Buy Ciputra Development (CTRA) - JP Morgan

* 2011 is looking like a bumper year: marketing sales reached Rp834bn in 1Q11, already accounting for 48% of full year 2010 figure of Rp1,713bn. For full year 2011, the company is looking at Rp3,091bn, or 80% yoy increase. Main driver for the yoy growth would be the 143% yoy increase in marketing sales from revenue sharing projects, from Rp596bn in 2010 to Rp1,452bn in 2011E. CTRA keeps around 70% of revenue from these projects; if we only account for CTRA’s proportionate ownership, the yoy growth in marketing sales still strong at 73%.

* Marketing sales to profit transmission good: CTRA just reported consensus beating 4Q10 net profit number on 28 March, that was up by 125% yoy and 314% qoq, beating consensus by 51%. Typically reported net profit lags marketing sales by around one year, as profit from landed property sales can only be booked after 100% completion.

* Land price appreciation has accelerated so far in year 2011: let’s focus on one of CTRA’s many projects, Citra Garden City, where the project’s saleable land value accounts for 15% of total. In 2009, the average land selling price is Rp3.25mn/sqm. In 2010, the ASP was Rp3.93mn/sqm or 20% higher. Currently in April 2011, the ASP is around Rp5.2mn/sqm according to management, or 32% higher already. JPMorgan analyst Liliana Bambang has an NAV estimate of Rp568/share for CTRA, assuming a 15% land price appreciation in Citra Garden City. The actual 32% land price appreciation so far gives scope for NAV upgrade. At Rp380 close, the stock trades on a 33% discount to Liliana’s NAV estimate. Her price target of Rp495 implies a 13% discount to NAV.

* New NAV estimate from the company may come out in May: CTRA’s management has stopped disclosing NAV estimate from third party valuer, as last study was conducted in year 2007. The new NAV estimate may bring fresh excitement into the stock, as the number may account for the current property price rally, that arguably has not been fully accounted by the Street analysts.

* To pay first dividend after a long period of draught: legacy from Asian financial crisis, CTRA’s retained earnings was negative Rp5bn in year 2009. The retained earnings have turned positive in year 2010, allowing the company to start paying dividends based on FY10 profit. The company expects to approve dividend payment in upcoming May EGM, marking the first cash dividend from CTRA after many years of draught.

* No rights issue on the horizon: the management outlined the fact that net gearing is now below 5%, and that they are comfortable to gear-up to 30%. The company expects a potential tripling in monthly recurring income once Ciputra World project coming to fruition sometime in early 2012.