CLSA Bakrieland to do rights issue to buy land and/or stake in Bukit Sentul (BKSL IJ)? by Sarina

There has been rumor and news circulating in the market on Bakrieland (ELTY IJ) raising money to increase its land bank in Greater Jakarta. Our talk with the management confirmed that the company is finalizing acquisition plan to buy either stake in BKSL or to buy the land bank (BKSL has ~1,900ha land bank in Sentul and ~10,500ha in Jonggol in South Greater Jakarta). ELTY's management mentioned that the company will issue a short prospectus on Friday, May 21. Market rumor is ELTY will buy 14-20% of BKSL's shares from a rights issue of at least Rp1tn. Management denied to comment on this detail.

Comment: Management's rationale to this deal is to increase its land bank, currently ~700ha, mostly its Bogor Nirwana project (South Greater Jakarta). In the past, the company has stated that it is looking into purchasing additional land bank surrounding their Bogor Nirwana project, which is a logical strategy, given the upcoming completion of Bogor Outer Ring Road (by Jasa Marga, JSMR IJ) and also, with ELTY planning to develop the nearby Ciawi-Sukabumi toll-road. Land price in Bogor Nirwana has appreciated by 15% pa in the past 10 years. While Bakrieland also has city property project such as its mega-block in Jakarta CBD, we believe its township project to be the main growth driver, hence we think this acquisition plan of BKSL or its land bank is a logical move. BKSL, while having huge land bank is relatively in-experienced in township development vs its peers. Nonetheless, given the over-hang due to current uncertainty, we advise investors to remain cautious in buying the stock. We currently have a BUY on ELTY, trading at 60% discount to its RNAV of Rp570/sh. Note that our RNAV does not include this potential deal.