Pembangunan Perumahan (PTPP IJ): Recovering Lost Ground August 1, 2017

Result Highlights

  • 2Q17 bottom line (IDR 442.2 bn) soared 239.9% (vs IDR 130.2 bn; QoQ) and 72% (vs IDR 257.2 bn; YoY) .
  • Revenue beat our forecast and jumped 78.6% (QoQ) while EBIT climbed 187% (QoQ) as Opex decreased by % 11.5% (QoQ).
  • 1H17 new contract achievement has 49.8% run rate of the company’s annual target.

Optimism buzzes after robust earnings result

PTPP delivered stellar earnings result for 2Q17, as the company’s revenue, gross profit, EBIT and net profit all rose by 34.1%, 45%, 44.2%, and 72% YoY, respectively (Figure 1). This is above our forecast and consensus, particularly higher from its last 6 years average first half achievement of 26.31% vs 53.3% (PSI estimate). Furthermore, we believe better cost efficiency which saw margin improvement in both gross and operating to 15.2% and 13.3% played a major role in contributing to this superb result (vs. 14.1% and 12.4% in 1H16). On the other hand, revenue (+34.1% YoY) achievement was largely in-line with its last 4 years average but marginally hindered by escalating interest expense (+45.7% YoY) which brought PTPP’s DER at 0.71x in 1H17 (vs. 0.69x in 4Q16).

New contract achievement is starting to catch up

PTPP’s new contract signing in 2Q17 beat our estimate after securing several key contracts worth up to IDR 9.38 tn in June alone (IDR 20.2 tn vs PSI estimate at IDR 16.83 tn). This was a significant improvement remembering that PTPP’s new contract growth in 1Q17 was comparatively below average, reported at +58.3% YoY while the industry’s booked twice as much at +134.8% YoY. On the contrary, PTPP achieved the highest new contract growth in the sector in 1H17 (+43.3% YoY), which was well above the industry’s accumulative achievement (+0.17%). Furthermore, as of 1H17, PTPP also had the highest run rate to its full-year new contract target (49.8% vs. industry’s 41.8%), supporting our growing optimism towards achieving FY17F target at IDR 37.29 tn (vs. company’s target at IDR 40.6 tn).

All the more reason for better cash flow going forward

PTPP has also seen improvement in its operating cash flow in 2Q17 which came in at an outflow of IDR 511.3 bn (vs. IDR -1,086 bn in 2Q16). 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 PP Presisi to go public in 3Q17. PP Presisi engages in several business lines such as civil works, ready mix, formwork, foundation, erector and equipment rental. PTPP will sell around 35% of its ownership in PP Presisi with targeted proceeds of IDR 3 tn. We view that the IPO of subsidiaries will be beneficial for PTPP in the future to generate smoother cash flow which then could help expansion plans and carry out more projects.

Rating and Valuation

We maintained our BUY recommendation but revised the 12 month forward target price from IDR 3,935 to IDR 3,986. We upgraded our FY17/18F earnings by 2.5%/2.8% based on margin improvement and better new contract run rate. Our view remains positive on PTPP backed by robust earnings result in 1H17 and higher orderbook to sales ratio (3.7x) than before. Currently, PTPP trading at 18.9x FY17 P/E and FY17 PBV of 1.91x.

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