Brief Singapore: Indonesia Property – In Search of the End of the Rainbow – Part 2 –  Bumi Serpong Damai (BSDE IJ) and more

In this briefing:

1. Indonesia Property – In Search of the End of the Rainbow – Part 2 –  Bumi Serpong Damai (BSDE IJ)
2. Golden Land: Less An Offer, More A Consolidation Of Interests

1. Indonesia Property – In Search of the End of the Rainbow – Part 2 –  Bumi Serpong Damai (BSDE IJ)

In this series under Smartkarma Originals, CrossASEAN Research insight providers Angus Mackintosh 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 second company we explore is leading township developer Bumi Serpong Damai (BSDE IJ), with exposure ranging from landed housing, shophouses, condominiums, as well as the defensive and growing buffer of nearly 20% of revenues coming from recurrent rental income.

Bumi Serpong Damai (BSDE IJ) has one of the largest land banks of any developer, with a land bank of over 4,000 ha, more than half of which is in its flagship township of BSD City in Serpong.

Given its breadth of exposure to the property segment, the company has the flexibility to switch its exposure between different segments depending on the health of the overall market. 

Its projects are well connected by toll-roads and railway but it is well positioned to benefit from new infrastructure such as the new MRT, LRT, as well as new toll road extensions, which will enhance the attractiveness of its developments.  

Management suggests that they will take a cautious start to the year ahead of the election but see a window for a pick-up in marketing sales in May, with the potential for a much better 2H19. 

Despite a run-up in the share price since the start of the year, valuations do not look challenging from a historical basis especially looking at its PBV. It also trades at a significant discount to NAV of 67%, as well as being below its 5 yr historical mean on a forward PER basis.

Catalysts ahead include a post-election pick-up in activity leading to more project launches, completion of infrastructure projects, aggressive mortgage lending by the banks, and a more dovish interest rate outlook. Valuations are already attractive but a rise in property market activity should also lead to earnings upgrades, which if sustained, may lead to property prices moving upwards.

2. Golden Land: Less An Offer, More A Consolidation Of Interests

Frasers Property (Thailand) Pcl (FPT TB) has announced a conditional voluntary tender offer for Golden Land Prop Dvlp (GOLD TB) at Bt8.50/share, ~2.4% premium to last close.

Frasers Property Ltd (FPL SP) owns 40.95% in FPT and also 39.92% in GOLD. FPT’s director Panote Sirivadhanabhakdi (the son of Charoen Sirivadhanabhakdi), via his majority-controlled vehicle Univentures Public (UV TB), holds 39.28% in GOLD. Panote is also the vice-chairman of GOLD.

Presumably, both FPL and Univentures will tender into the Offer giving FPT a minimum holding of 80.2%. There were no specific minimum acceptance conditions attached to the tender offer mentioned in the announcement.

Should FPP secure 90% of GOLD in the tender offer, it may proceed with its delisting. A voluntary delisting is still achievable with ~80% in the bag, but that is conditional on <10% of shareholders not voting against.

Preconditions to the commencement of the tender offer include the approval from disinterested shareholders in FPP, approval from “relevant contractual parties of GOLD and GOLD’s subsidiaries” and the approval from the Office of Trade Competition Commission.

The fact the Sirivadhanabhakdi family already holds, directly/indirectly ~80% in GOLD, such regulatory approvals should be forthcoming.

This appears a done deal. The only apparent risk is the expected shareholder vote of Univentures wherein Panote will likely need to abstain.

Currently trading at a gross/annualized spread of 1.8%/4.3% assuming early August payment. Very tight, suggesting investors are more likely angling for the back-end.