COMPANY_NOTES ASRI_20110810

Catalysts for Higher NAV

We continue to like ASRI as a margin player with low basis cost for its land bank. We upgrade our TP to Rp 500 per share following two great catalysts for higher NAV, which are the launching of Pasar Kemis in Q4-2011 and opening of Mall @ Alam Sutera in 2012.

In-line Performance. ASRI reports Rp 1.016 trillion marketing sales for the first half of 2011 or 58.11% of the full year target, relatively on par over the same period last year. On the P/L statements, the Company records 78% jump in revenue and slightly better operating margin of 45%, supported by the completion of last year backlog and better gross margin from recurring hospitality segment (57.9% GM). For the second half of the year, increase in net profit shall slow down due to higher leverage if the Company executes its plan to issue new bond with Rp 1,1 trillion face value to finance its capital expenditure.

Strong Margin to Continue. Similar to Serpong project, the Company acquired Pasar Kemis at low average book cost of Rp 74k per sqm for current 790 ha land bank. Despite a typical 60% utilization rate of land bank and substantial infrastructure investment required, we maintain favorable outlook for the management to sustain (or even improve) 50s% gross margin. Price appreciation through better access in Serpong is anticipated from new JORR 2 toll road that connect the project to Soekarno - Hatta International Airport

Maneuver to Heighten Recurring Income. On-schedule topping of Mall @ Alam Sutera on May 25, 2011 is positive information for recurring income. From 40% occupancy rate, the Company can earn additional Rp ~30 billion rental revenue in FY12 and up to Rp ~74 billion after reaching stable state. The development of the adjacent theme park and hotel shall follow lead afterwards and the management has also finalized acquisition of 6 ha land bank in Sanur, Bali which shall be used for convention hall.

Raise TP to Rp 500/share, Reiterate BUY. Successful launching of Pasar Kemis and Superblock development in Serpong is two catalysts to drive up net asset value of ASRI. We anticipate ~40% selling price increase in FY11 Serpong driven by Mall and JORR 2 toll road development, a conservative estimation considering the appreciation in 1H-2011 already reach 34% for residential. We raise our target price to Rp 500/share based on 40% discount on NAV estimation.