Property

Picking Quality Names to Ride the Rate Cut Sentiment

• Property stocks tend to re-rate ahead of or during rate cuts, even though pre-sales remain more dependent on product mix and launches.
• Stronger IDR and weak consumption may pave the way for BI rate cut, with local funds already loading up on the property sector.
• Maintain OW in the sector; prefer quality names over deep discounts to support sustainable re-rate. Top Picks: CTRA>PWON>SMRA>BSDE.

Rate Cut: Limited Impact to Pre-Sales, yet Highly Sensitive to Share Price

Our analysis shows property companies’ discount to RNAV tends to narrow amid a series of rate cuts or a plateauing policy rate following a series of hikes (Exhibit 1). Share price performance also tends to improve starting 1mo. before the series of cuts, reflecting investors’ tactical stance on the sector despite pre-sales performance being more related to new launches and product mix affordability. Mortgage rates are moving secularly from the policy rate, which has trended downward for the past 10-yrs., as we believe Indo banks see mortgages as key segment to meet target disbursements with a stable NPL profile. That said, several property developers still see a risk of a weaker mortgage market in FY25, as tight liquidity could lead to upward repricing despite a lower global rate environment.

Strengthen IDR and Weak Macro Present a Case for Potential Rate-Cut

We see potential for BI to cut policy rates in the next meetings (May25; Jun25), given the stronger IDR and weak economic growth. We believe the current condition could offer the window for BI to support household consumption. While domestic funds have slightly increased exposure into the sector in Apr25, the current weighting of 30bps is still well below the peak positioning of 128bps in Aug24 (Exhibit 24).

Prefer Quality Over Steep Discount to RNAV for a Sustainable Re-Rating

Overall, we remain OW on the sector as all developers' valuations are trading at a steep discount vs. historical five years, despite showing improved profitability, pre-sales performance and balance sheet quality. Although Apr25 saw broad-based stock gains (CTRA/SMRA/BSDE/PWON: 33%/22%/9%/26% 1M return), we believe quality names, which include developers with strong product-market fit, diverse locations, balanced VAT pre-sales and a strategy to improve ROE, will have a more sustainable re-rate case. As most developers are already in a net cash position (Exhibit 16), rate-cut-driven interest savings are less material.

Looking at 1Q25 financial results (Exhibit 14) and pre-sales (Exhibit 5), CTRA has so far outperformed its peers. We also assigned scorecard of catalysts to determine which developers can best seize the current active property market demand, based on pricing & product mixes, VAT contributions, project geographical profiles, as well as strategy to improve ROE, and found that higher scores gained by CTRA>PWON>SMRA>BSDE. (Exhibit 15). Key risks: delay in rate cut if BI still sees the priority to support IDR and weak pre-sales.

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