Ciputra Property - More revenues to come - (CTRP-BUY-IDR390-TP:IDR490) - Bahana

4Q10 results: Supported by high interest income
In 4Q10, Ciputra Property (CTRP) booked 11% q-q revenue growth stemming from additional revenue recognition from My Home apartments in Ciputra World Jakarta complex and growing hotel revenue on holiday season. However, higher operating expense brought 4Q10 operating margin down to 26% from 32% in the previous quarter and 33% in 4Q09. Overall, we see CTRP reached its high 2010 net margin of 44% helped by net interest income of IDR73b (37% of 2010 pre-tax profit) as year-end cash stood at IDR1.2t.

5.2% higher revenue in 2011 from the Ciputra World super block
In 2011, we expect CTRP to book significant additional revenue from its 5.5ha major project, Ciputra World Jakarta, located in Satrio, South Jakarta . With current construction progress having reached 32% overall the super block, the company plans to reach the topping-off of its first tower of My Home (apartment)-Ascott residence (service apartment) at the end of this year, raising more revenue recognition. We estimate 5.2% y-y higher 2011 revenue to IDR496b (+40%y-y) stemming from My Home apartments (IDR139b) and Raffles premium residence (IDR19b). We believe high 2011 revenue growth will support operating margin to expand 33% from 31% in 2009, although we expect 4.3% y-y lower 2011 bottom line to IDR146b on lower interest income.

20% pre-commitment on future retail mall
Positive news also came from CTRP’s 78k sqm retail mall in Ciputra World Jakarta (CWJ) complex, as it has obtained 20% pre-commitment from retail tenants. The management is also in the process of negotiating with potential mini-anchor and anchor tenants, paving the way for 60% take-up rate by the end of 2011. The retail mall will start operational in 2Q12 with an estimated 2011 revenue contribution of IDR66b.

Upcoming new apartment projects
More aggressive plans from CTRP are progressing rapidly with the company planning to launch more products this year, supported by growing confidence towards Indonesia ’s economic growth. CTRP plans to launch 3 new apartment towers in 3ha land in lot11 Satrio, South Jakarta . On CWJ complex, CTRP will also launch another 80 unit premium residences under Raffles, located in the same tower with Raffles hotel.

Raise to BUY on 26% upside potential & 12% ytd underperformance
We estimate CTRP will book lower gross and net margins in 2011-12 as more revenues from apartments will be booked, accounting for 32% and 40% of total in 2011-12, versus less than 10% in the past (exhibit 7). This will result in relatively flat y-y bottom line. However, on a more positive note, 2M11 apartment marketing sales have reached IDR25b (70% of 2010’s total) following more site construction progress. While our TP remains unchanged at IDR490, reflecting 30% discount to NAV, CTRP’s 26% upside potential and 12.4% ytd market underperformance have us raising our rating to BUY.