We initiate coverage on Metropolitan Land (MTLA), an Indonesian property company which has a focus on the middle-income segment. We like the company for: 1) its balanced revenues structure between recurring and non-recurring income which helps ensure sustainability, 2) the continued good performance of its residential projects, 3) the company's sound financial conditions which facilitate development. To value this stock, we use a combination of the asset valuation and DCF methods. By applying a 50% discount to NAV, we arrive at a Target Price of Rp550, implying FY12F-13F P/E of 20.8-16.0 x. BUY.
Balanced revenues structure
Revenues from real estate - from residential projects and condotel - accounted for 68.5% of the company's total revenues in 1Q12. All in all, the company is committed to achieving a balanced revenues structure. To this end, the company is developing new commercial assets. This year, for example, the company is constructing the Grand Metropolitan Mall in West Bekasi. Furthermore, in a bid to ride on the growth in Indonesia's burgeoning tourism industry, MTLA plans to build three budget hotels this year. Profitability wise, the gross margin is showing steady improvements as the company achieves a better mix between residential projects and high margin commercial properties.
Expecting strong sales
MTLA is currently developing six middle-segment focused residential projects. Demand for properties in each project remains high (as reflected in the continuously rising land prices). All in all, the company is targeting Rp582 bn in marketing sales from its residential projects in 2012 (30% higher than in 2011) and another Rp68.7 bn from the M-Gold apartment and office that will be launched this year. Our 2012 marketing sales forecast, by comparison, is slightly lower than the company's at Rp616 bn. Since MTLA does not have that much land bank (in comparison to other property companies), the company will keep looking for land plots of 100-200 ha in size to develop its new residential projects.
Good financials shall facilitate development
With several proposed projects, capex is expected to reach Rp965 bn this year. A large amount of the capex will be used to construct Grand Metropolitan Mall. For this mall, some 79% of the total capex required of Rp450 bn will be spent this year. To finance part of this year's capex, the company will use the remaining IPO proceeds. However, given the large amount of capex planned for this year, the company will also need to make use of external funding sources. In this regard, we believe the company may take on around Rp200 bn of bank loans. However, with a net cash position at the end of 2011, we don't think the company will face difficulties in taking on external loans.
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