Mandiri Sekuritas Downplaying earnings outlook

ELTY reported net earnings of Rp132bn (-51.4%yoy), slightly below our estimates but widely lower than consensus. Without much funfare, its completed toll project (Kanci Pejagan) was incorporated in the books by Dec09, thus resulting in higher debt and depreciation charges. Arguably, without a drastic tariff increase, future earnings will be bogged down by its toll segment. However, a positive swing could come from the opening of property ownership to foreigners which should help beef up demand, in our view. We maintain buy as current price trades at a 59% to NAV10F despite our most conservative FY10F earnings of Rp36bn(-72.7yoy%) in the market.

Toll entry in the books. Alongside the incorporation of its toll project comes the earnings pitfall in 2010 as a result of higher interest and depreciation charges associated with the toll road. Unless we see a drastic tariff hike, we do not expect Kanci Pejagan to be earnings positive until 2012. So far, traffic has been encouraging averaging about 8-12k/day in the first 2 months of 2010, understandably lower than the expectations of 17k/month for FY10.

Exercise period of warrants to expire by end April 2010. We think that market has reasonably ignored profitability while taking cue on the direction of possible corporate actions such as the rumored stock rights in the later part of the year. We think its share price would not fall further. Indicatively, warrant exercise (arising from stock rights of 2007) would net ELTY some Rp410bn is pegged at an exercise price of Rp250/share, whose exercise period expires by end Apr10. We dare to say the current price as the support level, and any correction is seen as a buying opportunity.

NAV discount hard to ignore. Due to the complexities facing the company and possible debt burden from new toll projects, share price movement have been dormant. However, trading at a discount of 59% to NAV10F and a potential beneficiary of the lifting of foreign property ownership restriction, its pure property segments could very well negate the financial hurt from its non-property business, particularly toll roads. Note that it is also contemplating to spin off its toll business to ease off its books. Maintain buy.