Danareksa CTRA - The new property tax increases profit and NAV

The new property tax increases profit and NAV

The new 5% final sales tax regulation for property developers became effective starting 2009. After incorporating this new tax into our 2009 onwards forecast, our 09-10F revenue estimates for CTRA decline by 6%-2%. However, our 09-10F core profit estimates are boosted by 28%-5% because the 30% corporate income tax only applies to a property developer’s pretax profits coming from its recurring revenues. The new tax also leads to a higher NAV since CTRA is subject to a lower tax rate of 5% (vis-à-vis 30% previously) on its high margin assets.

Rp 911.5bn NAV boost from its new projects
CTRA bought back two plots of land from its creditors in January 2009 for Rp 103.6bn at an attractive discount, paying the current market price for the undeveloped land. Both land plots are located in West Jakarta, one in Cengkareng (CTRA paid Rp 170,000/sqm for 48 ha) and the other in Semanan (CTRA paid Rp 110,000/sqm for 20 ha). The potential is huge since developed land in those areas currently sells for around Rp 2-3mn/sqm. Meanwhile, the company will shortly launch two “out of Java” projects. These new projects are joint operations with a 50-50 revenue sharing scheme with the landowner. We believe this should benefit CTRA as it means the company can avoid the messy business of land acquisition and, moreover, the projects can be launched quickly. Based on our calculations, the newly acquired land and the new joint projects will together boost the company’s NAV by Rp911.5bn.

Maintain Buy, New TP of Rp575
We have upgraded our TP to Rp 575 after applying a 45% discount to the company’s new NAV of Rp 1,046/share. In our judgment the stock price is very sensitive to interest rates since the shares gained further ground after December 2008’s interest rate cuts. Hence, further rate cuts – to an expected 8 percent – will provide a further impetus to the share price going forward. The stock currently trades at a 69% discount to its NAV and can be considered to be very cheap at a PBV 09-10F of 0.5x. Our new TP implies PE 09-10F of 20.7-14.3x. BUY.