SMRA IJ / SMRA.JK | ADD – Maintained | Rp1,545.00 tp:Rp1,750.00

Mkt.Cap:US$1,622.00m | Avg.Daily Vol:US$3.45m | Free Float:57.50%
Release date Nov 27 2015
Author(s):Jovent GIOVANNY +62 (21) 3006 1727, Timothy HANDERSON

■ SMRA’s 3Q15 net profit was below (at 63%) our estimate and consensus FY15 forecasts. Nonetheless, it was relatively in line with 9M14’s achievement.
■ Its 3Q15 debt rose 8% qoq to Rp5.3tr and net gearing ratio rose from 65% in 2Q15 to 73% in 3Q15. Leverage will rise further from the additional bond issuance in 4Q.
■ Maintain Add with key catalyst of strong project launches in Bekasi and Serpong.

9M15 results highlights

  • SMRA’s 9M15 net profit slid 7% yoy to Rp807bn, i.e. below our FY15 forecast of Rp1.28tr. But revenue and gross profit was relatively in line at 73% (78%) and 75% (79%) of our (consensus) forecasts. The lower net profit attributed due to interest expenses (+76% yoy) despite decent revenue growth (+16% yoy) and margin expansion (GP margin rose to 52% in 9M15 vs. 51% in 9M14).
  • The gross margin has been on a downtrend since 1Q15’s high of 61%. Thereafter, SMRA’s gross margin narrowed to 49% in 2Q and 3Q15 amidst higher apartment sales contribution. Apartment sales comprise 36% of non-recurring revenue in 9M15 vs. 32% in 1Q15 and 16% in 1H15. Recurring revenue was only 26% of 9M15 revenue.
  • SMRA also restated its financial statements due to the latest accounting rule that requires JO operations to be recorded on a gross basis – similar to a JV company, which results in higher income/expenses and minority interests. JO operations were previously recognised on a net basis. It recognises income from two joint operations in Serpong (70% stake in JO SS/Scientia project and 55% stake in JO LV/The Springs).

Leverage set to go up further

  • Gross debt rose 8% qoq to Rp5.3tr in 3Q15 due to additional working capital loans, which brought SMRA’s gross gearing to 89% and net gearing to 73%: the second highest among developers under our coverage after ASRI. It also issued Rp500bn worth of bonds in 4Q as part of Rp3tr worth of shelf-registered bonds – with the rest of the pipeline (Rp2.5tr) shall be issued in FY16-FY17.
  • Rising leverage was attributed to its aggressive capex of Rp1.4tr-1.5tr in 9M15, slower sales, change in payment profile (higher cash instalment proportion and longer payment terms) and product mix (growing apartment/high rise sales).

Support shall come from strong project launches

  • Despite inevitable share price weakness amidst the uninspiring 3Q15 results, we think that the share price will have some support from the successful project launches in Bekasi and Serpong this weekend. We maintain our Add call with an unchanged DCF-based (WACC:13.2%, LTG: 5%) target price of Rp1,750.

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