Bumi Serpong Damai - Bank of Singapore

20 August 2015
Result Review
Boh Hui Ling
PT Bumi Serpong Damai Tbk
Senior Research Analyst
 (65) 6818 7295
 [email protected]
Indonesia | Real Estate
Recommendation: HOLD
Background
Established in 1985, PT Bumi Serpong Damai Tbk (BSD) is one of the largest property development companies in
Indonesia by market capitalization and land bank. The company is primarily engaged in the development of
residential townships, condominium towers, office buildings, retail malls and hospitality properties. These are
targeted primarily to the middle to high income market segments. BSD currently has a presence in 9 cities across
Indonesia, but remains focused on the Greater Jakarta region where ~83% of its land bank is located.
BSD’s flagship township is the BSD City, which is located in Tangerang regency, Banten province, approximately
25km southwest of Jakarta. BSD City is one the largest privately developed townships with a permitted size of 5,950
Ha, of which BSD has acquired 4,578 Ha. ~2,029 Ha has been developed, while the remaining 2,549 Ha remains on
the company’s land bank. Of the amount, 1,709 Ha of land bank is still registered by the founding shareholders
under the Cooperation Agreement. Phase I of the BSD City has been completed in 2008, covering approximately
1,500 Ha. Phase II was launched subsequently in 2008, while Phase III is expected to be commence in 2020. In
addition to property sales, BSD also provides water treatment and estate management services, as well as operate
several investment properties in the BSD City. BSD City makes up approximately 54.6% of the company’s land bank
as at end-2014.
Source: Company data
Besides BSD City, other key projects by BSD include the Grand Wisata township in Bekasi (Greater Jakarta), Kota
Wisata township in Cibubur (Greater Jakarta), Grand City township in Balikpapan, and Benowo Industrial Estate in
Surababya. These projects made up 12.3%, 2.8%, 4.6%, and 6.6% of total land bank, respectively. In aggregate, the
company has a total land bank of 4,667 Ha, including 3,855 Ha in Greater Jakarta and 812 Ha in other parts of
Indonesia. The map of BSD’s key developments and land bank are included below.
VOTED OUTSTANDING PRIVATE BANK – ASIA PACIFIC 2011 & 2014
BY PRIVATE BANKER INTERNATIONAL
1
20 August 2015
Source: Company data
In addition, the BSD owns a portfolio of investment properties, most of which are held through its 89%-owned
subsidiary, PT Duta Pertiwi Tbk (Pertiwi). Pertiwi is also listed on the Indonesian Stock Exchange with a market
capitalization of IDR11.1trn as at 17 April 2015. Investment properties include Breeze Mall (owned directly),
Sinarmas Land Plaza and Thamrin Towers II and III (owned through Pertiwi). Finally, BSD owns several joint
ventures and associates, including a 34% stake in PT Plaza Indonesia Realty Tbk. (Plaza Indonesia, an Indonesianlisted with a market capitalization of IDR13.8trn as at 17 April 2015), a 49% stake in the Indonesia Convention
Exhibition (unlisted). These assets increase the diversification of the company while generating recurring income.
Simplified Corporate Structure
Source: Company data, Moody’s Investors Service
BSD is listed on IDX with current market cap of IDR32.3 trillion as of 19 Aug 2015. Sinarmas Land indirectly controls about 63%
stake in the company with remaining being public holding.
VOTED OUTSTANDING PRIVATE BANK – ASIA PACIFIC 2011 & 2014
BY PRIVATE BANKER INTERNATIONAL
2
20 August 2015
2Q15 Earnings Review
2Q revenue of IDR1.7 trillion is up 7% qoq and up 48% yoy. Gross margin declined 8.3pp qoq and 6.0pp yoy to 71%,
as contribution from lower margin commercial products (which should be mainly apartments) increased to 24% in
2Q15 vs. 4% in 1Q15 and 11% in 2Q14. Recurring property revenue contributed 16% of LTM June 2015 revenue,
and BSD targets 20% contribution from recurring revenue by 2020.
BSD targets marketing sales of IDR 7.5trillion in 2015 (+15% yoy). Sales in BSD City will likely remain the main
driver of marketing sales in 2015. Outside of BSD City, the company is targeting IDR 700bn of sales from its Element
Rasuna apartment project in Jakarta, which it plans to launch in August 2015. BSD also expects sales of IDR 200bn
from its two projects in East Kalimantan. The two projects, with a combined area of 250ha, will likely contribute to
sales revenue in 2016. As of 1H15, BSD had achieved 47% of its full year marketing sales target.
Cash collection is also healthy at IDR1.8 trillion for the quarter, vs IDR 2.0 trillion in 1Q15. However, cash flow from
operations was only half of that in the previous quarter (IDR1.1 trillion in 1Q vs IDR555bn in 2Q) due to higher
operating payments. FCF turned negative in 2Q (+IDR407bn in 1Q vs –IDR473bn in 2Q ) on higher spending on land
acquisitions during the quarter. It expects to incur IDR 3.5-4.0tn of capex in 2015, predominantly for project
development and land acquisitions.
Cash and equivalents increased from IDR5.4 trillion to IDR7.6 trillion as it completed the USD bond issuance in Apr
2015, and most of the proceeds remain unused. Hence, despite increase in total debt balance at 2Q15, BSD
remains in net cash position, albeit lower qoq. Credit profile remains healthy with debt/EBITDA and EBITDA interest
coverage at 2.2x and 8.0x respectively.
Unlike its developers peers which have issued USD debt and hedged the bond principle either in full or partially at
various IDR ranges, BSD does not hedge its US$225m of offshore borrowings. Hence, it will be exposed to weaker
IDR in the form of translation loss and higher interest payments. However, with IDR3.7 trillion of its cash balance
maintained in USD, this is more than sufficient to cover IDR210bn (~US$15.2m) of annual interest payment for the
2020 USD bond. In addition, an estimated recurring EBITDA of IDR500-600bn should adequately cover its interest
cost of IDR600bn (including the new 2020 USD bond coupon).
Conclusion and Recommendation
We maintain our Hold recommendation on BSD’s strong credit profile and liquidity position.
Although we acknowledge BSD’s strong financial profile, we remain concerned on the complex corporate structure
and potential cash leakage from the group arising from related party transactions. In addition, out of the total land
bank of 2,549 ha of land bank in BSD City, 1,709 ha is registered in name of BSD’s founding shareholder for which
the company only has rights pursuant to a cooperation agreement to develop and manage properties. The promotor
group checkered history also remains an overhang.
Compared to Pakuwon (PWONIJ) 2020 at 7.6%, BSDEIJ 2020 (7.5%) at similar yield seems fair on a relative basis.
Although Pakuwon’s financial profile is similar (debt/EBITDA and EBITDA/interest of 1.7x and 6.7x respectively), it
has higher proportion of recurring revenue (46% of total revenues) which should help ease downward earnings
pressure from weaker development sales during the downturn. However, Pakuwon suffers from similar concerns on
its restructuring history and related party transactions, and is much smaller than BSD (revenue size two-thirds of
BSD and land bank 9% of BSD).
However, we see better relative value in Lippo 2020 at 7.0%. Given Lippo Karawachi’s larger revenue base, its
higher (40%) recurring revenue base and better corporate governance history, we think the 50bp yield differential is
too narrow, compared to the historical range of 90-120bp.
VOTED OUTSTANDING PRIVATE BANK – ASIA PACIFIC 2011 & 2014
BY PRIVATE BANKER INTERNATIONAL
3
20 August 2015
Source: Bloomberg as of 19 Aug 2015
This bond is suitable only for investors with high risk appetite and/or with diversified EM bond portfolio.
Investors must be comfortable with corporate governance issues, as well as the possibility of dealing with
an unfriendly creditor in times of distressed.
VOTED OUTSTANDING PRIVATE BANK – ASIA PACIFIC 2011 & 2014
BY PRIVATE BANKER INTERNATIONAL
4
20 August 2015
VOTED OUTSTANDING PRIVATE BANK – ASIA PACIFIC 2011 & 2014
BY PRIVATE BANKER INTERNATIONAL
5
20 August 2015
RISK RATING
(1) Very Low Risk, (2) Low Downside Risk, (3) Moderate Downside Risk, (4) High Downside Risk, (5) Very High Downside Risk
The description of risks in this document does not purport to be an exhaustive list of the risk factors associated with investment in the Financial Products mentioned in
this document. Before making any investment, the reader should consider all risks carefully and consult an independent financial adviser as necessary before dealing
with any Financial Products mentioned in this document.
ANALYST DECLARATION
The analyst(s) who prepared this report certifies that the opinions contained herein accurately and exclusively reflect his or her views about the securities of the
Company, and that he or she has taken reasonable care to maintain independence and objectivity in respect of the opinions herein.
*The analyst(s) who wrote this report does not hold securities in the Company. The analyst(s) receives compensation based on the overall revenues of Bank of
Singapore Limited, and no part of his or her compensation was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this
report. The reporting line of the analyst(s) is separate from and independent of the business solicitation or marketing departments of Bank of Singapore Limited.
*The analyst(s) or his/her associate confirms that he or she does not serve as directors or officers of the Company, and the Company or other third parties have not
provided or agreed to provide any compensation or other benefits to the analyst(s) in connection with this report.
GENERAL DISCLAIMER
This Document is for Internal Use & Circulation to Customers
This document, prepared by Bank of Singapore Limited (Co Reg. No.: 197700866R) (the “Bank” or “Bank of Singapore Limited”), is for the customer’s information
only and is not intended for anyone other than the customer. It is not an offer or a solicitation to deal in any of the financial products referred to herein or to enter into
any legal relations, nor an advice or a recommendation with respect to such financial products. It does not have regard to the specific investment objectives, financial
situation and the particular needs of the customer. The customer is advised to exercise caution in relation to any investment. The customer should independently
evaluate each financial product and consider the suitability of such financial product, taking into account the customer’s own specific investment objectives, investment
experience, financial situation and/or particular needs. If the customer is in doubt about the contents of this document and/or the suitability of any financial products
mentioned in this document, the customer is strongly advised to obtain independent financial, legal and/or tax advice from the customer’s professional advisers as
appropriate, before dealing in any financial products mentioned in this document.
Bank of Singapore Limited is a licensed bank regulated by the Monetary Authority of Singapore in Singapore and an Authorized Institution as defined in the Banking
Ordinance of Hong Kong (Cap 155), regulated by the Hong Kong Monetary Authority in Hong Kong.
This document and other related documents have not been reviewed by, registered or lodged as a prospectus, information memorandum, profile statement or product
highlight sheet with the Monetary Authority of Singapore or any regulator in Hong Kong or elsewhere.
This document may not be published, circulated, reproduced or distributed in whole or in part to any other person without the Bank’s prior written consent. This
document is not intended for distribution to, publication or use by any person in any jurisdiction outside Singapore, Hong Kong, or such other jurisdiction as the Bank
may determine in its absolute discretion, where such distribution, publication or use would be contrary to applicable law or would subject the Bank and its related
corporations, connected persons, associated persons and/or affiliates (collectively, “Affiliates”) to any registration, licensing or other requirements within such
jurisdiction.
While reasonable efforts have been made to ensure that the contents of this document have been obtained or derived from sources believed by the Bank and its
Affiliates to be reliable, neither the Bank nor its Affiliates have independently verified the accuracy of such source(s). The Bank and its Affiliates and their respective
officers, employees, agents and representatives do not make any express or implied representations, warranties or guarantees as to the accuracy, timeliness or
completeness of the information, data or prevailing state of affairs that are mentioned in this document and do not accept any liability for any loss or damage
whatsoever, direct or indirect, arising from or in connection with the use of or reliance on the contents of this document.
The Bank and its Affiliates may have issued other reports, analyses, or other documents expressing views different from the contents hereof and all views expressed in
all reports, analyses and documents are subject to change without notice. The Bank and its Affiliates reserve the right to act upon or use the contents hereof at any
time, including before its publication herein.
Bank of Singapore Limited forms part of the OCBC Group (being for this purpose Oversea-Chinese Banking Corporation Limited and its subsidiaries, related and
affiliated companies). Bank of Singapore Limited adheres to a group policy (as revised and updated from time to time) that provides how entities in the OCBC Group
manage or eliminate any actual or potential conflicts of interest which may impact the impartiality of research reports issued by any research analyst in the OCBC
Group. Bank of Singapore Limited, its employees and discretionary accounts managed by the Singapore office may have long or short positions or may be otherwise
interested in any of the financial products (including derivatives thereof) referred to in this document and may from time to time dispose of any such financial products.
Entities in the OCBC Group may act as market maker or may have assumed an underwriting commitment in respect of, perform or seek to perform broking, banking,
and other investment or securities-related services for the company(s) whose securities are mentioned in this document as well as other parties generally.
Past performance is not always indicative of likely or future performance. The value of any investment or income may go down as well as up. All investments involve an
element of risk, including capital loss. Customers who are interested in investing in any financial product should read the risk disclosures and governing terms and
conditions that are set out in the relevant offering documents.
Cross-Border Marketing Disclaimer
Brunei: This research report has not been delivered to, licensed or permitted by the Autoriti Monetari Brunei Darussalam, the authority as designated under the Brunei
Darussalam Securities Order, 2001, the Mutual Funds Order 2001 and the Banking Order 2006; nor has it been registered with the Registrar of Companies, Registrar
of International Business Companies or the Brunei Darussalam Ministry of Finance. This research report is not registered, licensed or permitted by the Autoriti Monetari
Brunei Darussalam or by any other government agency or under any law in Brunei Darussalam. This research report is for information purposes only. It does not
constitute an offer to buy or sell or a solicitation of an offer to buy or sell any securities or any interests and is subject to correction, completion and amendment without
notice. No recipient of this publication may issue, distribute, circulate, disseminate, offer or sell this publication or make or give copies of this publication to any other
person. No recipient of this publication may make use of the publication other than for its own general information purposes. Any offers, acceptances, subscription,
sales and allotments of a financial product in reliance of this research report shall be made outside Brunei Darussalam. Nothing in this research report shall constitute
legal, tax, accounting or investment advice. The recipient should independently evaluate any specific investment with consultation with professional advisors in law,
tax, accounting and investments. Canada: This research report does not constitute or form part of any offer or invitation for the sale or purchase of securities or any of
the assets, business or undertaking described herein nor shall it or any part of it form the basis of or be relied on in connection with, or act as any inducement to enter
into, any contract or commitment whatsoever. This research report provides general background information only. It is information in a summary form and does not
purport to be complete. It is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment objectives,
financial situation or needs of any particular investor. These should be considered, with or without professional advice, when deciding if an investment is appropriate.
The contents of this research report are not to be construed as legal, financial or tax advice. Each prospective investor should contact his, her or its own legal adviser,
independent financial adviser or tax adviser for legal, financial or tax advice. Indonesia: The offering of the investment product in reliance of this research report is not
registered under the Indonesian Capital Market Law and its implementing regulations, and is not intended to constitute a public offering of securities under the
Indonesian Capital Market Law and its implementing regulations. According, this investment product may not be offered or sold, directly or indirectly, within Indonesia
or to citizens (wherever they are domiciled or located), entities or residents, in any manner which constitutes a public offering of securities under the Indonesian Capital
Market Law and its implementing regulations. Israel: No action has been or will be taken in Israel that would permit a public offering of the securities and/or funds, or
VOTED OUTSTANDING PRIVATE BANK – ASIA PACIFIC 2011 & 2014
BY PRIVATE BANKER INTERNATIONAL
6
20 August 2015
distribution of the prospectus and/or private placement memorandum to the public in Israel in reliance of this research report. The prospectus and/or private placement
memorandum has not been approved by the Israel Securities Authority. The fund is not regulated under the provisions of Israel's Joint Investment Trusts Law, 1994.
Accordingly, the securities and/or funds shall only be sold in Israel to investors of the type listed in the First Schedule to Israel’s Securities Law 5728-1968. The
investor will be required to confirm in writing prior to any purchase of the fund units/shares that it is an investor of the type listed in the First Schedule to Israel’s
Securities Law, 5728-1968, that it is aware of the implications of being treated as such an investor, and consents to such treatment. Kazakhstan: This document,
prepared by the Bank of Singapore Limited is for information purposes only and is not an offer or a solicitation to deal in any of the financial products referred to herein
or to enter into any legal relations, nor an advice or a recommendation with respect to such financial products. This document is prepared for general circulation. It
does not have regard to the specific investment objectives, financial situation and the particular needs of any recipient. You should independently evaluate each
financial product and consider the suitability of such financial product, taking into account your specific investment objectives, financial situation or particular needs,
and you should consult an independent financial adviser, as may be necessary, before dealing with any financial products mentioned in this document. For the
avoidance of doubts, any services or products if to be rendered or delivered by the Bank will be in all circumstances rendered and delivered, respectively, from outside
of Kazakhstan. Kenya: This document has not been nor will it be approved by the Capital Markets Authority of Kenya. The offer of interests in the securities does not
constitute an offer to the public within the meaning of section 57 of the Companies Act (Chapter 486 of the Laws of Kenya). The offer of interests in the securities in
Kenya will be carried out as a "private offer" within the meaning of regulation 21 of the Public Offer Regulations (as amended). This document will be distributed in
Kenya to a limited number of investors and will not be provided to any person other than the original recipient, and may not be reproduced or used for any other
purpose. The interests in the securities may not be offered or sold directly or indirectly to the public in Kenya. Malaysia: Bank of Singapore Limited does not hold any
licence, registration or approval to carry on any regulated business in Malaysia (including but not limited to any businesses regulated under the Capital Markets &
Services Act 2007 of Malaysia), nor does it hold itself out as carrying on or purport to carry on any such business in Malaysia. Any services provided by Bank of
Singapore Limited to residents of Malaysia are provided solely on an offshore basis from outside Malaysia, either as a result of “reverse enquiry” on the part of the
Malaysian residents or where Bank of Singapore Limited has been retained outside Malaysia to provide such services. As an integral part of the provision of such
services from outside Malaysia, Bank of Singapore Limited may from time to time make available to such residents documents and information making reference to
capital markets products (for example, in connection with the provision of fund management or investment advisory services outside of Malaysia). Nothing in such
documents or information is intended to be construed as or constitute the making available of, or an offer or invitation to subscribe for or purchase any such capital
markets product. Nigeria: Customers are advised to seek further financial advice as Bank of Singapore Limited staff and/or the Bank of Singapore Limited will not be
liable for judgment and decisions reached by the customers save to the extent provided by law of Singapore. South Korea: The research report does not constitute an
offer, solicitation or investment advertisement to trade in the investment product referred to in the research report. Taiwan: The provision of the information and the
offer of the service concerned herewith have not been and will not be registered with the Financial Supervisory Commission of Taiwan pursuant to relevant laws and
regulations of Taiwan and may not be provided or offered in Taiwan or in circumstances which requires a prior registration or approval of the Financial Supervisory
Commission of Taiwan. No person or entity in Taiwan has been authorised to provide the information and to offer the service in Taiwan. Thailand: Please note that
neither Bank of Singapore Limited nor any other entities in the Bank of Singapore Limited’s group maintains any licences, authorisations or registrations in Thailand nor
is any of the material and information contained, or the relevant securities or products specified herein approved or registered in Thailand. Interests in the relevant
securities or products may not be offered or sold within Thailand. The attached information has been provided at your request for informational purposes only and shall
not be copied or redistributed to any other person without the prior consent of Bank of Singapore Limited or its relevant entities and in no way constitutes an offer,
solicitation, advertisement or advice of, or in relation to, the relevant securities or products by Bank of Singapore Limited or any other entities in Bank of Singapore
Limited’s group in Thailand. Dubai/U.A.E: The information contained herein is exclusively addressed to the recipient. The offering of certain products in this document
has not been and will not be registered with the United Arab Emirates Central Bank or the United Arab Emirates Securities & Commodities Authority. Products in this
document may not be offered or sold in the United Arab Emirates except in circumstances which do not constitute a public offering or distribution of securities under the
applicable laws and regulations of the United Arab Emirates. The distribution of the information contained herein by the recipient is prohibited. United Kingdom: The
Bank of Singapore Limited is authorised and regulated in Singapore by the Monetary Authority of Singapore. The Bank of Singapore Limited is not authorised in the
United Kingdom by the Financial Conduct Authority for the conduct of investment business. The services provided by the Bank of Singapore Limited are not covered
by the UK’s Financial Services Compensation Scheme and neither the Prudential Regulation Authority nor the Financial Conduct Authority supervises or regulates the
products or services provided by the Bank of Singapore Limited to UK residents.
VOTED OUTSTANDING PRIVATE BANK – ASIA PACIFIC 2011 & 2014
BY PRIVATE BANKER INTERNATIONAL
7