Singapore Equity: Sinarmas Land

Company Name: Sinarmas Land
Share Price: SGD 0.610
Market Capitalisation: SGD 1.84b

Sinarmas Land is the holding company of Bumi Serpong Damai, the largest property company in Indonesia by market cap and sales.

You can read up more in detail about the company here:

The company structure is as follows:
Sinarmas Land business structure

The share prices of all the property companies in Indonesia have appreciated by between ~25% to ~30% since November 2014 and are now at 52 week highs due to:

1. The sharp fall in oil prices and in turn fuel prices (little risk of rate hikes unless there are severe capital outflows from a faster than expected Fed rate hike, long-term interest rates should trend down as President Jokowi’s economic reforms boosts Indonesia’s credit rating).

2. The cut in cement prices by Semen Indonesia (via moral suasion from the government) which was followed by Indocement today.

3. Increased demand for industrial land due to the push for more manufacturing activities to offset the current narrow commodities led export base and cutting of red-tape to facilitate manufacturing FDI.

The bulk of Sinarmas Land’s value (using Sum of the Parts Valuation) is driven by Bumi Serpong Damai hence the share prices should have a similar correlation as seen by the chart below (the blue line represents Bumi Serpong while the black line represents Sinarmas Land).

Bumi Serpong Damai vs Sinarmas Land

From the 6 month chart, Sinarmas Land has been a significant laggard  especially in the last 3 months despite a stable SGD/IDR exchange rate during the latter period and should catch up with Bumi Serpong, no?

A sum of the parts valuation for Sinarmas Land yields a fair value of SGD 1.01 per share. Even after applying a holding company discount of 10% to 20%, Sinarmas Land should be valued at between SGD 0.80 and 0.91 per share.

Sinarmas Land Sum of the Parts Valuation

Current share price seems unjustified especially in the face of the strong rally by the listed property stocks in  Indonesia.

2 potential catalysts in the pipeline to unlock hidden value:

a. Potential listing of Kota Deltamas, its industrial estate property arm after listing was called off in 2013 due to weak market conditions.

b. Potential spin-off of its investment properties into a REIT.