Bahana Ciputra Development - (CTRA-BUY-IDR760-TP:IDR1,000) Residential support

Strong residential revenue to support 2 new mixed developments
For Ciputra Development (CTRA), contribution from joint operation has increased from only 14.8% of total marketing sales in 2007 to 41.4% in 4M10. This coupled with the upward trend in revenue from residential projects (exhibit 8) cushions the impact of volatility in the property market. In fact, strong revenue from its residential side has paved the way for CTRA to build two new mixed used development projects through its internally generated cash flow without the need for bank borrowings. The earliest retail mall will be operated in 2011, at Ciputra World Surabaya, located at Jl. Mayjend Sungkono, the planned main road based on government planning. Backed up by middle-up residential complex in the west area, this mall should be able to contribute IDR37b in its first six months of operation in our view.

1Q10 results: Top line growth of 15.2% y-y
Continued dominance in the sales of houses and land lots amounting to IDR154b and 78b respectively, or 66% of 1Q10 total revenue in aggregate, allowed overall 1Q10 top line to reach IDR353b, up 15.2% y-y. Additional IDR30b revenue was booked from the Surabaya UC apartments, a tower of 500 unit apartments offered to investors for student dormitory of the University of Ciputra . This year, another IDR37b is expected to be booked towards the handover schedule of the UC apartments at the end of 2010. At the operating level, 1Q10 earnings were down 44.7% q-q but up 32.4% y-y on higher G&A expenses due to regular bonus payments. However, bottom line was hurt by FX loss which caused net profit to decline 38% q-q and 37% y-y to IDR34b. In FY10, we forecast revenue to reach IDR1.75t, growing 31% y-y, mainly supported by revenue from sales of residential. On the bottom line, we project FY10 net profit of IDR158b, up 16% y-y.

Proven strong revenue stream; Maintain BUY
The continuity of revenue stream is important for property company. In CTRA’s case this is underlined by the role of consistently strong residential sales. Nevertheless, going forward, we expect the value of its recurring incomes to continue rising, supported by Ciputra World Surabaya (CWS) and Ciputra World Jakarta (CWJ). In terms of valuation, we have updated our model by adding the value of Ciputra World Surabaya retail mall and apartments amounting to IDR281b after taking CTRA’s 53% ownership (WACC 16%, Rf 9%). As a result, value/share increases to IDR1,870 (exhibit 9) from previously IDR1,738. However, this value is offset by higher debt and lower advances from customers. Therefore, we maintain our target price (TP) at IDR1,000, reflecting 45% discount to the company’s NAV/share. From the current price of IDR760, our TP provides 32% upside potential, which is the third highest within our coverage (exhibit 10). The stock currently trades on 2010 P/BV of 1.2x, 33% discount to the sector. Maintain BUY.