JPM Buy Ciputra Development

Buy Ciputra Development (by Rizal Prasetijo) “Liliana Bambang believes that the launch of Ciputra Development's 4-6 new projects in 2H10-1H11 will hopefully reverse the company’s unfortunate relative performance against the sector (please click the attached file). One piece of information from her report that makes me excited is the company’s plan to build a Rp100bn 120-room hospital, catering to the low-to-middle income group around the Tangerang area. Below are my two arguments:

First, there is currently a shortage of healthcare service supply in the area. As told by one of my high school friends, an owner of 10-room small private hospital in Tangerang area, the steady increase in shoe and textile manufacturers’ production capacity, thanks to

a sharp increase in wages in China’s coastal provinces, has created jobs for blue-collar workers (the low-to-middle income groups) and demand for healthcare services in the area. By the local regulation, a large manufacturing company, employing more than 100 workers in Tangerang area, must have health facilities. However, in an attempt to keep their cost tight, most of these shoe and textile companies sub contract these obligations to small private hospitals like the one owned by my friend.

Second, as his small hospital has done well, he intends to build the second one and is looking for funding from my other high school colleagues. His IRR calculation is amazingly not too much different with Liliana’s calculation of 33%. Bear in mind, my friend is a doctor-turned into-a businessman, not a sell side equity analyst. I will not be surprised that, having realized how profitable the business is, Ciputra Development may replicate the business in other pocket of industrial areas around the Jakarta and Surabaya going forward. Bottom line: a today’s top-notch property developer could turn into one of tomorrow’s leading Indonesian healthcare providers.”