CLSA Bumi Serpong - Bringing in a sibling BUY, TP Rp1,100

Certainly, there is good synergy merging Duta Pertiwi into BSDE. The combined entity will have a massive 4,250ha land bank in Greater Jakarta and Surabaya. More importantly, DUTI’s reputation as a good commercial developer with strong recurring income will compliment BSDE’s strong residential footprint which at this moment lacks recurring income. The big question here is the price and how this deal going to be structured. Given that it is a related party transaction, minorities will have to vote for it giving "some" comfort level of pricing. However, BSD stated that DUTI will stay listed with 15% float means there would not be a tender offer leaving minorities behind.

BSDE announced to the stock exchange its intention to acquire 85.31% stake in its sister company, Duta Pertiwi (DUTI IJ), currently own by Sinar Mas group.
From operational standpoint, we think the consolidation is beneficial given the combined entity will have a sizeable 4,250ha land bank in Greater Jakarta and Surabaya with a much strong recurring income base.
Our estimated NAV for BSDE is Rp17tn, while DUTI’s NAV as estimated by the company is Rp7tn. Translated to NAV/sh, DUTI is now trading at 45% discount to its NAV, while BSDE at 34%.
Assuming BSDE buys 85% stake in DUTI at current price, then it implies BSDE needs US$370m. BSDE has about US$110m cash now. So, this means BSDE needs to finance US$260m (20% of its market cap).

Deutsche Bank Tabungan Negara - Leader in home financing; initiate with Buy, TP Rp1,700

Our top pick for small-cap banks; Buy with TP of Rp1,700
We initiate coverage on BTN, Indonesia’s largest mortgage lender with 25% market share, with a Buy rating and a TP of Rp1,700. We believe BTN will be one of the primary beneficiaries of rising home ownership as per capita income is projected to double again in 5 years to around US$5,000. Rising property prices reduce NPL risks while asset recoveries have outpaced loan write-offs in the past four years. Funding is a risk given BTN's high LDR over 100%, but it is looking for asset securitization and distribution channel expansion.

Rising income levels support higher home ownership
BTN is a primary beneficiary of expanding home ownership (from 50%) on rising incomes. Indeed, GDP per capita is expected to double in five years to US$5,000. Also, the government’s plan to develop 1,000 housing towers for the low-tomiddle income segment with average pricing of US$20,000 bodes well for BTN’s target market. Low consumer debt to GDP of 8% implies ability to borrow.

Earnings to double within two years
We have projected a two-year earnings CAGR of 44%. ROAE is expected to rise to 12.4% in 2010F and 16.4% in 2011F from a low of 11.5% in 2009 (post capitalraising). Our projection is conservative relative to management’s NP guidance of Rp750bn in 2010 and Rp1,150bn in 2011 – implying ROAE of 16% in 2011. TP Rp1,700; risks are falling property values, higher funding costs and NPLs We derive our target price from a Gordon Growth model (see p. 4 for details). Risks are falling property values and the income levels of BTN’s low-to-middle segment customers; and high LDR exposing the bank to fluctuating deposit costs.

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.