ASEAN Insight Provider, CrossASEAN Research

Angus Mackintosh

ASEAN Insight Provider

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Equity Bottom-Up

PT Metrodata Electronics / Equity Bottom-Up

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<a href="https://www.smartkarma.com/entities/metrodata-electronic-pt" target="_blank" data-smartkarma-citation="entities:7184:1" rel="noopener">Metrodata Electronic (MTDL IJ)</a> is a rare value play on Indonesia's digitalization. It benefits not only from offline companies continuing to digitalize processes and infrastructure but also from the rise in e-commerce, digital payments, fintech, and gaming. 
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It is one of the leading Information and Communication Technology (ICT) distribution companies in Indonesia, with strategic alliances with world-class ICT companies, distributing for around 75% of global IT brands to consumer and commercial customers. 
The real driver for growth and profits for the company is coming from the company's solutions and consulting business, where it holds around 20% market share in Indonesia and this is a growing portion of sales and more importantly profits.
The company operates out of one distribution center but has a total of 20 warehouses across Indonesia, covering 150+ cities, with 4,000+ channel partners. 
With the boom in e-commerce, growing at an unprecedented rate globally, with younger and older generations now shopping and using other online services, there is an even greater need for the products that <a href="https://www.smartkarma.com/entities/metrodata-electronic-pt" target="_blank" data-smartkarma-citation="entities:7184:1" rel="noopener">Metrodata Electronic (MTDL IJ)</a> distributes.
E-commerce operators continue to drive strong demand for the company's products in order to support their own rapid growth, with increasing needs for IT infrastructure, as well as solutions and consulting services.
Offline companies are also increasingly adopting and embracing the concept of the digital transformation of Industry 4.0. This is a mixture of cloud computing, artificial intelligence (AI), machine learning, and advanced analytics that are designed to improve management, business operations, and customer reach by making processes simpler and more accessible than before. 
The company has seen some benefit from COVID-19 as there is little doubt that with companies are obligated to implement WFH procedures, the requirement for a solid IT infrastructure and digital tools are all the more essential.
<a href="https://www.smartkarma.com/entities/metrodata-electronic-pt" target="_blank" data-smartkarma-citation="entities:7184:1" rel="noopener">Metrodata Electronic (MTDL IJ)</a> has a long track record of sales and profits over the last few years and has also gradually improved margins at the same time. Being a distribution company, net margins remain relatively low at 2.5% but its move towards more consulting and solutions work will help to support and improve margins going forward. 
Valuations look attractive with the company trading on 8.7x FY21E PER, with forecast growth of +15% and +17% over FY21E and FY22E respectively, assuming flat net margins of 2.5%. Its international peers trade on an average of around 16x FY21 PER, which suggests <a href="https://www.smartkarma.com/entities/metrodata-electronic-pt" target="_blank" data-smartkarma-citation="entities:7184:1" rel="noopener">Metrodata Electronic (MTDL IJ)</a> is undervalued, especially given a positive earnings outlook.


Metrodata Electronic (MTDL IJ) is a rare value play on Indonesia's digitalization. It benefits not only from offline companies continuing to digitalize processes and infrastructure but also from the rise in e-commerce, digital payments, fintech, and gaming. 

It is one of the leading Information and Communication Technology (ICT) distribution companies in Indonesia, with strategic alliances with world-class ICT companies, distributing for around 75% of global IT brands to consumer and commercial customers. 
The real driver for growth and profits for the company is coming from the company's solutions and consulting business, where it holds around 20% market share in Indonesia and this is a growing portion of sales and more importantly profits.
The company operates out of one distribution center but has a total of 20 warehouses across Indonesia, covering 150+ cities, with 4,000+ channel partners. 
With the boom in e-commerce, growing at an unprecedented rate globally, with younger and older generations now shopping and using other online services, there is an even greater need for the products that Metrodata Electronic (MTDL IJ) distributes.
E-commerce operators continue to drive strong demand for the company's products in order to support their own rapid growth, with increasing needs for IT infrastructure, as well as solutions and consulting services.
Offline companies are also increasingly adopting and embracing the concept of the digital transformation of Industry 4.0. This is a mixture of cloud computing, artificial intelligence (AI), machine learning, and advanced analytics that are designed to improve management, business operations, and customer reach by making processes simpler and more accessible than before. 
The company has seen some benefit from COVID-19 as there is little doubt that with companies are obligated to implement WFH procedures, the requirement for a solid IT infrastructure and digital tools are all the more essential.
Metrodata Electronic (MTDL IJ) has a long track record of sales and profits over the last few years and has also gradually improved margins at the same time. Being a distribution company, net margins remain relatively low at 2.5% but its move towards more consulting and solutions work will help to support and improve margins going forward. 
Valuations look attractive with the company trading on 8.7x FY21E PER, with forecast growth of +15% and +17% over FY21E and FY22E respectively, assuming flat net margins of 2.5%. Its international peers trade on an average of around 16x FY21 PER, which suggests Metrodata Electronic (MTDL IJ) is undervalued, especially given a positive earnings outlook. 

Metrodata Electronic (MTDL IJ) - A Rare Value Play on Indonesia's Digitalization

Jessica Irene

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/077/675/original/The%20end%20of%20rainbow.png?1549040357" class="editor-image img-responsive" data-smartkarma-image-id="77675"></figure>
In this series under Smartkarma Originals, CrossASEAN insight providers <a href="https://www.smartkarma.com/profiles/937" target="_blank" data-saferedirecturl="https://www.google.com/url?q=https://www.smartkarma.com/profiles/937&amp;source=gmail&amp;ust=1546997131129000&amp;usg=AFQjCNEM6J5W9qoLicOCQg406eGu30soUw">AngusMackintosh</a> and <a href="https://www.smartkarma.com/profiles/3145" target="_blank" data-saferedirecturl="https://www.google.com/url?q=https://www.smartkarma.com/profiles/3145&amp;source=gmail&amp;ust=1546997131129000&amp;usg=AFQjCNGeAUtnEDEyoHjpHfSEb4E1G5KE2A">Jessica Irene</a> seek to determine whether or not we are close to the end of the rainbow and to a period of outperformance for the property sector. Our end conclusions will be based on a series of company visits to the major listed property companies in Indonesia, conversations with local banks, property agents, and other relevant channel checks. 
The first company that we explore is <a href="https://www.smartkarma.com/entities/5513" target="_blank" data-smartkarma-citation="entities:5513:1">Ciputra Development (CTRA IJ)</a>, a township developer with 38 years of track record. With 75 ongoing township projects in 33 cities, CTRA has the widest coverage of any developer in Indonesia. However, tightening policies by the Bank Indonesia (BI), in particular the presales mortgage disbursement regulation caused a significant drop in operating cashflow and increased gearing level.
Earnings have been on a downtrend, as slower revenue recognition coupled with higher interest costs have weighed on the bottom line. As BI has recently started to relax property regulations, we may begin to see some positive impact on cash flows over the next few quarters, although earnings are likely to remain weak from declining presales over the past three years.
As we enter the election year, presales announcements may not be positive in the short term, but activities may improve after the electoral contest, helped by a pick up in sentiment and boosted by a better interest rate environment and positive regulatory tailwinds. Potential portfolio inflow to high beta stocks and rising risk appetite for smaller cap underperforming stocks should also drive CTRA's share price outperformance in 2019. We see a 50% upside to our target price of IDR1,352 per share.
Summary of this insight:
<ul class="">
<li>The property development product portfolio includes landed housing, high-rise condominiums, and offices. Landed housing projects are still CTRA's bread and butter, comprising more than half of the company's revenue and more than two-thirds of presales. As the property demand is currently dominated by the end-users, CTRA's product offering is shifting towards smaller more affordable units. We have put together an example mortgage calculation and determine a key affordability level based on the average income per capita in the Greater Jakarta to illustrate how much should a housing unit be worth for the end users market.</li>
<li>The investment properties portfolio consists of 4 malls, 9 hotels, and 4 hospitals across the major cities in Indonesia, making up 13%, 8%, and 6% of 9M18 total consolidated revenues respectively. This is a 68% increase in revenue contribution versus five years ago. The company has been actively building its investment property portfolio to weather out the volatility in the non-recurring or development revenue.</li>
<li>Accessibility is a key factor to land appreciation and hence, company's total NAV. With the traffic worsening around the Greater Jakarta area, time to commute is an increasingly important factor in determining where to stay and access to public transportation such as MRT and LRT will be a powerful driver going forward. CTRA has a very diverse property development portfolio, hence the benefit of the infrastructure rollout is more widespread across the different projects.</li>
<li>65% of CTRA’s presales are generated from units priced IDR2bn and below, which indicate that the majority of CTRA's buyers are in the middle to middle-low segments. These buyers are price sensitive and are highly dependent on financing. CTRA's mortgage and in-house installment proportion is one of the highest in our property universe, making the company more susceptible to the changes in the property mortgage regulation by the Central Bank (BI).</li>
</ul>
<ul class="">
<li>The property mortgage regulation in Indonesia has had few rounds of changes in the past decade, with a series of tightening measures taking place between 2013-2014, and the start of loosening measures in 2016-2018. We will discuss in depth the various property regulations issued and its impact on CTRA's cashflow. We also constructed a cashflow simulation time series for a sample housing sale to determine the time needed for the project to turn net cashflow positive and when can the developer reinvest for future landbank of equivalent value.</li>
<li>
Pros: as we expect a better rate of cash inflow from future mortgages, our model shows that the advances-to-inventory ratio, which is an indicative figure for the property developers' working capital, will begin to rise in 2019, leading to an inflection point for CTRA's FCF. One-off adjustment in the earlier booking of 2019's first mortgage disbursement is the key driver. </li>
<li>
Cons: CTRA booked three consecutive years of negative presales growth with a decline rate of -11% Cagr. This indicates that the accounting revenue growth will more likely be weaker over the next 12-18 months. We also estimate that margin should continue to trend down until 2020. As we continue to see a larger proportion of units priced below IDR1bn in the past 2 years, it is unlikely to see a pick up in margin in 2019-2020.
</li>
<li>
Cons: Election year to election year, we may see some similarity between the 2014 and 2019's quarterly presales split. 1Q14 and 2Q14 contributed 41% to total FY14 presales, while 4Q14 contributed a chunky 33%. If we assume the same quarterly split for 2019 presales target, we may potentially see 13%-27% YoY declines in the next three quarters of presales reporting. Note however that the BI issued its first round of tightening regulations at the end of 2013 and this may have an impact to the 1H14 presales. Also there is a difference in the election schedules as the 2014 election was dragged on until late August, while the 2019 contest will be done by end of April.</li>
<li>
Recommendation &amp; catalyst: CTRA share price has underperformed the JCI by 24% in the past 12 months. Though the share price has a nice 28% rebound from its 5-year low point, CTRA's discount to net asset value (NAV) and price-to-book (PB) ratio is still at more than -1 standard deviation below its historical mean. Its price-to-earnings (PE) ratio however is only slightly below the historical mean. Improving risk appetite for high beta stocks, better interest rate environment, accomodative policies from the government, and potential pick up of activity after the election are a few of the key catalysts for the stock and sector. This underlines our BUY recommendation on CTRA with 50% upside. Our bull case scenario of rerating to +1 standard deviation above mean valuation offers 26% additional upside to our TP. </li>
</ul>


In this series under Smartkarma Originals, CrossASEAN insight providers AngusMackintosh and Jessica Irene seek to determine whether or not we are close to the end of the rainbow and to a period of outperformance for the property sector. Our end conclusions will be based on a series of company visits to the major listed property companies in Indonesia, conversations with local banks, property agents, and other relevant channel checks. 
The first company that we explore is Ciputra Development (CTRA IJ), a township developer with 38 years of track record. With 75 ongoing township projects in 33 cities, CTRA has the widest coverage of any developer in Indonesia. However, tightening policies by the Bank Indonesia (BI), in particular the presales mortgage disbursement regulation caused a significant drop in operating cashflow and increased gearing level.
Earnings have been on a downtrend, as slower revenue recognition coupled with higher interest costs have weighed on the bottom line. As BI has recently started to relax property regulations, we may begin to see some positive impact on cash flows over the next few quarters, although earnings are likely to remain weak from declining presales over the past three years.
As we enter the election year, presales announcements may not be positive in the short term, but activities may improve after the electoral contest, helped by a pick up in sentiment and boosted by a better interest rate environment and positive regulatory tailwinds. Potential portfolio inflow to high beta stocks and rising risk appetite for smaller cap underperforming stocks should also drive CTRA's share price outperformance in 2019. We see a 50% upside to our target price of IDR1,352 per share.
Summary of this insight:

The property development product portfolio includes landed housing, high-rise condominiums, and offices. Landed housing projects are still CTRA's bread and butter, comprising more than half of the company's revenue and more than two-thirds of presales. As the property demand is currently dominated by the end-users, CTRA's product offering is shifting towards smaller more affordable units. We have put together an example mortgage calculation and determine a key affordability level based on the average income per capita in the Greater Jakarta to illustrate how much should a housing unit be worth for the end users market.
The investment properties portfolio consists of 4 malls, 9 hotels, and 4 hospitals across the major cities in Indonesia, making up 13%, 8%, and 6% of 9M18 total consolidated revenues respectively. This is a 68% increase in revenue contribution versus five years ago. The company has been actively building its investment property portfolio to weather out the volatility in the non-recurring or development revenue.
Accessibility is a key factor to land appreciation and hence, company's total NAV. With the traffic worsening around the Greater Jakarta area, time to commute is an increasingly important factor in determining where to stay and access to public transportation such as MRT and LRT will be a powerful driver going forward. CTRA has a very diverse property development portfolio, hence the benefit of the infrastructure rollout is more widespread across the different projects.
65% of CTRA’s presales are generated from units priced IDR2bn and below, which indicate that the majority of CTRA's buyers are in the middle to middle-low segments. These buyers are price sensitive and are highly dependent on financing. CTRA's mortgage and in-house installment proportion is one of the highest in our property universe, making the company more susceptible to the changes in the property mortgage regulation by the Central Bank (BI).


The property mortgage regulation in Indonesia has had few rounds of changes in the past decade, with a series of tightening measures taking place between 2013-2014, and the start of loosening measures in 2016-2018. We will discuss in depth the various property regulations issued and its impact on CTRA's cashflow. We also constructed a cashflow simulation time series for a sample housing sale to determine the time needed for the project to turn net cashflow positive and when can the developer reinvest for future landbank of equivalent value.

Pros: as we expect a better rate of cash inflow from future mortgages, our model shows that the advances-to-inventory ratio, which is an indicative figure for the property developers' working capital, will begin to rise in 2019, leading to an inflection point for CTRA's FCF. One-off adjustment in the earlier booking of 2019's first mortgage disbursement is the key driver. 

Cons: CTRA booked three consecutive years of negative presales growth with a decline rate of -11% Cagr. This indicates that the accounting revenue growth will more likely be weaker over the next 12-18 months. We also estimate that margin should continue to trend down until 2020. As we continue to see a larger proportion of units priced below IDR1bn in the past 2 years, it is unlikely to see a pick up in margin in 2019-2020.


Cons: Election year to election year, we may see some similarity between the 2014 and 2019's quarterly presales split. 1Q14 and 2Q14 contributed 41% to total FY14 presales, while 4Q14 contributed a chunky 33%. If we assume the same quarterly split for 2019 presales target, we may potentially see 13%-27% YoY declines in the next three quarters of presales reporting. Note however that the BI issued its first round of tightening regulations at the end of 2013 and this may have an impact to the 1H14 presales. Also there is a difference in the election schedules as the 2014 election was dragged on until late August, while the 2019 contest will be done by end of April.

Recommendation &amp; catalyst: CTRA share price has underperformed the JCI by 24% in the past 12 months. Though the share price has a nice 28% rebound from its 5-year low point, CTRA's discount to net asset value (NAV) and price-to-book (PB) ratio is still at more than -1 standard deviation below its historical mean. Its price-to-earnings (PE) ratio however is only slightly below the historical mean. Improving risk appetite for high beta stocks, better interest rate environment, accomodative policies from the government, and potential pick up of activity after the election are a few of the key catalysts for the stock and sector. This underlines our BUY recommendation on CTRA with 50% upside. Our bull case scenario of rerating to +1 standard deviation above mean valuation offers 26% additional upside to our TP. 


Indonesia Property - In Search of the End of the Rainbow - Part 1 - Ciputra Development (CTRA IJ)

Indonesia

PT Ciputra Surya Tbk develops houses, hotels, shopping centers, schools, recreational centers, apartments, and golf clubs.

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Ciputra Surya (CTRS IJ)

Metrodata Electronic (MTDL IJ) - A Rare Value Play on Indonesia's Digitalization

Metrodata Electronic (MTDL IJ) is a rare value play on the rapid digitalization in Indonesia, which has seen an acceleration driven by the growth...

Angus Mackintosh

Indonesia Property - In Search of the End of the Rainbow - Part 1 - Ciputra Development (CTRA IJ)

In this series under Smartkarma Originals, CrossASEAN insight providers AngusMackintosh and Jessica Irene seek to determine whether or not we are...

Jessica Irene

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