JP Morgan We Advise Investors to Buy CTRA Aggressively Now

We Advise Investors to Buy CTRA Aggressively Now
Market capitalization and liquidity will likely improve

CTRA’s current market capitalization of US$175MM and daily liquidity of US$281,000 are factors that could hinder investors taking positions in the stock. However, the company’s market capitalization should improve, if the stock appreciates in absolute terms. Also, liquidity could improve once investor interest returns for the stock. Hence, we recommend that investors buy CTRA aggressively now, despite the fact that it might take time to accumulate a sizable position. Later, when liquidity improves (likely when interest rates bottom out), investors should be able liquidate their positions fairly easily, in our view.

We raise our PT to Rp770
Based on the following assumptions, we raise our Dec-09 PT from Rp325 to Rp770:
1. We assign a 20% discount to our real estate NAV estimate for Ciputra Surya (CTRS IJ), as historically CTRS has traded at an average of a 20% discount when the interest rate was below 9.0%.
2. We assign a 35% discount to Ciputra Property (CTRP IJ) real estate NAV, due to its short trading history.
3. For real estate assets of the CTRA’s non-listed subsidiaries, we assume a 10% discount to NAV, as historically CTRA has traded at an average 10% discount when the interest rate was below 9.0%.
4. We value the new 68ha (net 40.8ha) land at investment cost at Rp1MM per sqm.
5. We value cash, debt and advance from customers at par.
6. We value the operating real estate assets using a DCF method.