BSDE:Upping target price by 23% - Mandiri

BSDE released 1H11 results with net profit booked at Rp388bn (113% YoY; 40% QoQ), which was above ours (50.5%) and street’s estimates (52,9%). While its operating performance was in line with ours and consensus, the surprise in bottom-line came mainly from interest income which more than doubled (+113%yoy). We expect higher revenue booking in 2H11, in realization of 60% FY10 residential sales. We reiterate BUY call on BSDE, with upgraded TP by 23% to Rp1,350/share, using 12F rolling valuation. The stock is currently trading at PE12F of 15.3x and 60% discount to RNAV12F.

Operational booking should be higher in 2H11. BSDE’s above estimate 1H11 results were much determined by accounts below operating level. Interest income grew more than double (+113%yoy) to Rp109bn that improved pre-tax margin to 40.9% vs. 1H10 of 38.1%. In the meantime, operating profit represented 43% of our FY11F estimate, which we consider in line due to seasonality factor. About 60% of the company’s FY10 residential sales achieved in 2H, therefore we expect higher revenue booking in 2H11. Despite of surging 1H11 interest income, the company does not revise its FY11F earnings guidance of Rp700-750bn, which may indicate that the interest income will not recur in 2H11.

Debt as primary bullets for near term expansion. Considering its cash rich position, the company stated that it will pay off its Rp1.1tn maturing debt in 2012 using internal cash which will bring the company into net cash position (-0.28x net gearing ratio). This strong balance sheet will be the company’s bullet for any prospective expansion. We think debt-driven expansion will be a decent choice in the near term, in our view. The most recent issuance by a single-A rated property company like BSDE yielded 9.5%-11.5%, while property project’s IRR today is around 15-25%.

Short-term catalyst: W2 toll-road and continue mild mortgage rate. In the meantime, we see short-term catalyst for BSDE would be the construction of the W2 toll road (exhibit 2). We expect South Jakarta office market to grow at the same time with the completion of the construction (target by 1Q13), hence will induce residential demand around the area, including BSDE. This will also be supported by increasing mortgage availability from banks whose interest rates are expected to remain mild at least for the near term.

Maintain BUY. We reiterate the BUY call on BSDE, with new TP of Rp1,350/share (+23%), using 12F rolling valuation. BSDE is still our top pick in our property space.