ELSA’s share price went up more than 130% in just two months, following rumors that several parties are bidding for Tridaya Esta’s 37.1% ownership in ELSA for around Rp300-450/share, falling within our fair price of Rp350/share, which is also our upgraded price target from Rp145/share previously. Our new TP implies PER09F of 12.6x, a 10% discount to our JCI target of 14.0x. As current price is already within 10% range from our price target, we downgraded our recommendation to Neutral from Buy. Additionally, we view that ELSA’s plan to sell Infomedia Nusantara (IMN) will reduce future earnings if it fails to find a revenue-generating replacement.
Tridaya Esta to divest its ownership. Although not officially confirmed, the party who is helping the transaction has indirectly mentioned that Tridaya Esta will sell its 37% ownership in ELSA. Rumors have it that there are several investors interested in buying the shares at a price range of around Rp300-450/share, reflecting PER09F of 10.8x-16.2x. We view that such transaction would not affect ELSA’s fundamentals, but the offer price could very much as well reflect its ! fair pric e..
To sell its IMN’s ownership to TLKM. ELSA plans to sell its 49% ownership in IMN to Telkom’s subsidiary, Multimedia Nusantara (MN) since it has the right of first refusal. The acquisition cost is Rp598bn, reflecting PER08 of 11.0x, which is lower than ELSA’s PER09 of 14.0x at the current price. As IMN has been provided steady income to ELSA we prefer it as a keeper. Note that IMN contributed around 31% to ELSA’s EBT in FY08. Thus, the divestment of the subsidiary means that ELSA will lose a significant chunk of ea! rnings so urce in the future (taking out 17.5% from FY10F net profit). We therefore believe that ELSA should re-invest the proceeds in assets which could generate similar yields.
Contracts obtained so far. Up to now, the company has obtained several new contracts for its integrated upstream business worth US$87.5mn, or around 54.6% from its FY09F target of US$160mn. Some will be translated into FY09F revenues of around US$186mn, including carried-over contracts, which are still on track with our estimate.
Downgrade our recommendation to Neutral. We derived ELSA’s fair price by applying PER09F multiplier of 12.6x, a 10% discount from our target JCI. Our new price target for ELSA is Rp350/share from Rp145/share previously. As the current price is already within 10% range from our price target, we downgraded our recommendation to Neutral from Buy.
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