NOMURA Global Market Research
Indonesia strategy: Outlook 2016 – Time for the big push
Release Date: December 10 2015
We are turning positive on Indonesian property, and our key stock pick is Bumi Serpong Damai (BSDE IJ, Buy, TP: IDR2,450). This is largely to reflect the potential demand recovery amidst the expected better economic growth and BI rate cuts in 2016, thus supporting demand for mortgage loans. Further, we also believe that the tax amnesty program and foreign ownership relaxation would provide positive sentiment for the property sector.
- We expect BSDE to be the direct beneficiary of monetary easing; particularly potential BI rate cuts in 2016, given its strong exposure in mortgage accounts (at 40%). Its main appeal is its huge land bank in BSD City, Greater Jakarta, where we believe BSDE can continue to capitalize on urbanization.
- CTRA could benefit from the investment property spin-off through a REIT; we believe the potentially higher ASPs in Citraraya Tangerang area will be the key driver to ramp presales.
- SMRA can continue focusing on its presales execution and investment property spin-off; recent strong take-up rates in Bandung and Serpong Townships could possibly assure more launches in 2016, thus higher presales too.
- LPKR is our least preferred stock in the sector. We think the stock underperformance to its listed subsidiaries and peers is justified given that investors prefer to invest directly in its listed subsidiaries. Lippo Cikarang (LPCK IJ, NR) forms 80% of LPKR’s market cap.
Key sector themes/drivers in 2016:
- Potential BI rate cuts. A lower benchmark rate (possibly 50bps rate cut in 2016F) in Indonesia should be positive for property companies, at least for sentiment. Property companies tend to benefit, as mortgages account for a chunk of their sales, except for SMRA. BSDE has the highest exposure at 40%, followed by CTRA (35), LPKR (21%), and SMRA (5%).
- More asset monetization from potential investment property spin-off and land plot sales (possibly JVs with foreign developers too).
- Positive sentiment stemming from the government’s policy of easing LTV requirements and its policy package, which limits the increase in sales tax on luxury goods (PPnBM) for luxury residences and opens up a discourse on the foreign ownership of property in Indonesia.
- Government’s fifth economic policy, which mainly aims at boosting investment in property and infrastructure sectors through removing a multiple tax imposed on a financial instrument known as a collective investment contract of real estate investment trust (REIT). The removal of double taxation on REIT transactions is expected to attract real estate investment funds placed overseas or in real estate investment trusts in Indonesia and eventually will be able to boost the property sector as an alternative funding scheme for property companies.
- Currency stability and better infrastructure development should lift purchasing power.
- Better economic growth (GDP growth more than 5% in 2016F) to boost consumer confidence, thus potentially leading to more property launches with strong take-up rates, thus providing upside to developer presales too.