FY08 net income above expectation: Bakrieland reported FY08 net income of Rp272.1B, up 102.8%Y/Y from Rp134.2B in FY07. The reported income was above both J.P. Morgan (128.0%) and consensus (146.6%) estimates of Rp212.5B and Rp185.6B, respectively. Stripping out the forex gain of Rp109.8B, the core net income of Rp187.4B was below our (91.6%) estimate of Rp204.6B, but better than the consensus estimate of Rp175.1B (107.0%).
4Q08 disappoints: Subtracting 9M08 results, 4Q08 core net income of Rp42.1B was down by 6.8% Y/Y from Rp45.1B in 4Q07. The operating profit of Rp58.3B was down by 15.4% from Rp68.9B in 4Q07. This was because of the recent project expansion and upfront build-up, and the immediate recognition in SGA expenses as marketing sales are yet to be recorded as an accounting revenue.
We expect a recovery: With the reduction in interest rates, we expect that marketing sales should start to recover starting 2H09. This should bode well for reported net income 6-12 months down the road. With this, we believe that marketing sales analysis will be more important than accounting sales.
We maintain OW and our Dec-09 PT of Rp250: Due to the recovery in marketing sales driven by lower interest rates, we maintain OW and our Dec-09 PT of Rp250. The operating assets are valued using the DCF method with a WACC of 18.0%. The DCF method is derived using a risk free rate of 14.5%, equity risk premium of 5.5% and terminal growth rate of 8.25%. The NAV method for the landed estate is based on the expected net salable land multiplied by the expected selling price. In addition, we applied a 40% to the NAV to derive our PT to reflect the risk of the recent default of ELTY's parent: Bakrie & Brothers. Risks to our price target are: (1) ELTY using its cash holding to rescue its parent; and (2) a delay in interest rate cut by Bank Indonesia .
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