Discount beater
With friendlier interest rates and recovering marketing sales, we are raising our target price to Rp500/share (+69.5% upside), equivalent to our stripped-down NAV09F. During the bull run of 2007-08, we observed that Bakrieland was the only property stock that surpassed its then NAV value of Rp455/share, with share price reaching an all-time high of Rp680/share. As business climate continues to improve, the stock has the potential to outperform anew.
Trading at a premium to NAV is not far-fetched. From July 07 to March 08, the stock was trading at a premium to its NAV while the rest of the property counters performed at a 20-30% discount relative to their respective NAVs. Its growth promise (earnings 07-12F CAGR of 22.8%), appreciating value of its CBD via project development, low mortgage rate environment of between 9.0% to 11.0% and landbank acquisitions at tantalizingly low prices in Bogor (at Rp50k/! sqm) led to the stock trading above its intrinsic value. We think, that history could repeat itself with the company now being armed with a wider array of development projects such as the Kanci - Pejagan toll road and 3 project deliveries in its CBD worth Rp871bn by year-end. Note that its erstwhile NAV of Rp455/share excluded toll projects as well as additional land acquisitions in Bogor in 2008 of about 400ha.
Toll road opening by 3Q09. Given the slowdown in property revenues, ELTY’s recurring sources remained steady with contribution of Rp46bn (+17.9%yoy) in 1Q09 equating to about 29% of total revenues. This will be given a further boost when the 34km-Kanci Pejagan toll road opens in 3Q09, where another Rp46bn of incremental revenues will come on stream. Once fully utilized, this toll section wil! l provide some Rp180bn p.a. worth of revenue, in our view.
Sustainable share price euphoria. YTD, the company’s share price has soared by 310%. Operationally, marketing sales seemed to have bottomed out with March sales for condos and houses recording YTD highs of Rp10.4bn(+67.7%mom) and Rp17.2bn(+4.9%mom). Further boost would come from lower mortgage rates which now are standing between 12.5%-14%, down from as high as 18% three months ago. As such, the possibility of shar! e price s urpassing our stripped-down NAV of Rp500/share is not improbable. Even at our TP, the stock trades at P/BV of 2.0x, while the broader index is at 2.4x.
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