Hurt by high material costs. Although the company posted a respectable top-line of Rp306bn, cost of sales went up by18.4% brought about by rising costs of materials such as steel and cement. Thus, it resulted in a significantly trimmed-down operating profit of Rp47.3bn (-21.5%yoy) and margin of 15.4% from 22.2% a year ago. To compensate the current margin squeeze, CTRA is pinning its hopes on more sales of higher-margin land lots, especially on its newly launched projects in Makassar and Pangkal Pinang.
Recurring sources remain steady while net income beautified by gains on foreign currency investments. Of the Rp306bn revenues, about 29% or Rp89bn(-3.3%yoy) came from recurring sources (ie Ciputra malls and hotels), which should remain quite a stable source of cashflow in our view for the remainder of the year due to the high hotel and mall occupancy rates of 97% and 78%, respectively. Likewise, CTRA’s investments in foreign currencies ( in US$ and euro) have yielded gain s of about Rp47bn(+80.8%yoy), which boosted higher- than-expected earnings. However, since the rupiah has recently strengthened against the greenback, forex gains in the remaining quarter could diminish.
Maintain Buy. Despite the challenges of rising costs, we remain upbeat on the stock given its strong balance sheet (net cash position of Rp2.0tn) as well as its deep sales backlog of Rp1.4tn in 2008, of which 30%-40% are up for realization this year. Additionally, the recently lowered mortgage rates will be a boost for demand particularly for its landed residential home-buyers. Maintain buy as the stock price remains underwhelming as it currently trades at a 52.1% discount to NAV09F.
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