ELTY?s calling, but no answer - Mandiri

We still saw no surprises on ELTY’s 1Q11 operation, but its performance was in line with our 1Q11 forecasts. Major sale was still contributed by the Epicentrum’s Bakrie Tower, whose office spaces were mainly taken up by its Bakrie comrades. In the meantime, the company, again, is pushing back schedule on its plan to reveal blue print of the Jonggol and Karang Tengah project (13,000ha) that was initially said to be in 1Q this year. We expect the market to remain skeptical on the project, given lack of infrastructure in that area which may require sometimes to be materialized. We prefer to wait for the firmer plan on the Jonggol project and a pickup on its sales performance. Maintain Neutral. Our TP of Rp163/share is based on 70% to its RNAV11F.

In-line 1Q11 operational, yet still doubtful. Despite being in line with our ELTY’s 1Q11 operating performance, we are yet to see much turnaround in its sales, with the Bakrie Tower remain being the major contributor (48.7% of total revenue Rp424.9bn). Please also note that most of the office space in the tower was sold to its fellow Bakrie companies.

Bakrie Toll Road IPO to take off interest expense burden. The company hinted the IPO plan for Bakrie Toll Road either in the 4Q this year or early next year. They expect its the bottom line to improve following the IPO as ELTY plans to divest as much as 50%, hence it will be freed from high interest expenses from the toll road projects. Nonetheless, we think the bottom line is not our main concern. Instead the turnaround performance of its property sales and also solid plan for its Jonggol and Karang Tengah land that currently remains unclear.

New strategy still in an open invitation. In the meantime, in order to improve its sales, ELTY has been trying to invite fellow developers to also involve in the development of its assets, including in the Kuningan’s Epicentrum and Jonggol projects. However, so far this has been unresponded, among others recent news related to Agung Podomoro entering its Kuningan Epicentrum as well as one that claimed to be mid-size prominent developer who will join Jonggol development.

Awaiting firmer Jonggol plan and solid sales, maintain Neutral. Given continued pessimistic market, we are concerned with the continuing underperforming stock performance in the near term. As similar to us, the market implicitly is awaiting clearer plan related to the Jonggol and Karang Tengah and also pickup on its sales performance, indicated through high discount applied to its valuation. We maintain Neutral on ELTY, with TP Rp163/share, based on 70% discount to its RNAV11F.