1Q10 results: Below expectations on lower than expected top line
1Q10 top line came in at IDR206b (-49% q-q) as Bakrieland Development (ELTY) booked lower sales coming from landed residential units and apartments. Landed residential in Bogor reached IDR65b in 1Q10 compared to IDR184b in 4Q09. Meanwhile, revenue from selling office space came in at IDR47b, 23% of total revenue as a result of sales of office units at the new Lifestyle Centre and Bakrie Tower . Revenues from hotels also contributed IDR38b, as the company sold condotel units in Pullman Bali. 1Q10 revenues from toll road of just IDR9.5b were lower than our expectation on disappointing traffic flows, ranging 8,000-13,000 per month. However, the management is optimistic that traffic could rise to as much as 17,000 per month at end of this year, suggesting improved toll road performance. At the operating level, efficiencies led to operating profit of IDR33b, up 65.4% q-q and 27.8% y-y, but lower other income and forex gain brought down pre-tax profit to IDR34b (-31.0% q-q). However, lower tax allowed net profit to reach IDR28b, up 116% q-q and 6.5% y-y.
Better performance to come with a jump in recurring revenue
Part of last year’s marketing sales (1Q09 and 2Q09 were the lowest in 2009) made up 1Q10’s low top line. However, we expect improved performance in the subsequent quarters on better economic conditions. Low interest rates and banks’ commitments to increase mortgage distribution will be positive for not only landed residential sales. Thus, we maintain our assumption that ELTY will sell 25ha of landed residential in Bogor this year, up from 20ha sold in 2010. On the apartment front, The Groove’s (Rasuna Epicentrum) planned 90% construction progress this year should support the sales of ELTY’s other apartment project the Wave, expected to be completed in 2012. Based on our forecast, we expect 2010 recurring revenue contribution to rise to 15.9% from 8.4% in 2009, as the new condotel in Bali and Aston Hotel-Bogor will be operational in July 2010.
61% discount to NAV; Retain BUY with IDR300 TP
We believe that ELTY will benefit from its 16ha land bank reserve strategically located in Rasuna, Kuningan and 493ha land bank reserve in Bogor , providing more than 10 years of future development. As the funding problem is solved by the issue of equity-link bond last month, we expect the company’s 2010 projects will be on track to produce strong revenue stream. In terms of valuation, the counter remains undervalued, trading on 61% discount to NAV/share of IDR604 and 2010 P/BV of 0.7x, much lower than the industry average of 2.1x P/BV. 22% ytd market underperformance provides an attractive entry into the stock in our view. Given 27% upside potential to our target price of IDR300, based on 50% discount to NAV, we reiterate our BUY recommendation on ELTY.
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