Share analysis: Bumi Serpong Damai – real estate

The Company

Established in 1984, Bumi Serpong Damai (BSDE) is a property developer well known for its success in developing BSD City in Serpong, Banten, from a mere plot of land into a highly populated satellite city with over 160,000 people. The city is accessible through two toll roads, namely, the Jakarta-Serpong and Bintaro-Serpong routes, taking approximately half an hour (assuming light traffic). In 2014, BSDE launched at least 15 residential clusters, two commercial areas and two apartment towers. Aside from its main core in BSD City, Serpong, the company has also developed several residential projects, such as Grand Wisata in Bekas, West Java; Kota Wisata in Cibubur, West Java; Taman Permata Buana in Jakarta; Banjar Wijaya in Tangerang, Banten; Kota Bunga in Bogor, West Java; and Balikpapan Baru and Grand City in Balikpapan, East Kalimantan.

In the rental and building management segment, BSDE operates 13 commercial centres spread across Jabodetabek (Jakarta, Bogor, Depok, Tangerang and Bekasi) and in Surabaya, East Java, namely: International Trade Centre (ITC) Mangga Dua, ITC Roxy Mas, ITC Cempaka Mas, Mall Ambasador, ITC Kuningan, ITC Fatmawati Mas, ITC Permata Hijau, ITC Depok, ITC Surabaya, ITC BSD, BSD Junction, The Breeze and DP Mall Semarang. BSDE’s office holdings consist of five buildings: Sinarmas Land Plaza (two towers), Sinarmas Land Plaza Jakarta, Sinarmas Land Plaza Medan and Sinarmas Land Surabaya, with 2014 occupancy rates of 99%, 100%, 90% and 86%, respectively.

As of 2014, BSDE owned a total land bank of 5255 ha located in Tangerang (2954 ha); Surabaya (962 ha); Bekasi, (628 ha); Cibubur, (281 ha); Karawang, West Java (153 ha); Balikpapan (125 ha); Palembang, South Sumatra (86 ha); Samarinda, East Kalimantan (35 ha); Jakarta (27 ha); and Cianjur, West Java (4 ha).

Development Strategy

BSDE continues to operate in areas beyond Jakarta, while building up its recurring income, strengthening company fundamentals and ensuring sustainability. Up to 2016, the company plans to centre its development in four main areas. First, the Samarinda region will have a total project area of 210 ha. Some 80 ha will be dedicated to the Bumi Samarinda Damai I project, which is set to launch in 3Q 2015 with a pre-sales target of Rp100bn ($8.3m). Second, the Jakarta region will see 7.8 ha of land used to build condominiums, townhouses, retail malls, offices, hotels and serviced apartments. The projects are Rasuna Epicentrum, Aerium and Tanjung Barat. Third, the Makassar region has 5 ha of land, 5 km from Panakung, set for mixed-use development (to launch in 2016). Lastly, the Surabaya region has 3 ha of land located in Mayjen Sungkono to be used for hotels and condominiums (to launch in 2016).

Forecast

In 2015 we conservatively forecast marketing sales for property to grow by 9.2% year-on-year (y-o-y) to Rp7.1trn ($586.9m), below the company growth target of 15.0% y-o-y. However, we project FY2015 accounting property sales to be able to grow by 21.7% y-o-y, supported by robust marketing property sales in previous years, which grew by 26.2% yo-y in 2013 and 15.6% y-o-y in 2014, as well as extraordinary land plot sales to joint venture (JV) partners, amounting to Rp1.9trn ($157m) in 2013 and Rp260bn ($21.5m) in 2014. Mid-2015, BSDE will open a new building for lease and will commence operations of a new mall, hence we forecast FY2015 property sales to reach growth of 20% y-o-y to Rp1.1trn ($90.9m). Meanwhile, we expect the net margin will decline, from 68.6% in 2014 to 41.2% in 2015, given the absence of the extraordinary gain of Rp1.5trn ($124m) coming from the 26% stake increase in Plaza Indonesia Realty in 2014 (the stake in 2013 was 8.2%). Currently, BSDE is trading at Rp1950 ($0.16) per share, which reflects an attractive 62% discount to its net asset value. Our price target for the counter is Rp2400 ($0.20) per share, implying FY2015 P/BV of 2.4x. Upside risk to our call is better than expected marketing sales, as actual marketing sales achievements have often managed to beat initial company targets.