May 09, 2016 15:03:39
Ciputra Development: Keeping It Under Control

We expect greater revenue recognition and better presales performance in 2H16. The near-term catalyst should be the tax amnesty bill. With numerous portfolios and land, Ciputra is one of the sector players that is likely to be at an advantage when the bill is passed. The company is also taking the opportunity from the amnesty to undertake its plan to merge listed subsidiaries Ciputra Surya and Ciputra Property. Maintain BUY and IDR1,540 TP (20% upside).

¨ Greater revenue recognition in 2H16. Delays in revenue recognition during Ciputra Development’s (Ciputra) 1Q6 results were mainly due to stretched instalment payments. 1Q also tends to be the weakest period. As such, we keep our forecasts unchanged, with greater revenue recognition in 2H16. Referring to our 26 Feb (Smooth Sailing In Turbulent Times…), we expect FY16F earnings to be flat at IDR1.3trn. This is on the back FY14-15 presales that should be significantly recognised in FY18.

¨ The benefit of tax amnesty. We continue to believe the tax amnesty approval could serve as a near-term major catalyst for the property sector. This is as people take the opportunity to revalue their assets and buy properties. With a large portfolio and landbank, Ciputra should be one of the property firms that is at an advantage when the amnesty is passed. Meanwhile, management advises that subsidiary Ciputra Surya (CTRS IJ, BUY, TP: IDR5,000) is to participate in the tax amnesty by transferring its assets into a subsidiary. This is part of the company’s plan to undertake its long waited plan to merged Ciputra Surya and another listed unit, Ciputra Property.

¨ Maintain BUY and IDR1,540 TP as we like Ciputra’s cash management, healthy balance sheet and vast project pipeline while it is still trading at a steeper 50% discount, ie -0.6SD to its 35% mean. The downside risks are slower revenue delivery, further delays in the tax amnesty plan and changes in government regulations that impact economic growth and/or property demand.