Indonesia Property Goldmine

We kicked off this week with a bang, as the spirit of nationalism filled the air. Last Monday, the mighty SATRIA-1, Indonesia's largest satellite, successfully blasted off, ushering in a new era in the country's telecommunications. With SATRIA-1 on the scene, internet connectivity will reach 50,000 spots across the archipelago, where the Palapa Ring couldn't reach. It's a remarkable milestone in Indonesia's infrastructure that'll make even the most remote corners say, "Hello, world!"

Delighted to claim that Indonesia stands as the proud owner of the fifth-largest satellite in the world and the number one in Asia. Kudos to our beloved president, Jokowidodo, who just celebrated his birthday yesterday!

Source: Sucor Sekuritas

As Jokowidodo's presidential term nears its end, we can't help but marvel at the remarkable infrastructure legacy he leaves behind. With a total budget of Rp 2,779.9 tn from 2015 to 2022, Jokowi set out to boost productivity and mobility, giving Indonesia's competitiveness and growth a much-needed even distribution in corners of Indonesia.

Source: Sucor Sekuritas

The rapid improvement in Indonesia infrastructure, has made a lot what used to be stranded lands now have access to the main road, thus increasing the land value. It has been increasingly costly to acquire land banks even for the big property players in Indonesia.

Spilling the tea from our recent catch-up with one of the major players in the property market, it seems that land acquisition costs in the Cikarang area have skyrocketed by approximately 67% over the past 3 months. This has put a squeeze on the competitive profit margins for residential housing developers, who have been grappling with a sluggish market in recent years. According to Bank Indonesia, the Residential Property Price Index (IHPR) for the first quarter of 2023 stood at 1.79% (YoY), slightly lower compared to 2.00% (YoY) in the previous quarter.

Source: Bank Indonesia

Despite the current sluggishness in residential housing market prices, we anticipate that companies possessing substantial landbanks will ultimately thrive due to the escalating costs of acquiring land. These companies are poised to reap the benefits, as the residential prices are expected to catch up in the near future. Conversely, property companies without landbanks may face significant challenges in acquiring land banks in the coming years.

Source: Sucor Sekuritas

On the side note, we also met a number of property companies that are contemplating the feasibility of a tender offer strategy. Nonetheless, they are currently reassessing their available alternatives due to the considerable time and expenses associated with this approach. For further insights on our property sector strategy report, please refer here.

Another contributing factor that we anticipate will strengthen the residential housing sector is the better trajectory of lending rates. The mortgage loan financing scheme (KPR) continues to be favored by respondents as the preferred option for acquiring primary residences, commanding a substantial market share of 74.83% of total financing.

With a 10% growth in total credit throughout 2022 and a CAGR of 16% in loan growth over the past 16 years, the market is set for higher growth. This positive outlook is further bolstered by the presence of mild inflation and favorable borrowing rates.

And now, for the million-dollar question: Who will emerge as the ultimate champion among our property sectors?

We proudly present BSDE and CTRA as two of our finest selections.

With an enormous land bank of approximately 4,600 hectares, BSDE is all set to achieve an impressive 8.4% CAGR in marketing sales from 2023 to 2028. Residential segment is expected to fuel this incredible growth with a CAGR of 9.4%.

Source: Sucor Sekuritas

Now, we must admit that earnings growth may appear a bit modest in 2023-24F, owing to the exceptionally high revenue growth of +33.7% in 2022. But fear not! As marketing sales continue their steady ascent, we forecast an ample earnings growth of 16.7% CAGR from 2024 to 2028F.

Turning to the balance sheet, as of 2022, BSDE showcases an impressive net debt/EBITDA ratio of 0. Additionally, when evaluating the free cash flow, BSDE is presently trading at a significant discount of 58% compared to its 12-month discounted cash flow (DCF) value of Rp. 1800 per share.

Let's get real—land is a limited resource that's only getting scarcer and pricier. We can't possibly create more land out of thin air. And no matter what's happening in the global economy, the value of land keeps steadily goes up. Investing in property is the ultimate safe bet, as land values always guaranteed to rise.

Read more on our complete BSDE report here, and stay tuned for our upcoming analysis on CTRA!