BSD City, Sufficient Liquidity To Weather The Storm

BSDE remains our sector Top Pick, as we favour its: i) abundant cash that provides flexibility to finance its current and future developments, ii) large landbank – mainly in Greater Jakarta and in new areas like Palembang and Manado, and iii) growing recurring income. Our IDR2,400 TP is derived by applying a 40% discount to the company’s IDR4,098 RNAV, implying 22.4-19.1x FY14F-15F P/E. Maintain BUY.

Expect 49% FY14F EPS growth
Taking out the IDR1.3trn revenue from land sold to a joint venture (JV) in FY13, we estimate BSDE’s revenue to grow by 35% y-o-y to IDR5.2trn. With normalised margins of 35% (with no contribution from land sales booked), we expect FY14 earnings to reach IDR1.9trn (+49% y-o-y). FY14 presales are expected to grow by 15% to IDR6.2trn – assuming a moderate price appreciation (10% maximum) and that its new 2014 projects are ready for launch. These include Rasuna Epicentrum in Jakarta and a commercial landbank in Manado, South Sulawesi.

More than sufficient liquidity
BSDE’s 9M13 cash balance stands at IDR3.8trn, with 71% coming from its IDR2.7trn in IDR-denominated bonds raised in 2012 and 2013, which mainly mature in 2017 and 2019. We believe this sufficient liquidity makes the company more resilient to withstanding the worsening operating environment. Its large existing landbank reserve of more than 2,000ha (sufficient for another 20-year development period) also gives BSDE more flexibility to conserve its cash or to allocate it for current/future developments.

Multiple strategic partnerships
During the past couple of years, BSDE has established partnerships with AEON Mall (8905 JP, NR), Hongkong Land (HKL SP, NR), Indonesia International Expo and Courts Asia (COURTS SP, NR). It also recently acquired a 4% stake in Plaza Indonesia Realty Tbk (PLIN IJ, NR). We are positive on the company’s multiple strategic partnerships, as this will add value and spur demand for its properties. We also like the fact that these partnerships will mainly help BSDE to grow its recurring income. Note that the company’s recurring revenue currently makes up around 20% of its total topline.