Alam Sutera Realty

One of the most memorable experiences of my early years in the Indonesian stock market was when I watched how property stocks, which previously devastated by the global crisis in 2008, gained so much in the next few years, and the rise is in line with the excellent financial performance of property developers at the time, where they had great return on equity on the level 20 – 30%, thanks to the high rate of economic growth in Indonesia (had reached 6.9% in 2011) that boosted the prices of property as many capital owners invest their funds in the property. At those years, a property developer could purchase land at a bargain price, develop it into an elite residential area, and later sell it at exorbitant prices. The areas on the outskirts of Jakarta such as Serpong, Cikarang, Cibubur, developed rapidly during this period.

And one of the developers who enjoyed the property boom was Alam Sutera Realty (ASRI). ASRI is the owner of the integrated township 'Alam Sutera' in Serpong, Tangerang, which has been built since 1994, but the township only began to grow rapidly in 2009 after the opening of direct exit at KM 15.4 of Jakarta - Merak toll road, which opened a direct access to and from the City of Jakarta. Starting in 2009, the company aggressively built many clusters of housing, shophouses, office buildings, apartments, to malls, and almost all of them successfully sold/leased at prices that continued to rise from year to year. Thus, after posting a loss in 2008, ASRI posted a net income of Rp94 billion in 2009. And only four years later, in 2012 the net income has already exceeded Rp1 trillion, precisely Rp1,193 billion.

In line with its remarkable growth, ASRI shares in the market had also skyrocketed, from previously at the lowest level of Rp50 per share in 2008, until it broke the psychological level of Rp1,000 in early 2013 (ie after the company released its financial statements for the full year 2012). I bought this ASRI at a price of Rp220 in 2010, and we enjoyed an enormous profit from capital gains and dividends, just a few years later.

In mid-2013, however, perhaps because of the appearance of signs of bubble in the property sector where the price of property units continued to rise even in a matter of weeks, and there were many speculators who, by using loan from the bank, bought house, apartments etc only to sell it later at a higher price, Bank Indonesia (BI) as the central bank launched the policy of loan to value (LTV), where the property buyer must pay down payment at least 30% of the selling price of the property, including raising the mortgage interest. This policy instantly eased the euphoria in the property sector, and ASRI's net profit dropped to just Rp877 billion in 2013. In this year I also decided to sell the stock, then at a price of about Rp800 per share.

And in subsequent years, the property industry was not able to rise back as the Indonesian macro economy began to slowing down along with the decline in commodity prices, where GDP growth dropped, the Rupiah continued to impaired, and inflation’s high. On the other hand BI still did not loosen the LTV and other policies, and consequently many property developers, including ASRI, suffered a decline in net income. Until finally in 2016, ASRI only booked net profit of Rp519 billion. While the stock? Well, dropped to only Rp300 per share, or lose about 70% of its market value in early 2013.

Luckily, by the end of 2016, commodity prices began to recover, the economy started to grow, the Rupiah was stable, and inflation was under control. And the signs of bubble in the property sector has also been long gone. So BI immediately loosened the LTV policy and lowered the loan interest rate, and for ASRI, the impact was positive. Until the third quarter of 2017, the company’s net profit already surged to Rp1.1 trillion, so ASRI has quite the opportunity to make revenues and net income that are even greater than their peak in the year 2012 - 2013. Here is a complete summary of ASRI's financial performance, from 2009 to Q3 2017, the figure in billions of Rupiah.

Year	2009	2010	2011	2012	2013	2014	2015	2016	2017*)
Revenue	419	791	1,381	2,446	3,684	3,631	2,784	2,716	3,170
Net Income	94	291	602	1,193	877	1,097	599	519	1,124
Net Equity	1,927	2,208	2,738	4,568	5,158	6,118	6,454	7,083	8,217
*) until Sept 30

That's why, since August 2017 I decided to buy back ASRI stock because, just think about it: In 2013 you had to buy ASRI at Rp1,000 per share, when the book value was only Rp5.1 trillion. But today you can buy ASRI’s shares at the price of Rp350 – 400, or only a third, while the book value has increased to Rp8.2 trillion! Yup, despite the fluctuations in terms of revenue and net income, but ASRI’s equity continues to grow consistently from year to year. And the good news is that the company still have a chance to continue growing rapidly in the future. Currently, in addition to developing Township Alam Sutera covering an area of ​​800 hectares, since 2013 the company has also started to develop Township Pasar Kemis, Tangerang, covering an area of ​​2,600 hectares, not including the development of several other major assets such as Garuda Wisnu Kencana Cultural Park in Bali, and Centennial Tower in Jalan Gatot Subroto, Jakarta.

So assuming that economic growth will remain stable as it is today, and neither the Government nor the BI will tighten the distribution of housing loans (which is indeed unlikely, given that currently the property industry is just begin to grow, and is still very far from the possibility of bubble), the company has a chance to book a record high in net profit in 2018. And if that happens then ASRI shares will continue to rise, because the PBV of only 0.9 times at the price of Rp380 per share is clearly still undervalue, especially for the shares of a company with the status as one of the most prominent developers in the Serpong region (today, everybody knows 'Alam Sutera'). So yes, this is quite an opportunity!

Disclosure: When this article was written, the author is in a position of ASRI at an average purchase price of Rp358 per share. This position can change at any time without prior notice.

About Teguh: Teguh Hidayat is an independent investor in Indonesian stocks, and fund manager. Since 2009, his specialty is value investing, trying to find prospective investments at the lowest possible price. Teguh is also a regular commentator in the media, having appeared in Bisnis Indonesia Newspaper, Kontan Newspaper, IDX Channel, and Metro TV. For more details please visit www.teguhhidayat.com (In Indonesian), and www.thpartner.com (In English). For business inquiries, contact 081229445202 (Ms. Nury).