Company Update

07 September 2017


Still Struggling with Uncertain Regulation


Slow Trend in Property Sector

Based on Bank Indonesia survey data of residential property, from 2Q14 - 2Q17 average residential property sales growth was 14.20%. However, during the past 3 years growth of residential property sales has stalled, far below that figure: as of 1H17, property sales growth stood at 3.61% (QoQ). Sales are declining, as reflected through the pre-sales (marketing) revenue of several property companies that are experiencing a downward trend. The decline in pre-sales (marketing sales) affects the financial performance of property companies, and was driven by factors such as weak public purchasing power, high loan interest rates, government regulations, among others.


Infrastructure Development & Economic Policy Become a Property Sector Booster

The growth potential of the property sector will be driven by: 1) Property near Toll Roads & Transit Oriented Developments (TODs) will be attractive; 2) Low interest rates; 3) Loan to Value (LTV) easing; 4) The Rupiah exchange rate remaining at an average of 13,400; 5) positive impact of ‘Investment Grade’ for Indonesia, awarded by S&P Rating Agency. These driver assumptions will have an impact on the property sector if all factors are realized, such as the completion of infrastructure development, lower-than-double-digit loan interest rates, and LTV easing.


Risks from Land Acquisition & Regulatory Uncertainty

In general, property companies often encounter obstacles in areas that are already getting crowded with buildings and residents. Land acquisition that’s going to be developed is usually also encounter obstaclessuch as an agreement of a fair price on land to be released by landowners. In addition, government regulations often change suddenly, andthis can have a positive or negative impact on the property sector. A negative policy on property may increase risk for property companies.


NEUTRAL Outlook with Top Picks : MDLN and PWON

We see the FY17 property sector as still stuck in low gear, so we recommend NEUTRAL. However, there are several interesting property stock options to observe, as they are driven by: 1) High recurring income; 2) Positive sentiments, such as corporate actions that can drive financial performance; 3) Undervalued valuation, reflected in the NAV of the listed property issuer, has been substantially discounted, at about 60%. We recommend MDLN(BUY; TP: Rp550), which is able to maintain residential and industrial land sales positions, and PWON(BUY; TP: Rp790) with the portion of recurring income up to 50% of total revenue.


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