Maintain Buy
We had argued in the past that real estate sector should not remain completelyimmune to macro slowdown highlighting the divergence in property and nonproperty bond valuation. We are seeing the impact on property sector now,with most companies reporting weak marketing sales as well as revising 2015marketing sales target. We do not expect any material reversal in trend forremaining part of 2015 even though recent government measures on taxamnesty, better clarity on luxury/super luxury tax as well as stable IDR shouldbe slightly positive for property demand. That said, we do not see anyimmediate concerns for most companies as they have cushion of either stablerecurring revenue or growing industrial land sales.
In terms of bond valuation, Modernland 19s (92.5/93.5; 12.1% mid ytm) is thewidest trading bond within Indo property space . We continueto like the bond from a risk reward perspective for a cyclical sector exposureversus other tighter trading names. Softer earnings and downward revision ofFY15 marketing sales is slightly negative but the company has ability towithstand this weakness without any material impact on credit profile as wellas rating bucket (more details below). We also take comfort from recent top-upin hedge as IDR depreciation is one of the key concerns for Modernland.
Key downside risks include further sharp slowdown in revenue, material IDRdepreciation, and aggressive debt funded land acquisition.