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Company Update

20 Agustus 2021

Property Sector Update - August 20, 2021

Signs of Improvements, Positive Outlook Going Forward

Residential: Benefit for Extended VAT relaxation until December 2021
• The government has officially extended the VAT regulation for three months until December 31, 2021 from the previous August 31. The regulation has been in effect since March 2021, there is no change from this relaxation, namely products that apply to inventory that is 100% complete and will be completed in the relaxation period.
• The relaxation o value added tax (VAT) will apply to landed houses and apartments: 1) From 10% to 0% for primary market products under IDR2 billion; 2) 50% discount (from 10% to 5%) for IDR2 billion-IDR5 billion products. Relaxation also only applies to a maximum of one property unit per buyer and the product cannot be sold in one year.
• Along with the “commodity boom”, there is also the potential for the “property boom” that we discussed earlier here.
• Mortgage growth was recorded to increase by 7.24% YoY in 1H21, where KPR contributed 75.08% to property purchase facilities, while 16.89% cash in stages, and 8.04% in full payments.
• Usually, developers often give another 5%-10% discount, and also some developers have reached >50% of the marketing sales target in FY21E, including: 1) SMRA IJ (71%); 2) LPKR IJ (Not Rated) (67%); 3) BSDE IJ (65%); and 4) CTRA IJ (61%).
• We assess that marketing sales should grow organically at the level of 10%/7% YoY in FY21E/FY22F. We prefer stocks with a high residential portion as most property sales are skewed only on landed houses, such as BSDE, CTRA, and SMRA.

Industrial Estate: Booming E-commerce and Data Center has the potential to increase Land Demand
• In 1H21 Indonesia's foreign direct investment (FDI) for the transportation, warehousing and telecommunications sectors reached USD1.8 billion (vs USD1.45 billion in 1H20).
• Government planned to build national data centers in four locations: Bekasi, Batam, New Capital City (East Kalimantan) and Labuan Bajo to consolidate its 2,700 data centers across Indonesia.
• In FY20 Indonesia had the largest e-commerce market in Southeast Asia, with a Gross Merchandise Value (GMV) of USD32 billion.
• The transaction contribution of the e-commerce and data center segments was 23.35% in 1H21, the second largest after automotive (44.09%).
• Several players in industrial estate such as DMAS IJ, SSIA IJ (Not Rated) and MMLP IJ have the potential to benefit from Warehouse demand.

Trial of reopening malls during PPKM
• The government is still implementing PPKM levels 2-4 for Java and Bali (last update until 23 Aug-21), but some policies have begun to be relaxed, such as: 1) reopening of malls with 50% capacity; 2) People who have received the vaccine (at least the first dose) can visit the mall.
• Currently, only a few malls in the Greater Jakarta area are allowed this trial, which is likely to be followed by other regions if the spread of Covid-19 begins to decline.

OVERWEIGHT Recommendation for the Property Sector
We maintain the recommendation OVERWEIGHT outlook for Property sector in FY21E. The valuation is based on an average discount at the level of 55%-65% for NAV. It is also supported by positive catalysts from 1) Mortgage interest rates below 9%; 2) Implementation of the omnibus law. Our top choices are BSDE IJ (BUY; TP: IDR1,450), SMRA IJ (BUY; TP: IDR1,100), CTRA IJ (BUY; TP: IDR1,300) and PWON IJ (BUY; TP: IDR660), and in the real estate sector DMAS IJ (BUY; TP: 240) and MMLP IJ (BUY; TP: 1,000). We note that these companies still rely on residential sales as their backbone, with averaging 64% of marketing sales coming from landed houses.

Disclaimer

BSDE SMRA CTRA PWON DMAS MMLP

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