Bakrieland, Excess Baggage, CLSA

ELTY posted net loss of Rp19bn (US$2m) in FY11, mainly due to high
operational expenses and interest expenses relating to its toll road
business under its subsidiary, Bakrie Toll Road (BTR). ELTY targets lower
marketing sales this year with launches from its residential and
commercial projects. ELTY has planned to spin-off BTR since last year, but
it hasn’t able to pull it off. Only 1 out of 4 toll road projects under BTR is
operational, and the average daily traffic of 11k vehicle is still way below
management expectation due. We downgrade ELTY to U-PF with TP:
Rp85/share.


Lower marketing sales target
ELTY guided for Rp1.12tn (US$120m) marketing sales target for FY12, 6%
lower than FY11 achievement. ELTY recorded Rp204.6bn (US$22m)
marketing sales in 1Q12, representing 18.3% of FY12 target. Marketing sales
will be generated from launches of “The Wave” condo tower, 4-star condotel
in Rasuna Epicentrum and residential clusters in Bogor and Sentul.

Swelling operational expenses
Selling and G&A expenses went up 82% and 68% YoY, causing the EBIT
margin to be squeezed to 12% from 18% in FY10. The operational expenses
went up significantly as ELTY recruited more employees at the end of FY11 in
anticipation for Sentul Nirwana and Eaton Luxe Bali resort marketing needs.

Stuck in toll road business
ELTY currently operates only one toll road (Kanci – Pejagan) out of 4
concessions under its subsidiary; Bakrie Toll Road (BTR). It contributes 4% of
ELTY’s revenue but running at loss with GP margin of (-)25%. The average
daily traffic is 11k as of Dec 2011, below management expectation of 17k.
The main reasons were the delay in Cikampek – Palimanan toll road project
(connecting to west side of Kanci - Pejagan) and the availability of alternative
roads. The plan to spin-off BTR is still very much in ELTY’s agenda since mid-
2011, however valuation and lacklustre performance remain as main
obstacles given the current market condition. The potential catalyst for BTR
value is the expected issuance of land clearing implementation regulation.

Downgrade to U-PF with TP: Rp85/share
ELTY posted net loss of Rp19bn in FY11 and Rp50bn in 1Q12. We significantly
cut earnings in 2012 and 2013, reflecting higher operational expenses and
interest expense relating to its loss making toll road business. Our numbers
are significantly below consensus because consensus has not updated the
numbers post ELTY’s FY11 results. ELTY currently trades at deep disc. to NAV
(at 80%). Downgrade from O-PF to U-PF with TP: Rp85/share.

Download file : Indonesia ELTY 110612