Aug 14, 2017 15:51:15

Although presales have improved in 2Q17, we cut our target FY17F
marketing sales to IDR2.7trn following its downward presales target
revision to IDR3.5trn along with the disappointing results in 2Q17.
Therefore, our FY17F-18F earnings are slashed by 20% and 21%
respectively, which lead to a lower new TP of IDR1,125 (from IDR 1,422, 3%
upside), implying a 60% discount to NAV. We remain cautious of
Summarecon because of its high gearing level and high interest costs.
However, we expect its performance to improve next year. Maintain

- Target presales cut. As at 1H17, Summarecon Agung (Summarecon)
booked marketing sales of IDR1,438bn (-16% YoY, +118% QoQ) or
equivalent to 32% and 39% of the company’s and our initial target. 1H17’s
presales achievement was lower than its 5-year historical average trend of
52% during the first semester. Meanwhile, the latest 7M17 presales data
came in at IDR1,540bn or 20% lower compared to 7M16 and only accounted
for 41% from our initial target.
We believe that management was aware of the challenge and have revised
down its FY17 target marketing sales to IDR3.5trn from IDR4.5trn. After
taking into account the company’s revision and its soft presales in 7M17, we
too revise our target FY17F-18F presales to IDR2,895bn and IDR3,249bn
respectively. Currently, management’s plan for 2H17F product launches
comprise of the following:
i. IDR900bn from two launches in Serpong;
ii. IDR900bn from two launches in Bandung;
iii. IDR200bn from a shoplot launch in Karawang (Aug 2017);
iv. IDR500bn from two launches in Bekasi.

- Weak 2Q17 results & earnings adjustment. 2Q17’s topline grew 18%
QoQ mostly driven by apartment and retail sales while house, commercial,
and landplot sales were slow. Higher apartment sales led to higher cost of
goods sold (COGS), and combined with the higher marketing expenses in
opex, have eventually eroded 2Q17’s bottomline into negative territory. As
a result of the cut to target presales, we lower our earnings assumptions by
-20% and -21% for FY17F-18F respectively with net margins falling to 2.6%
this year (-313.6bps).

- Maintain NEUTRAL. We remain cautious on Summarecon due to its high
gearing and interest costs, as well as soft presales during 7M17 that led to
management lowering its targets. However, we expect improvements to
come in the next year with a 7% topline CAGR growth for FY17F-19F. Our
IDR1,125 TP implies a 60% discount to RNAV.

- Risks to our call include the depleting prime landbank, deteriorating capital
structure with gearing on the rise, weaker presales, project delivery delays,
regulation changes affecting the sector, and better-than-expected demand.
(Yualdo Tirtakencana)