Higher alpha but lagged: In the past, during the bottoming of the interest rate, ELTY share price had reached Rp700. We note that ELTY share price has the tendency to lag the share prices of Ciputra group companies. Finally, the alpha generated by ELTY tends to be higher than that of CTRA (note: in the past, during the property sector rally, ELTY’s and CTRA’s share prices had appreciated by 536% and 400%, respectively). Although ELTY share price has appreciated by 278.38% YTD FY09, we believe there could be more upside.
Trades at par with NAV when interest rate bottoms: Our NAV band chart analysis indicates that when interest rate bottoms, ELTY would trade at par with its NAV value. Currently, it trades at a 57% discount to its NAV value. With that, we believe there could be potential 132.5% upside from the current level if ELTY were to trade at par with its NAV.
We raise our PT to Rp500: We revisit our model for ELTY and incorporate following changes: (1) incorporate the lower-than-expected 1Q09 results; (2) lower our risk-free rate assumption from 13% to 11.5%; (3) incorporate the new assumption on the appreciation of property prices from Jones Lang Lasalle; (4) extend our PT time horizon from Dec-09 to Jun-10; and (5) lower the discount assigned to the Bakrie Group stock from 40% to 20%, These adjustments lead us to raise our SOTP-based Jun-10 PT from Rp250 to Rp500.
Maintain OW with new Jun-10 Rp500 PT: With the expectation of a narrower discount to NAV, we stay OW and assign a new SOTP-based PT of Rp500 to ELTY. Our PT is derived using a combination of NAV and DCF methods in which real estate development assets are valued using NAV, while operating assets are valued using DCF. On top of that, we assign a 20% discount to reflect the risk of investors’ wariness about Bakrie Group-related stocks. Risks to our PT: (1) ELTY’s cash holding is stripped out; (2) a delay in the interest rate cut by Bank Indonesia.
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