APLN:Sweet spot - Mandiri

APLN share price may catch up with its peers following the release of impressive 1H11 results. Doubt over the company’s revenue and expense recognition policy may start to subside after two consecutive quarters of good numbers. The 1H11 net profit came in strong at Rp338bn (+116% YoY) or 64% of consensus. The 1H11 sales already accounted for 66% of our full year projection, a strong achievement considering that last year 60% of sales came in 2H10. We are not changing our forecast as yet, but our current forecast is looking conservative if the strong marketing sales momentum seen in 1H11 can sustain its course (see exhibit 3). We reiterate Buy with TP: Rp430/share. Our rolling 2012 valuation stands APLN at PER 11.9x (vs. CTRP PER12F of 20.8x) and 33% discount to RNAV12F.

Strong 1H11 results, 64% of FY11F consensus. APLN’s marketing sales continued to be upbeat. The 6M11 sales booked at Rp2.5tn, led net profit to soar to Rp338bn (+116% YoY), above of our (63%) and consensus (64%) estimates. Overall margin expanded, boosted by major booking from higher- margin projects, including the Kuningan City and Green Bay, aside from accelerating ASP. Looking at our bullish outlook in the sector, this may trigger potential earnings breakout, with selling price as the main growth engine. APLN also bagged sales backlog amounting to Rp3.6tn, as at Jun11.

Next two-year expansion fueled by low-cost debt. The company announced last week of its plan to issue bonds to raise total proceeds of up to Rp800bn (3years: 30%; 5 years: 70%). As the cost of debt would yield the company at 9.5%-11.5%, while property projects today offers an IRR of 15-25, we think the next two-year expansion will be a breeze, thanks to favorable macroeconomic conditions. Post the planned debt issuance, the company’s DER will be at 51%, using its last cash position of Rp1.68tn.

Two new acquisitions before year-end. We are yet to revise our forecast, despite of the good results. We are waiting to firmer structure of the bonds, as well as better view on the nearest project expansion. APLN hinted at least there are two projects to be acquired before the end of 2011. Besides, our channel check suggested that one of the targets would give the company a direct recurring income contribution, which we suspect this will be an asset injection from its group level. In the meantime, the company still maintains its guidance for FY11F net profit of Rp500-550bn.

Maintain Buy. We maintain Buy on APLN with TP: Rp430/share. As we rolled to 2012 valuation, the stock now trades at PER 11.9x and 33% discount to RNAV12F.