Another pleasant surprise
PTPP delivered another stellar earnings result for 9M17 as reported bottom line of IDR 990 bn grew by 75% YoY which resulted net margin expand to 7.2% from 5.23% in the same period last year. The NPAT itself is above our forecast and consensus, particularly higher from its last 3-year average 9M achievement which translated to 56.67% vs 92.24% (PSI estimate). The achievement was largely due to a significant increase in profit from JO (IDR 148 bn vs. IDR 56 bn) and higher interest income from time deposit. In terms of quarterly performance, PTPP’s revenue, gross profit, EBIT and net profit all rose by 28.9%, 34%, 63.6%, and 97% YoY, respectively (Figure 1). Furthermore, we believe revenue growth of 26% YoY in 9M17 are mostly driven by construction (+21% YoY) and EPC (+47% YoY) segments.
Robust new contract achievement
PTPP achieved a robust new contract run rate of 79.3% of FY17 target which amounted IDR 31.9 tn (+39% YoY). It is noteworthy that the current run rate is higher than 3-year average of 9M performance. On quarterly basis, company saw 3Q17 new contract at IDR 11.9 tn down -23% QoQ due to high base in 2Q17. New contract came from Kulonprogo airport in Yogyakarta (IDR 6.5 tn), Transmart Bali (IDR 497 bn) and Gempol – Pasuruan toll road (IDR 423 bn). In 9M17, project owner is still predominantly SOE (61%), then followed by private and government at 29% and 10% respectively. Going forward we expect PTPP to deliver double-digit growth both this year and next year (23.4% and 25.8% YoY). Despite the potential of new contracts from SOE contractors to decrease in 2018F, PTPP has several projects to support its new contract growth rate which include multipurpose terminal of Kuala Tanjung port and power plant projects in Sumatra.
Sound balance sheet and healthy OCF
PTPP has also seen improvement in its operating cash flow in 3Q17 which came in at an inflow of IDR 652.5 bn (vs. IDR 459 bn in 3Q16). We believe that PTPP will continue to see better CFO which will be underpinned by the government’s ability to pay and support PTPP’s earnings quality going forward. Moreover, PTPP is currently preparing its subsidiary, PP Presisi, to go public in November 2017. PP Presisi’s asset currently stands around IDR 2 tn which rose significantly from IDR 599 bn after the acquisition of PT Lancarjaya Mandiri Abadi (LMA) in June 2017. The acquisition will also help PP Presisi to reduce its revenue dependence from PTPP to as low as 60% from 85%. We also view that the IPO will be beneficial for PTPP in generating smoother cash flow which then could facilitate project financing.
Rating and Valuation
We reiterate our BUY recommendation and maintain the 12 month forward target price of IDR 3,986. Our view remains positive on PTPP given its strong net cash position and excellent new contract run rate achievement in 9M17. We view that PTPP is highly probable to achieve management’s target at IDR 1.45 tn but we uphold our current projection as the level of success from its subsidiaries’ IPOs will affect PTPP’s FY17 result. Currently, PTPP is trading at an attractive valuation of 14.66x FY18F P/E.