BAKRIELAND – ( BUY TP Rp200)

INDUSTRY OUTLOOK é
Bakrieland’s new projects
CHANGE
TP recently lowered to IDR200 and maintain BUY
We recently lowered our TP on Bakrieland to IDR200 (from IDR250) in view of the expected slower economic growth in 2012 resulting in slower demand on property products. We keep our BUY on the stock considering its vast landbank, both in for city property as well as residential, in total around 14,500ha.

CATALYST
Earnings to be impacted by slower economy ahead
In our latest market outlook Not immune, but more resilient, 19 October 2011 we project a lower GDP growth of 4.5% in 2012 and hence we lower our projection. 20121 earnings are now 24% lower than the previous
forecast.

VALUATION
Trading at 41% discount to TP
Bakrieland provides 71% upside potential to our TP, which is based on a 35% discount to the estimated NAV. The company controls around 14,500ha land in the Jakarta business district and in Bogor area. Risks to our TP are a sudden jump in interest rates and negative sentiment towards the Bakrie Group.


RISK EXPERTS
Key Earnings Drivers & Sensitivity
The largest revenue and margin contributor is residential land where margins in the land portion can be as high as 70%.
Margin compression could come from the high-end building development that had been pre-sold while margins on landed property have been more stable.

The Risk Experts
Our starting point for this page is a recognition of the macro factors that can have a significant impact on stock-price
performance, sometimes independently of bottom-up factors. With our Risk Expert page, we identify the key macro risks that can impact stock performance. This analysis enhances the fundamental work laid out in the rest of this report, giving investors yet another resource to use in their decision-making process

Rolling out a new township
Bakrieland Development (ELTY) has started selling Sentul Nirwana, which is developed by PT. Bukit Jonggol, since July 2011. Bukit Jonggol is an integrated property development with an area of 12,400ha, which was bought by ELTY in 2010 using the IDR3.2t rights issue proceeds. The first phase of Sentul Nirwana is 600ha plan with the stage one occupying 127ha that will consist of two residential clusters, a 40ha theme park (Jungleland) and 2.5ha downtown commercial centre. The location of the first phase of Sentul Nirwana is in between Bukit Sentul and the larger area of Bukit Jonggol, which can be accessed through the South Sentul toll exit and, in the future, the new non-toll access road from Jagorawi toll road to Puncak area.

The two clusters of landed property are:
1 The Atmosphere – 230 units in 9ha land area with the land size ranging from 144sqm to 250sqm and
the price range of IDR0.6b-1.5b.
2 The Breeze – 210 units in 5ha land are with the land size from 105sqm to 150sqm and unit price from
IDR250m-500m.

The Jungleland Adventure Theme Park will have eight thematic zones consisting of 90 rides, which development is split into three stages, the first of which is slated for completion in June 2012 with 40 rides and attractions. The group has the experience in running a smaller water theme park located in Bogor Nirwana Residence since late 2007.
Marketing sales for the new project have been encouraging at around IDR20b-25b/month and this accounts for 40-50% of the group’s total sales from landed houses.


Other project developments
ELTY still has another new development area, Lido Lake Resort (50% ownership), which is located near the upcoming Ciawi-Sukabumi toll road, to be built by Bakrie Toll Road, a subsidiary. The company mentions that it may sell part of the 936ha land bank (of the 1,037ha development area) to a third party as the group will concentrate on Bogor Nirwana and Sentul Nirwana projects in Bogor. Other landed property projects – Bogor Nirwana Residence continued to generate marketing sales of around IDR20b/month in 2Q and 3Q and we expect this level to be maintained in the coming quarters. Smaller projects in Malang and Batam do not have significant contribution to the group’s revenue.

Rasuna Epicentrum – Of the three development projects in this 53.5ha site, The Wave Condominium (3 of 9 towers being constructed, cater to the middle market) have been topped off in September (70% completed) and the other two projects (The Grove Condominium and The Grove Suites/Hotel to be operated by Aston chain) are 50% and 60% completed. The average presale for the three projects is 45% but with two new access roads to reach the area and the development of two office towers (Trakindo Utama in 3ha land and BCA in 2,000sqm land) they expect more take-ups on the projects in 2012.

Toll road – the 35km Kanci-Pejagan toll road has seen its daily traffic increased to 14,000 currently from 10,800 in 2010. This traffic is still lower than our expectation of 18,000 for 2011, which is compensated by the higher average toll tariff which already reached IDR24,000 in 2010 vs. our forecast of IDR19,500 this year. Bakrie Toll Road is set to construct the first section of Pejagan-Pemalang toll road (13km of the 58km road – total project cost IDR3.2t including land) for which land acquisition has reached 90%. Following this, the first section of Ciawi-Sukabumi toll road (14km of the 54km road – total project cost IDR7t including land) is to be started. We expect the group to spend IDR1t for the toll road projects in 2012. ELTY plans to reduce its stake in Bakrie Toll Road, which plans to go public in 2012 or 2013 and may end up with minority shares in the company.

Landed property to increase revenue contribution
Residential accounted for 61% of total revenue in 2010 and 72% in 1H11, which consists of the apartments and landed property. Further landed property in Bogor, Batam and Malang contributed 26% and 13% of total revenue in 2010 and 1H11, respectively. However, with the new development project of Sentul Nirwana we expect the residential revenue to account for 61% of total revenue with landed property at 26% of total revenue. Land price in Bogor has increased at 13% CAGR in the past 15 years and is expected to increase at around 10% pa in the next three years. Similarly, coming from the low base, land prices in Sentul Nirwana are expected to increase at 10-15% pa especially when the infrastructure and the facilities are done.

Maintain BUY with TP of IDR200
In addition to the global financial crisis, the stock price movement has been affected by the Bakrie factor in which the parent company is undergoing debt refinancing with its creditors. Together with other companies in our coverage, we have cut our forecast on ELTY by 23% for 2012 as we project lower housing demand by 20% from the previous expectation as well as reduction in margin by 1.5% (please refer to Indonesia Market Outlook, 19 October 2011 by Elvira Tjandrawinata). Based on the TP of IDR200, which is derived based on a 35% discount to the estimated NAV, we keep our BUY call on the counter with 71% upside potential..

source: BNP Paribas dated 20 October 2011