Bakrieland Development (12M price target Rp.225)

A landed opportunity
Bakrieland is an attractive inflation hedge. The company owns 16,000 ha
of land but trades at a 25% discount to book value. The group is examining several corporate actions to monetise assets and improve ROA, while the underlying value of Jonggol will only rise with time.
Meanwhile, housing will remain one of the strongest investment themes this decade. At this price investors are paying US$4psm for the land and the stock is 67% below our estimated NAV. BUY

Corporate actions
Bakrieland is in talks with interested parties to sell up to 8ha of its CBD landbank. There is quite a bit of competition in the middle market for condos
and a deal would free cash, while still leaving the group with 13ha. The group
also plans to list its toll road assets within the next 12 months; ave daily car
volumes have risen to 15k/day from 11k/day last year.

Jonggol is the key
The company’s crown jewel is 13,000 ha of single landbank about 50km south of Jakarta. Jakarta is one of the ten largest cities in the world and every day
2,050 people move into the capital. Greater Jakarta’s population of 23m today is forecast to reach 34m by 2030. This will make Jonggol an invaluable asset over time, yet is recorded in the books at US$2psm. The local government has started construction of an access road that will open mid-2012. Meanwhile Bogor land is selling for US$150psm.

A long term theme
Marketing sales for the listed property rose 40% YoY for 1Q11 to Rp4.0tn(US$465m). Marketing sales have now doubled in two years. Yet with home mortgages only 3% of GDP, 2,000 people a day moving into Jakarta and percapita income surpassing US$3,000; housing will remain one of the strongest investment themes this decade.

Buy land below book value
ELTY is one of the more interesting property plays. There is no immediate need for financing and gearing is low. The stock trades 25% below book value. Jonggol is the key and the value of this will only grow with time. Our NAV for the stock is Rp460/share, to which the stock is trading at a 67% discount. NAV will also rise over time as land sales crystallise. Monetising assets will be the key to improving ROA and price performance. At this price, investors are paying US$4.10psm for the underlying land.

source: CLSA dated 6 May 2011