P H
Feb 28, 2016 10:34:16
Ciputra Development ($CTRA), Smooth Sailing In Turbulent Times…

… as its operating cash flow remains positive despite a slowdown in the property sector. We upgrade Ciputra to BUY with a higher IDR1,540 TP (17% upside). The company’s wide-ranging and numerous projects through tie-ups with local land owners reduce funds for acquiring land, mitigating the risk of a slowdown in property demand. We lower FY16F-17F earnings by 8%/13% to better reflect: i) significant presales recognition in FY18F and ii) flat presales guidance for FY16F.

? Good cash management. We think Ciputra Development (Ciputra) is one of the property companies with good cash management as it has been able to maintain positive operating cash flow amid the unfavourable business environment over the last two years (Figure 1). Balance sheet remains healthy with net gearing of 0.2x as at 9M15 vs average peers’ 0.5x over the same period. We expect interest coverage ratio to be 7.4x/8.0x for FY16F-17F (from 6.6x in 9M15), above average peers’ 6.2x/6.7x. This is attributed to the company’s joint operation schemes with local land owners, which allow it to avoid the messy business of acquiring land as well as reduce funds for land acquisition. Its wide-ranging and numerous project locations should also mitigate headwinds from a slowdown in property demand.

? Flat guidance for FY16F. Ciputra guided presales of IDR9.3trn for FY16F, flat from FY15 presales of IDR9.2trn. About IDR1.5trn comes from eight new project launches, of which four are projects diverted from FY15 and mostly under joint operation schemes. Its subsidiary, Ciputra Surya ($CTRS) targets lower presales of IDR3.1trn (FY15: IDR4.1trn) due to: i) a high base effect from good presales in Makassar, ii) future toll road access that boosted presales in North Citraland Surabaya, as well as iii) good office demand in Ciputra World Surabaya. Meanwhile, Ciputra Property ($CTRP) is targeting IDR1trn presales for FY16, with office strata sales contributing 48% of FY16 target, 43% from apartment strata sales, and the remainder from Nivata Villa and resorts in Bali. Note that Ciputra recorded total marketing sales of IDR347bn in Jan 2016 (3.7% of FY16F presales).

? Changes to our forecast. In addition to flat presales guidance for FY16F, we expect FY14-15 presales to be significantly recognised in FY18F. Thus, we lower our FY16F-17F earnings by 8%/13%, translating to earnings growth of 0.3%/9.4% respectively.

? Upgrade to BUY (from Neutral) and, after adjusting for higher land selling price, we raise our RNAV-derived TP to IDR1,540 (vs IDR1,490), maintaining our 40% discount to RNAV/share of IDR2,562. We note also that the counter trades at a steeper 49% discount, which is -0.5SD to its mean of 34% discount. Our BUY call is mostly on the company’s good cash management and healthy balance sheet with vast projects in the pipeline. Key risks: i) a change in government regulations, and ii) slower-than-expected economic growth that could hurt property demand.
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