Coorporate Flash Notes:
Ciputra Development (CTRA IJ, BUY, TP: IDR1,900)
A Potential Giant In The Making
Ciputra Development (CTRA IJ, BUY, TP: IDR1,900)
A Potential Giant In The Making
Ciputra
Development has finally announced conversion ratios for its proposed merger
with CTRS and CTRP. As the merger is still subject to shareholders’ approval,
an EGM has been scheduled for 2 Dec. If it goes through, the new entity may be
the third largest listed developer in Indonesia in terms of market cap. Its
improved share liquidity and broader investor base would also give it easier
access to funding. As the merger’s valuation is based on the value of its
shares (ie vulnerable to share price volatility), we suggest that investors
take profit on CTRS and CTRP if the premiums to their respective conversion
prices become limited. Investors can also shift their focus to Ciputra
Development, which may be a safer bet, in our view.
♦ Conversion ratio. Ciputra Development
has announced that the conversion ratios in its merger with Ciputra Surya
(CTRS) (CTRS IJ, BUY, TP: IDR5,000) and Ciputra Property (CTRP) (CTRP IJ, NR)
are at 2.13x/0.54x respectively. This suggests that the merger may lead to a
potential shareholder equity dilution of 20% for the company. Based on our
comparison of potential conversion prices with the three companies’ closing
prices on 21 Oct, and RNAV calculations made by an independent appraiser, CTRP
is the best stock to hold prior to the merger. Its implied conversion price is
at a 20% premium and at a hefty 56% discount to the appraisal’s valuation.
♦ Impact after merger,
if it happens. We
remain positive on the merger plan. After the exercise, Ciputra Development
would be the third largest listed property developer in terms of market cap
(about IDR29trn, assuming current share price levels). Based on its post-merger
proforma statement, total equity attributable to majority shareholders would
increase by 37.75%. Meanwhile, the earnings portion attributable to minority
shareholders would decline – which implies FY16F earnings may grow 30.13% YoY
and EPS, 6.25% YoY. We also expect its share liquidity to improve. Note that
the average daily trading values for CTRP/CTRS over the past year are about
IDR3bn/IDR6.4bn respectively, compared with Ciputra Development’s IDR24.1bn.
♦ What next? The merger is still
subject to the approval of shareholders of all three publicly-listed entities.
Furthermore, at least 75% of each firm’s shareholders must be present at the 2
Dec EGM – and at least 75% of them must approve the exercise in order for it to
proceed.
♦ Pick Ciputra
Development as a safer bet. Note that the merger’s valuation is based on
the value of the three companies’ shares, which are subject to price
volatilities. As such, we suggest that investors take profit on CTRP and CTRS
if the 7%/6% premiums to their respective conversion prices become limited.
Shifting focus to Ciputra Development may be a saferbet, considering:
i. Its potential net earnings growth of 30.13%
YoY;
ii. The conversion ratios suggest CTRS and CTRP
are valued at discounts of 38% and 3%to their RNAVs respectively.
Kindly click the following link for the full report: Ciputra Development : A Potential Giant In The Making
Best regards,
Lydia Suwandi
Vice President
Research Analyst - Property
PT. RHB Securities
Indonesia
