On the Right Track
1Q21 Highlights: Better Performance Driven by Property Sales
SMRA managed to book a revenue of IDR1.07 tn in 1Q21, which grew by +3% YoY (vs IDR1.04 tn in 1Q20). It is supported by the +48.67% YoY increase on property sales, despite the -39.81% YoY drop on the recurring income in 1Q21. On the other hand, COGS grew by +13.51% YoY which caused gross profit to decline by -7.17% YoY to IDR490.05 bn. Thus, net profit was stagnant at IDR37.41 bn in 1Q21 (vs IDR37.04 bn in 1Q20).
Landed House: Always the Major Contributor
SMRA’s marketing sales reached IDR2.83 tn in 1H21, reflecting 71%/64% of the company/MNCS estimate in FY21E. Overall, landed houses contributed 62%, with houses in the price range of IDR1-2 bn/unit contributing IDR1.15 tn, followed by houses with price >IDR2 bn contributing IDR1.18 tn. Summarecon Serpong is the major contributor which recorded a sales of IDR1.5 tn. This time around, SMRA seeks to optimize the launch of new clusters in Bogor on 2H21, and North Bekasi on FY22F. With the success of Summarecon Bogor, SMRA also encourages the development of Summarecon Mutiara Makassar (SMM) to become a "new city" for the next several years. Moreover, marketing sales target is increased to IDR4 tn from IDR3.5 tn previously for the FY21E period.
We see that SMRA is on the right track, supported by: 1) Lower interest rates in FY21; 2) PPnBM and LTV relaxation; 3) Vaccination and economic recovery in FY21E. Nevertheless, we should also take SMRA's mortgage purchases increased into account (+31% in 1H21 vs. 25% in FY20) which will become a risk if BI rate hiked, resulting slow property demand.
Positive Impact of Post-Right Issue to Strengthen Balance Sheet But…
SMRA conducted a rights issue with total of 2.1 billion new shares and successfully raised IDR1.5 tn in June-21. Therefore MNCS estimates that the impact of right issue will lower the total debt by 10% from previously IDR9.4 tn to IDR8.5 tn/IDR8.2 tn with DER of 0.77x/0.71x in FY21E/FY22F.
…Still Overshadowed by the Imposition of Restrictions on Community Activities (PPKM)
PPKM level 4 has brought a significant impact to mall and hotel business as fall of occupancy rate in August 2021. In order to maintain and accommodate its tenants, SMRA will potentially cut the rental rate by around 50% in July – Aug 2021. Those tactic will be adjusted in accordance to next policy of Government regarding PPKM. There will be a good sentiment for SMRA if the Government can lower the restriction to PPKM level 3 as the due date of last PPKM level 4 is Aug 9th 2021. At least the shopping centers/ Mall can operate by 25% until 17.00 from totally closed down. Vaccination rate will play one of key role to support the recovery story of mall and hotel business in FY21E.
Valuation and Recommendation: BUY at Target Price IDR1,000
We recommend BUY for SMRA IJ, with a TP of IDR1,000 which implies PE/PBV 13.59x/0.83x in FY21E. SMRA's valuation has become more attractive as it is trading currently at –1 STD PBV (average of 5-years) at 1.45x. Risks to our call would include: 1) Worsening COVID-19 has strong negative impact to SMRA’s recurring income; 2) Low purchasing power; 3) Sudden change of interest rate policy.
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