Summarecon - A lifestyle developer; initiate with a Buy Leader in the sector; we initiate with a Buy and TP of Rp2,000
Summarecon (SMRA) is one of the major beneficiaries of the sector's recovery. We expect residential estates to be the main revenue driver over the medium term given increasing mortgage affordability. Rising income in the middle segment also bodes well with SMRA's target market. Its investment properties should pull crowds and generate recurring income providing some downside cushion. Right business models in right cycle In our view, SMRA's business model doves in well to benefit from the recovery in the property sector. Given its focus on the middle-income residential segment, SMRA should benefit from the current mortgage boom. The strategy of monthly residential estate launches should also translate into higher price increases, particularly given assets prices are still at early recovery stage. Besides, SMRA's attractive portfolio of investment assets, which generates recurring income (39% of total revenue) should provide some downside cushion to its earnings. Earnings driven mainly by residential sales We forecast SMRA to deliver 3-year (FY07-10) earnings CAGR of 35% on revenue CAGR of 25% as property developments in Serpong and launches in Bekasi gather steam. We also expect a modest recurring revenue growth of 11% (07-10F). This should help maintain an operating margin of 26%. DCF-derived TP of Rp2,000 Our DCF-derived 12M TP of Rp2,000 is conservative relative to the company's own NAV estimate of Rp2,616 (see page 4 for full details). SMRA is one of our preferred plays on the sector given its stronger EPS growth outlook and higher ROE relative to domestic peers. Risks are macroeconomic downturn, competition and changes in corporate structure (see page 30 for risk discussion). Please see published report on 3 October 2007: Summarecon - A lifestyle developer; initiate with a Buy
