222bn, due to lower booking from development properties and a higher interest expense from bank loan. Keeping our conservative view in line with SMRA’s FY14 guidance, we lower our FY14/15 forecasts by 15%/13% and reduce our TP to IDR1,450 (from IDR1,730), which offers a 28% upside. Maintain BUY, underpinned by its strong recurring income.

¨       Slightly below estimates. Summarecon Agung (SMRA)’s 4Q13 net profit slipped 17% q-o-q and 34% y-o-y to IDR222bn, weighed by lower revenue booking from development properties. Still, development properties contributed 63% of 4Q13 revenue of IDR659.7bn (-19% q-o-q; -32% y-o-y). GPM for development properties expanded by 800bps to 58% vs 50% in 3Q13, with residential houses and land plots yielding GPMs of 35% and 95% respectively. Meanwhile, a higher interest expense of IDR81bn dragged down 4Q13 bottomline margin to 21% vs 24% in 3Q13.

¨       Passing on cost hike. SMRA’s 4Q13 revenue from investment properties surged 32% q-o-q and 34% y-o-y to IDR394bn, as the company fully passed on the cost hike (mainly labour cost) at its Serpong mall. GPM for investment properties fell 300bps to 35%, as its new Summarecon Mal Bekasi mall – which opened at end-June 2013 – did not receive any rental fees till end-2013.

¨       Keeping a conservative stance. SMRA’s FY13 presales dipped 4% to IDR3.7trn, representing only 92% of its FY13 target. This prompted the company to keep a cautious stance by targeting FY14 presales of IDR4trn (+8% y-o-y), along with flat revenue and net profit estimates of IDR4trn and IDR1trn respectively. Given SMRA’s conservative guidance, we revise down our FY14/15 earnings forecasts by 15%/13%.

¨       Maintain BUY with lower IDR1,450 TP. Post our earnings revision, we reduce our TP to IDR1,450 (from IDR1,730). However, we still like the company’s recurring income, where revenue almost tripled over 2009- 2013, contributing 30-39% of SMRA’s total revenue and providing earnings stability amid the property market turmoil.

Best regards,

RHB OSK Indonesia Research Institute