Timothy HANDERSON, Jovent GIOVANNY
- Based on our checks, DMAS currently has c.100ha of industrial land sales in the pipeline to be finalised in 4Q and next year.
- Management seems confident of executing sales, which indicates attractive earnings and thus dividend prospects (c.9% yield in FY18-19).
- We lower our earnings estimates by 27-36%, in-line with the company’s guidance. Maintain Add as it trades c.40% below its replacement costs.
Still has the biggest land bank and strongest balance sheet
DMAS’s estate remains the biggest among industrial estates (IE), with 1,017ha net land bank as at 3Q18 vs. BEST’s 725ha and SSIA’s 170ha. We think this should put it in the best position to capture the pick-up in new investment post-Presidential election next year. On top of that, it also remains one of the few developers with zero debt exposure.
Slow sales YTD
As at 10M18, DMAS has achieved Rp650bn of presales, forming 52% of its FY18 target of Rp1.25tr. Industrial was the key driver of presales (Rp450bn, c.25ha), followed by residential (c.Rp160bn-170bn presales, c.10ha) and commercial (c.Rp30bn, 0.5ha).
Strong pipeline of sales in 4Q18/2019
Our recent discussion with management suggests that it has 100ha of industrial land sales in the pipeline to be finalised in 4Q and next year. Out of the 100ha, 28ha (from manufacturing industries) has the potential to be finalised in 4Q while the remaining 72ha is expected to be booked next year (60ha from a logistics company). Assuming Rp1.8m/sqm price, there would be c.Rp1.8tr revenue backlog (100ha). If we add c.Rp730bn revenue in 10M18, it expects to generate c.Rp2.5tr-2.6tr revenue in 2018- 2019 (Rp1.25tr-1.3tr profit only from industrial with 50% NPM – in-line with our estimate).
Attractive dividend yields
It has been paying generous dividends in recent years (95% in the last two years) and we do not expect any changes in the near term. We expect c.9% dividend yield in 2018-2019
Ample upside even from a replacement cost standpoint
Maintain Add but reduce our DCF-based TP (WACC: 13.9%, LTG: 5%) to Rp240 (in-line with its replacement costs) as we cut our FY18-19 EPS forecasts by 27-36% (in-line with the company’s guidance) and raise our risk-free rate assumption. DMAS has underperformed the JCI by 8% YTD, trading at c.10x 2019 P/E and below its replacement costs (40% below). Upside risk is better-than-expected sales, while the key downside risk is political noises.