CLSA initiating coverage CTRA, BUY, TP Rp1,050

Sarina initiated coverage on Ciputra Development (CTRA IJ) with a BUY, TP of Rp1,050/sh. The stock is trading at 34% discount to RNAV of Rp1,249/share.

We see strong growth opportunity from its 20 projects in 13 booming cities in Indonesia , including the robust Greater Jakarta . CTRA is a play on our Not Just Jakarta theme, the strength of the region. It is the only listed property company that has ventured outside Jakarta . About 32% of its sales comes from Greater Jakarta, 23% from Surabaya and the remaining 45% from other cities.

We believe the company will continue to un-lock the value of its land bank. As of end of 2009, CTRA and its subsidiaries have 1,400ha land bank, out of which 1,028ha is raw land.

Key investment thesis:

CTRA is well positioned to benefit from the low mortgage rate environment and the growing middle-class segment in Indonesia .
Recovery in sales to continue. CTRA booked an 11% decline in marketing sales in 2009 as a result of weak demand, notably in 1H09. Strong recovery was seen in the 2H09 and into 2010. We expect sales to recover by 25% this year to Rp1.6tn, and to grow further by 20% in 2011/12.
Condo sales. We also expect condo sales (Ciputra World Surabaya and Jakarta Lot 3&5) to recover this year, although the contribution remains small (7%) to total marketing sales

VALUATION. We value CTRA at RNAV of Rp1,249/sh, before any further acquisition of CTRS, implying the stock trades at 34% discount. Separately, our RNAV for CTRS and CTRP is Rp1,879/sh, and Rp820/sh respectively. Both CTRS and CTRP are trading at 63% discount to NAV.

Mortgage credit grew strong at 16% YoY in January 2010, reaching Rp125tn (US$137m). The growth had accelerated from end of last year which saw mortgage grew by 13% YoY. Mortgage credit growth was also faster than loan growth which grew 10% YoY.
There is plenty of room for growth to accelerate from here. We expect that Indonesia’s GDP will reach US$1.0tn by 2014, easily the largest in Southeast Asia (excluding Australia ). Assuming mortgage demand grew at the same pace as it has in recent years, mortgages would still only account for 2.5% of GDP by 2014. To double that ratio to 5%, mortgage credit has to grow almost fourfold by 2014. This means an annualised growth rate of 33% vs. 13.5% in 2009 and 25% in past five years.

Lastly, if you don’t mind less liquid name, take a look at CTRA’s subsidiary in Surabaya Ciputra Surya (CTRS IJ). Despite the big landbank of 455ha, CTRS offers deep value, trading at massive 63% discount to NAV. CTRS is also in the process of consolidating neighboring Bukit Palma landbank to its main landbank.