Kim Eng Securities: Valuation still attractive, BUY ELTY (TP Rp350)

Expanding to infrastructure.
Going forward, management plans to expand its business line to infrastructure sector, namely toll road and water businesses. The main reason is to obtain recurring revenue and to mitigate the volatility of property development business. Management is also expecting to gain from price increase on lands that it plans to acquire alongside the toll roads. It seems that the management is reluctant to expand to the-more-related-business yet still-in-property-line, like office rental or shopping center. Relatively unsuccessful experience with service apartment/hotel and office projects in previous period prompts the management to avoid such business.

More financing needed for new business
We estimate Bakrieland is to require around Rp16t to develop total 265km toll roads. As a rule of thumb, Bakrieland requires Rp60b per kilometer road development. It expects 70% of the financing will come from debts, while the remaining 30% or Rp4.5t will come from equity. Understanding the massive scale of capital required for the project, management will develop the toll road in five stages. Kanci-Pejagan toll road with 35km length will be the first project, expected to complete by September 2009. The toll road costs around Rp2.1t, of which Rp1.38t will be financed by a consortium of banks. With net gearing of 0.08x as March 2009, we see the company still has ample room to absorb additional Rp1.38t debt.

No rights issue in 2009
With total cash of Rp925b as of March 2009 and expected cash payment of another US$76.15m for the remaining 70% payment in September 2009 from Limitless World International Services, we expect Bakrieland to have sufficient cash to fund its current development. Previously Bakrieland has sold 30% stake in Bakrie Swasakti Utama (BSU), a unit that owns Rasuna block, for US$110m. However, we see the company may have to strengthen its capital in early 2010, should the management decide to aggressively entering the infrastructure projects, both in water and toll businesses. Management itself reassures that there will be no rights issue in 2009.

Valuation still attractive
We made a rough valuation on Bakrieland main assets. We value its 70% stake in city development based on US$110m, the amount that Limitless from Dubai paid for 30% stakes to the company. This translates into US$266m for city development. We value landbank in Bogor based on 2x BV and land available for sale based on 3x BV. We are yet to value its infrastructure projects and its holding in hotel and resort. We come up with valuation of Rp351 per share, translated into 21% upside potential. We reckon further development in infrastructure projects as main catalyst for the stock. BUY.