Indonesian Property Companies in Focus: Alam Sutera Realty
Alam Sutera Realty, an Indonesia-based real estate development company, is plagued by overall declining growth in Indonesia's property sector. In the first half of 2016 Alam Sutera recorded IDR 966.5 billion (approx. USD $74 million) in pre-sales, only 19.3 percent of the company's full-year target. What are the strategies of this company to combat the slowdown?
Not only Indonesia's economic slowdown between the years 2011 and 2015 has had a negative impact on the nation's property sector but also a number of policy changes had a big impact. Indonesia's central bank (Bank Indonesia) had become concerned about the possible emergence of a property bubble (due to rapidly rising property prices in preceding years).
Therefore, it raised the minimum down payment (DP) requirement for property purchases and curbed mortgages for second home ownership (to prevent an excessive build-up of housing debt). Local banks were also barred from providing loans for the purchase of property that was still under construction (for second time, or more, home buyers).
Read more: Overview of Indonesia's Property Sector
In combination with slowing economic growth (and high inflation in 2013 - 2014), people's purchasing power and consumer confidence weakened, thus growth of Indonesia's property sector slowed as well. Starting from mid-2015 Bank Indonesia reversed its stance and started to implement measures to boost the property sector (for example higher loan-to-value ratios and by allowing foreigners to 'own' luxurious apartments under the ‘right-of-use’ category). However, as we approach 2017 Indonesia's property sector remains sluggish.
Based on research from Mandiri Sekuritas, Alam Sutera only achieved 29 percent of its marketing sales target (these are sales of property units or land before the completion of the project). This figure is lower compared to the realization of marketing sales targets of rivals Bumi Serpong Damai and Summarecon Agung at 57 percent and 65 percent, respectively. Same with Alam Sutera, these two property developers mainly focus on Tangerang (West Java), particularly Serpong.
In August 2016 it was reported that Alam Sutera Realty is negotiating with domestic investors to sell 4.5 hectares of land in Serpong (estimated to be worth IDR 1.1 trillion) as part of its efforts to meet its IDR 5 trillion marketing sales target for 2016.
BCA Sekuritas set its target share price for Alam Sutera at IDR 485 a piece (hold). On Thursday (03/11) shares of the property developer fell 3.29 percent to IDR 412 per share amid the global selloff that is brought about by concern about the tight US presidential race. So far this year, however, Alam Sutera's shares have gained 20.12 percent.
Stock Quote Alam Sutera Realty - ASRI:
BCA Sekuritas remains positive about Alam Sutera's long-term performance as it recently partnered with China Fortune Land Development (CFLD), a publicly traded Chinese real estate developer. Together they will build the Pasar Kemis residential clusters in Serpong. Alam Sutera secured a IDR 1.45 trillion security deposit from CFLD to help fund the development. This significant figure contributes 50 percent to Alam Sutera's pre-sales target.
Next year the portion of land sales toward total pre-sales of Alam Sutera is expected to rise to 47 percent, from 45 percent this year. As such, land sales are considered key to boost the company's earnings in 2017 (while property sales are expected to remain weak). Currently, Alam Sutera owns a total of 2,225 hectares of land. In the five years ahead the company targets to sell 100 hectares per year.
Alam Sutera Realty's Financial Highlights:
| 2015 | 2016F | 2017F | 2018F | |
| Revenues | 2,784 | 2,821 | 3,065 | 3,437 |
| EBITDA | 1,563 | 1,678 | 1,746 | 1,888 |
| Net Income | 597 | 1,063 | 1,000 | 1,075 |
| P/E Ratio (x) |
11.3 | 8.2 | 8 .8 | 8.2 |
| P/BV (x) | 1.0 | 1.2 | 1.1 | 1.0 |
| EPS¹ | 30 | 54 | 51 | 55 |
in billion IDR rupiah unless otherwise stated
¹ in IDR rupiah
Source: BCA Sekuritas (03/11/2016)