We initiate Metropolitan Kentjana (MKPI IJ) with a BUY rating and a TP of IDR 32,000 (50% discount to RNAV). After its solid performance in 1H23, we are optimistic that MKPI will book strong numbers throughout the year, supported by its recurring income, which contributed ~78% of its total revenue in Jun-23, while going into 2024 and 2025, MKPI’s earnings will gain additional boost following the completion of its housing and commercial projects, including 1) Pondok Indah Residence 2, (2) Pondok Indah Plaza 6, (3) Pondok Indah Lifestyle Mall & Hotel, (4) Cluster Aurelle Residence and (5) Residential project in Deplu. From 2023F to 2025F, we forecast MKPI's revenue to grow at a CAGR of 13.2%, while its net profit is expected to increase by 11% in 2024F and 18% in 2025F.

Largest exposure to recurring revenue. This year, MKPI is the best-positioned developer under our coverage to benefit from the increase in foot traffic, as it has the largest exposure to recurring revenue, with a near-80% mix between development sales and recurring revenue. Looking ahead to 2024F and 2025F, we anticipate that recurring income will continue to increase, albeit at a slower rate, while development sales are anticipated to surge in 2024F (+48%) and 2025F (+96%), supported by the sales of Pondok Indah Residence and Townhouse. We anticipate that MKPI's top-line development will accelerate in 2025, driven by four projects: (1) Pondok Indah Residence 2, (2) Pondok Indah Plaza 6, (3 Pondok Indah Lifestyle Mall & Hotel, and (4) low-rise office spaces.

Strong balance sheet with the highest ROE amongst developers under coverage. MKPI's net cash position makes it one of the least leveraged real estate developers under our coverage. Its robust balance sheet, which reflects a healthy operating cash flow and net cash, should be able to fund all of its upcoming projects without relying excessively on bank loans, which will give the company an edge over other developers amid the current high-interest rate environment. In addition to a solid balance sheet, MKPI has the highest ROE amongst developers under coverage at 12% in 2024F compared to its competitors' average of 9%.

Initiate with BUY rating and TP of IDR 32,000/share. Based on a 50% discount to RNAV, we initiate Metropolitan Kentjana (MKPI IJ) with a BUY rating and a TP of IDR 32,000. In 2024 and 2025, we believe MKPI’s earnings will gain additional boost following the completion of new housing and commercial projects. As a result, we anticipate that MKPI's revenue will increase at a CAGR of 13.2% from 2023 to 2025, while its net profit will increase by 11% in 2024F and 18% in 2025F. Risks to our call are slower-than-expected property demand and regulatory changes.