20140529-Maybank_KERPL-Rising_legal_risk__Downgrade_to_HOLD_11页_317kb

Sentul City (BKSL IJ) Summary

Core Content

Sentul City, an Indonesian real estate company, has been downgraded to HOLD due to rising legal risks stemming from a bribery investigation involving its CEO, Mr. Kwee Cahyadi Kumala. The investigation, led by the Corruption Eradication Commission (KPK), is related to alleged bribes received by Bogor Regent Rachmat Yasin and involves the company's subsidiary, Bukit Jonggol Asri (BJA). The target price has been revised from IDR200 to IDR140, reflecting a 87% discount to the RNAV of IDR1,079 per share.

Main Points

• Legal Risk: The CEO is under investigation for bribery, which could lead to his removal from management roles and may delay the company's plans to acquire the remaining 35% stake in BJA from Bakrieland.
• Acquisition at Risk: The acquisition process is likely to face delays, which could impact the monetization of the company's land assets.
• Pre-sales Forecast Adjustment: Pre-sales forecasts have been reduced by 19% for FY14F and 18% for FY15F, due to weak performance and legal uncertainties.
• Earnings Forecast Adjustment: Earnings forecasts for FY14F and FY15F have been cut by 20% and 30%, respectively, from the previous estimates.
• Valuation: The revised target price of IDR140 corresponds to a 12.3x P/E and 0.76x P/BV for FY14F, significantly below the RNAV.
• Projects: Several key projects, including AEON Mall, IKEA, Decathlon, and Trisakti Campus, are either in planning or on hold, affecting the company's development timeline.
• Financial Performance: The company's financial metrics show a decline in revenue and profitability, with EBITDA and net profit forecasts being adjusted downward.

Key Information

• Share Price: IDR148
• Target Price: IDR140 (-5%)
• Market Cap (USD): 400M
• Average Daily Trading Volume (USD): 2M
• RNAV per Share: IDR1,079
• Target Price Discount to RNAV: 87%
• Pre-sales Forecast (IDR bn):
  • FY14F: IDR1,660b (from IDR2,043b)
  • FY15F: IDR1,952b (from IDR2,374b)
• Earnings Forecast (IDR bn):
  • FY14F: IDR358b (from IDR630b)
  • FY15F: IDR542b (from IDR630b)
• Key Projects:
  • AEON Mall (Planning)
  • AEON Apartment (Planning)
  • IKEA (Planning)
  • Decathlon (Planning)
  • Trisakti Campus (Construction)
  • BCA Training Centre (Construction)
  • Hyatt Regency (Planning)

Financial Metrics (FYE Dec)

Earnings and Revenue Breakdown

Implications

• The legal investigation may cause delays in key projects and the acquisition of BJA, which could affect the company's ability to monetize its assets.
• The pre-sales forecast for the land plots segment has been significantly reduced, as no agreements have been signed with potential tenants.
• The company's strategy to form joint ventures or joint operations with other property companies may become less feasible due to the ongoing legal issues.
• The revised target price reflects a substantial discount to the RNAV, indicating a significant drop in investor confidence.

Conclusion

The downgrade to HOLD and the revised target price reflect the negative impact of the legal investigation on Sentul City's operations and financial outlook. While the company's assets remain attractive, the legal risks and project delays are expected to reduce earnings and pre-sales forecasts, leading to a significant discount in valuation. The company is still committed to completing the acquisition of BJA by the end of the year, but the ongoing investigation poses a substantial risk to its timeline and financial performance.