May 09, 2016 15:00:21
Ciputra Surya (CTRS): Maintaining a Net Cash Position

We like the fact that Ciputra Surya has continuously maintained a net cash position since FY12. Amidst our expectation of flat FY16 earnings, we expect a further unlocking of value from its potential merger with Ciputra. Revenue recognition from two of its big FY15 presales should only happen in FY18. Maintain BUY and IDR5,000 TP (148% upside).

¨       Balance sheet remains strong. Ciputra Surya remains in a net cash position as at 1Q16. The current net cash balance is around IDR650bn, which we believe should be sufficient to internally finance its IDR1trn capex for this year. Regardless, it still has plenty of room for leverage. It has secured ~IDR500bn in bank loan facilities and plans to top up another IDR700bn, if needed, to finance the IDR1.2trn capex total for the Makassar reclamation project.

¨       Potential unlocking of value. We expect a potential unlocking of value if the tax amnesty bill is passed. Ciputra Surya is to participate in the amnesty by transferring its assets into a subsidiary. This is part of its parent entity Ciputra Development’s (Ciputra) (CTRA IJ, BUY, TP: IDR1,540) plan to undertake its long awaited merger with the company and another listed unit, Ciputra Property. The total book value has yet to be disclosed, but the potential tax penalty would be ~4.5% (2.5% land transfer title tax and 2% amnesty penalty).

¨       1Q16 earnings: results below expectations

¨       Maintain BUY and IDR5,000 TP, as we like Ciputra Surya’s net cash position, which it has held since FY12. The counter is still trading at a hefty 79% discount to its IDR9,818/share RNAV and at 7.2x FY16F P/E (-1SD to its average 3-year rolling P/E). Downside risks include a lack of liquidity, a delay in the reclamation progress and project completions, further delays in the tax amnesty plan, and a smaller-than-expected Bank Indonesia rate cut.