Agung Podomoro Land - Slower 2H10, 2011 outlook guidance is critical - JP Morgan

Slower 2H10 as the company shifts some resources. The company’s FY10 earnings were 30% lower than our forecast and 20% below consensus. This is mainly driven by slower construction in 2H10, as revenue recognized is down by 23% H/H versus our expectation of 10% H/H increase. Slower 2H10 was due to: (1) slower construction in Kuningan City residence as the company focused more on the mall, which is slated to open in 1H11, and (2) slower construction in Central Park Residence, the company aims to continue construction in 1H11.

2011 profit delivery key for outperformance. We are not looking to change our earnings estimates as we believe the slow-down in 2H10 could be compensated in FY11. We believe that for APLN to outperform, profit delivery in the next few quarters would be critical.

Marketing sales guidance is better than expectations. The company guided for FY11 marketing sales of Rp3.0-3.5tr. At the upper end of the range, APLN’s marketing sales would be the highest compared to its other Indonesian property peers. We would look for FY11E percentage of completion and earnings guidance during the management briefing.

Maintain OW, with PT of Rp470. Despite the weaker-than-expected result, we believe that it is simply a delay in recognition as marketing sales have been better than expectations. We think that the underperformance could be reversed with (1) firm delivery of earnings in the next few quarters. (2) buoyant 2011 outlook and guidance from the management. We maintain OW with Dec11 PT of Rp470, based on 15% discount to NAV estimate of Rp11.3tr. Key risks to our earnings/PT:
(1) delay in execution or construction of projects, (2) slowdown or lack of new projects.