PROPERTY SECTOR. Wait-and-see stance prolonged NEUTRAL. Equity Research

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1 Equity Research PROPERTY SECTOR Sector Update Property Sector Wait-and-see stance prolonged Buyers and developers are both holding out In our view, the property industry overall continues to assume a wait-andsee stance; both buyers and developers are showing reluctance. A majority of buyers (especially those in mid-upper segment) are still in doubt as whether to buy or to invest in real properties, despite a successful first stage of the tax amnesty program. There are three reasons why some potential buyers have decided to postpone property purchases, in our view: 1) Mortgage rate decline is still an insignificant factor in stimulating property buyers, especially those in mid-upper segment, 2) Slower ASP growth is expected to persist, in line with the overall industry sluggishness, 3) Tighter liquidity could prompt higher benchmark rates. From the developers side, many are still wary about launching new projects, as they think that overall demand has yet to recover in the near term. Hence, several new project launches scheduled for 2017 may well be postponed. Sluggish growth anticipated for 2017 Given the reasons above, we adjust our 2017F marketing sales growth projection downward, from 14% to 9%, estimating that the wait-and-see stance could linger. This is also in line with the lower GDP outlook of just 5.3% set for 2017F, vs. initial target of 5.4%. Consider how 10M16 marketing sales for four property companies under our coverage are still under-target, marking only around 65%, well under historical three-year avg. of 75% in 10M16. According to BI data, property sales growth only reached 4.6% QoQ in 3Q16, driven by the development of affordable housing for low-income people. The subsidized housing development is coordinated by PERUMNAS and coordinated with local developers (typically mid-small ones). Property companies under our coverage have no exposure to subsidized housing; hence, they have failed to benefit as local developers have. During 3Q16, some developers actually started to cut their marketing sales target, which indicates that the property industry has yet to recover. Downgrade sector to Neutral; BSDE as our top pick We have become more cautious on the property sector and reduce our call from OVERWEIGHT to NEUTRAL. We adjusted down our marketing sales, GDP growth and exchange rate assumptions to our forecast, which implies -3.9% lower 2017F earnings. We maintain our BUY call on BSDE; TP of IDR2,510 and CTRA; TP of IDR2,150, while we reduce our TP for SMRA (from IDR1,800 to IDR1,405) and ASRI (from IDR485 to IDR405). In a volatile exchange rate situation, ASRI may become the most disadvantaged property company, as it is exposed to high USD debt, compared to its peers. Therefore, we apply a higher discount to RNAV of 65%. On the other hand, we see potential risk in the change of product mix in the SMRA portfolio. Otherwise, we remain positive on BSDE as the company has more exposure to mid-low product, which has recently demonstrated better growth than any other segment. Currently, the average property sector is trading at a 58% discount to RNAV, higher than 3-year historical average of 55%. Downside risks are lower-thanexpected GDP growth, increasing rates, and declining property demand. NEUTRAL Previous Call: Overweight 30 November 2016 Michael Ramba michael.ramba@bcasekuritas.co.id ext 184 PRICE PEFORMANCE 140% 135% 130% 125% 120% 115% 110% 105% 100% 95% 90% Nov-15 Feb-16 May-16 Aug-16 Nov-16 BCAS Property JCI Index Source: Bloomberg, BCA Sekuritas MARKET DATA YTD 1M 3M 12M Absolute -2.7% -15.7% -14.5% 6.8% JCI return 11.8% -5.1% -4.4% 12.6% Relative -14.5% -10.6% -10.1% -5.8% Source: Bloomberg Exhibit 1. Sector comparison TP CP Dis to NP (IDR bn) EPSG PER (x) PBV (%) ROE (%) Div. Yield (%) Ticker Rating (IDR) (IDR) RNAV (%) 2016F 2017F 2016F 2017F 2016F 2017F 2016F 2017F 2016F 2017F 2016F 2017F BSDE BUY 2,510 1, ,054 2,477 (4.0) CTRA BUY 2,150 1, ,497 1,872 (3.1) SMRA HOLD 1,405 1, (83.5) ASRI HOLD ,063 1, (5.6) Sector Neutral 51 4,755 5,567 (3.2)

2 Exhibit 2. Quarterly marketing sales IDRbn 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 10M16 % of BCAS BSDE 2,234 1,226 1,158 2,139 1,204 1,329 1,568 4,623* 67.0 CTRA 1,745 2,597 1,138 3,699 1,130 1,858 1,333 5, SMRA 1,272 1, , , , ASRI , Total 5,851 5,627 3,084 7,653 3,010 5,190 3,740 14, QoQ Change (%) (3.8) (0.5) 1.5 (0.6) 0.7 (0.3), *Based on our estimation Exhibit 3. Change in marketing sales assumption Marketing sale Old New Change (%) assumption 2017F 2018F 2017F 2018F 2017F 2018F BSDE 9,011 10,407 8,185 9,536 (9.2) (8.4) CTRA 10,105 11,599 9,615 10,954 (4.8) (5.6) SMRA 3,600 4,500 3,300 4,125 (8.3) (8.3) ASRI 3,000 3,210 3,000 3, Total 25,716 29,716 24,100 27,825 (6.3) (6.4) We adjusted down our marketing sales growth assumption from 14% to 9% as we lower our marketing sales assumption. Exhibit 4. Change in F forecast Earnings Old New Change (%) Change 2017F 2018F 2017F 2018F 2017F 2018F BSDE 2,675 3,321 2,477 3,036 (7.4) (8.6) CTRA 1,895 2,043 1,872 1,991 (1.2) (2.5) SMRA (1.4) (6.3) ASRI 1,007 1,085 1,004 1,089 (0.3) 0.4 Total 5,794 6,828 5,567 6,471 (3.9) (5.2) We change our F earning forecast as we applied new marketing sales assumption, GDP growth and exchange rate assumption. Exhibit 5. Property sector s NAV band -30% -35% -40% -45% -50% -55% -60% -65% -70% -75% -80% The property sector is currently trading at 58% discount to RNAV, above 55% historical average. +2sd +1sd mean -1sd -2sd Disc to RNAV 2

3 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Exhibit 6. Mortgage rates declined slightly since March Mortgage rate for land house, apartment and shop house are showing declining trend. Landed house Apartement Shop house Source: Bank Indoneisa, BCA Sekuritas Exhibit 7. Property sales growth Based on Bank Indonesia s data, property sales grew by 4.7% QoQ in 3Q16. Exhibit 7. Property loan growth YoY 100% 80% 60% 40% The property loan growth experienced a declining trend since In September 2016 housing and shop house loans grew by 7% and 2% YoY, respectively, while apartment loans declined by 2% YoY. 20% 0% -20% -40% Housing Flat and Apartment Shophouse 3

4 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 Exhibit 8. JCI vs JAKPROP index 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 8.0% 6.9% 6.1% 5.5% 4.2% 3.4% 2.8% During the last three months JAKPROP index has declined by 7.7% and underperformed JCI by 3.3% YTD 0.0% YoY QoQ Source: Bloomberg, BCA Sekuritas Exhibit 9. Property price index based on Bank Data from Bank Indonesia stated that all house types experiencing slower rising prices especially for large house. Exhibit 10. Property price index based on BI s data 5,600 5,400 5,200 5,000 4,800 4,600 4,400 4,200 4, Property price growth showed declining trend, in which 3Q16 growth only achieved 2.8% QoQ, and 2.8% YoY. JCI JAKPROP 4

5 Teguh Hartanto Director of Equity, ext: 129 RESEARCH DIVISION Darmawan Halim Arga Samudro Igor Nyoman Putra Head of Research, ext: 168 FI Analyst, ext: 181 Equity Analyst, ext: 178 Strategy, Automotive, Heavy Equipment FI Strategies & Macroeconomist Banking, Industrial Estate Jennifer Frederika Yapply Aditya Eka Prakasa Johanes Prasetia Equity Analyst, ext: 179 Equity Analyst, ext: 182 Equity Analyst, ext: 185 Cigarettes, Consumer, Health Care Telco, Coal, Metal Mining Retail, Poultry Michael Ramba Nyoman Widita Prabawa Achmad Yaki Yamani Equity Analyst, ext: 184 Equity Analyst, ext: 180 Technical Analyst, ext: 186 Construction, Property Residential Cement, Plantation, Oil & Gas Technical Analyst Yuni Pratiwi Research Assistant, ext: 183 EQUITY CAPITAL MARKET DIVISION Ermawati Agustina Erman Haslienda Santoso Jodikin Head of Institutional Sales, ext: 159 Equity Capital Market, ext: 137 Sales Trader, ext: 164 Arief Iskandar Amru Fernando Institutional Dealer, ext: 136 Institutional Dealer, ext: 107 Menara BCA - Grand Indonesia, 41 st Floor Jl. 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