07/10/2015
Indonesia / Real Estate
Despite weak property sales, our stress test shows that Indonesian developers are a resilient bunch. And now may be a good time to go bargain hunting in the sector.
Marketing sales were strong in the March quarter partly due to carry-overs from 2014, but year-to-date aggregate marketing sales only reached 35% of the full-year target. So, we expect several developers to revise down their full-year targets in the second half.
The regulatory cloud over the property sector has been lifted with the latest revisions to super luxury tax and luxury tax (PPnBM). Bank Indonesia (BI) has also moved to rectify slow “non-industrial” loan growth by relaxing Loan-to-Value (LTV) requirements for property and automotive sales.
A slowing economy, shifting preference towards in-house instalments for financing, and the uncertainty over property demand have resulted in tighter cash flows for developers. But our stress test shows that developers under our coverage remain resilient in this challenging market.
As regulatory concerns trickle away, investors will return to fundamentals. The recent correction in property stock prices has created cheaper entry points and better risk-reward profiles. The property sector is currently trading at 37% discount to revalued net asset value (its four-year average), and forward price earnings (PE) valuation has de-rated to their mean multiple. We expect developers to deliver decent June quarter results. Buy Pakuwon Jati (PWON) for its resilient earnings, good cash generating power, and sizeable upside to our target price.
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