Bahana Sekuritas Ciputra Development - Geographical expansion (CTRA-BUY-IDR330-TP:IDR520)

Strong December marketing sales, helped to support 2010 target
Ciputra Development reported IDR89b marketing sales in December, helped by higher sales from Jonggol and Lampung, bringing 12M10 sales of IDR1.71t (+33% y-y).  This was in line with the company’s target and our expectation.  For 2011, the company targets 30% y-y growth in 2011 marketing sales to IDR2.2t, supported by existing and 8 new projects.  In the near term, the company will introduce new residential projects, located in Jambi (South Sumatera), Semarang (East Java) and Bandung (West Jawa), following by Pekanbaru (North Sumatera).  These new projects are likely to bring in additional IDR400b marketing sales.  We believe that this geographical expansion would become the growth engine for CTRA in penetrating its sales going forward.  

Strong IHRP to propel sales in outer Java
Based on survey from Bank Indonesia in 14 cities throughout Indonesia, although the 3Q10 Index for Residential Property Price (IHRP) grew at slower pace at 0.48% q-q compared to 1.04% q-q in 2Q10 (Exhibit 10), the annual growth of IHRP has continued showing the uptrend, with 3Q10 growth of 2.93% and 2Q10 of 2.89% (Exhibit 9). Amongst these cities, Makasar, Manado, Bandung, Lampung and Jabodebek-Banten have recorded the highest IHPR growth.  CTRA’s property locations within these cities have benefited the company for potential margins improvement.  Makasar has in fact become one of CTRA’s major contributors, accounting for approximately of 12.6% of 2010 total marketing sales, or similar to contribution coming from Citra Garden City, Jakarta.  It booked IHPR growth of 5.1% y-y and 0.96% q-q.  Likewise, Bandung has also indicated potential growth opportunity with 4.23% y-y and 0.7% q-q IHPR growth in 3Q10 respectively. We believe that the geographical expansion into outer Java area should be perceived positively for the company to expand its profitability.

Underperformed the market by 1.2% ytd, BUY
High 2009-2010 marketing sales should support CTRA’s top line going forward. Thus, we maintain our 2011-12 top line growth 22-24%, in which recurring income from the existing and new projects are expected to grow at 14% y-y. On the operating front, we expect the company to improve its operating margin to 22.5% and 23.2% in 2011 and 2012 respectively.  However, lower net interest income is likely to dampen the bottom line to grow by 17%-26% in 2011-12, translating into net margin of 11.8% and 12.0% respectively. Moreover, the construction of flyover from Kampung Melayu – Tanah Abang will ease the traffic at jalan Satrio, benefit CTRA’s mixed used development, Ciputra World Jakarta. While we perceive company’s fundamental remains intact going forward, the share price still underperformed the market by 1.2% ytd and we maintain our BUY recommendation with target price of IDR520, providing 57.6% upside potential.