APLN: A sales booster - Mandiri

Although APLN's FY10 net profit met our forecast, its margin was a little bit of a letdown to us. We learned that a major discount on the products was the main cause for the below-than-expected margin, which reminds us that APLN is a volume player. Going forward, our conviction to the company depends on its ability to continuously boost its sales volume. Given its historical track record and reiterated by last year’s strong sales growth, the company could surpass our FY11F marketing sales of Rp3.5tn. We maintain our Buy recommendation on the stock. We think recent Kuningan acquisition issue has pushed the stock to its bottom, hence a good opportunity to buy upon probable upcoming good news i.e. its sales booking and favorable new acquisitions.

Fast sales churn amid lower ASP. Some product discount examples were seen on its Central Park apartment project, one of company’s 2010 main revenue contributors. With today’s total area record of 53,846m2, ASP was offered at Rp13.8mn/sqm, versus to our estimate of Rp15.5/sqm. However, this has reached 68% of total saleable area, suggesting to faster sales churn, while still maintained at an attainable >20% desired project IRR. We are still confident with the growth of the company going forward, especially given continued project insertion to its business, notably the recent Green Permata, Pos Pengumben and Grand Taruma Karawang projects thus sales can continue to be boosted.

Kuningan acquisition's hanging in balance. On the recent company’s analyst briefing, APLN commented on the recent issue towards its new land acquisition of ELTY’s CBD Kuningan Epicentrum that is said still on the progress of discussion. However, they expect a lengthy negotiation, with a possibility that the deal will even collapse given a legal issue that restrains ELTY from selling the asset. Based on our channel check we learned that it was due to existing agreement with ELTY’s partner. Nonetheless, if the deal finally occurs, we think the key point is on the price deal thus we can estimate the project feasibility, especially on the ASP offered, and if otherwise, we believe on the company’s credibility that will assure continuous project offers for its future business growth

Attractive valuation, Buy. Despite of downward revision on FY11F EPS by 12.5%, we still maintain recommendation on the stock because at our TP of Rp430/share, the implied PE11F is 19x, still lower than the industry average of 21.3x. APLN’s PEG11F of 0.2x is also one of the lowest, where industry average stood at 0.6x.