Ciputra Development (CTRA IJ; Buy; TP IDR1,370) Results Review: JO Scheme a Growth Engine At No Cost

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Ciputra Development (CTRA IJ; Buy; TP IDR1,370) Results Review: JO Scheme a Growth Engine At No Cost

Ciputra’s 4Q13 net profit was flat q-o-q but still grew 20% y-o-y to IDR274bn, on: i) slower revenue booking from development properties, ii) higher operating costs due to a labour cost hike, and iii) higher interest expense from additional bank loan of IDR564bn in the quarter. We lower our earnings forecast by 10-17% in light of the company’s FY14 guidance, but raise our NAV-derived TP to IDR1,370 on higher land selling value. Maintain BUY.

¨       Within expectations. Ciputra Development (Ciputra) recorded a relatively flat 4Q13 net profit of IDR274bn, while its net margin expanded by 300bps to 23%. This was mainly backed by gross margin expansion in its overall business segments despite lower revenue of IDR1.2trn (- 12% q-o-q or +12% y-o-y), which enabled the company to offset higher operating costs as well as higher interest expense from additional IDR564bn bank loan during the quarter.

¨       New IDR500bn bonds issued by its subsidiaries. Ciputra recently issued IDR bonds amounting to IDR500bn through its subsidiary, Ciputra Residence (CR). The proceeds will be used to finance its new joint operations (JO) projects including Fatmawati, Maja, Malang and Kemayoran, which are expected to be launched this year and generate IDR1trn sales value. Taking into account the new debt, the company is no longer in a net cash position. However, Ciputra’s JO scheme should keep costs low or even at no cost—its customers’ down payment of 30% of price list should fully cover the construction cost (see figure 5). This should bring the company back to a net cash position within two years.

¨       Changes to forecast. We revise down our FY14/15F earnings forecasts by 10-17% to align with: i) the booking of FY13 presales of IDR8.9trn (+22% y-o-y), representing a 40% revenue growth to IDR7trn for FY14F, ii) our conservative FY14 presales target of IDR9.2trn, which is +3% y-o-y and lower than the company’s FY14 presales guidance of IDR9.9trn, and iii) higher interest expense from additional bank loan/bonds by its subsidiaries.

¨       Maintain BUY with new IDR1,370 TP. We lift our NAV-derived TP to IDR1,370 on the back of higher land selling prices, implying a P/E of 16.7-15.5x and P/BV of 2.8-2.5x for FY14/15F. BUY.

Best regards,

RHB OSK Indonesia Research Institute