Robust condominium sales paved way to all time high quarterly result
PWON delivered strong earnings result for 2Q17, as the company’s revenue, gross profit, operating profit and net profit rose 31.6%, 43.3%, 52.5%, and 50.4% YoY, respectively (Figure 1). We believe this robust bottom line result is attributable to its condominium sales. Revenue from condominium and office sales recorded at IDR 733.6 bn (+89.5% YoY vs. IDR 387.1 bn in 2Q16). There were more than a few condominiums that PWON successfully sold in 2Q17 which included Benson, Anderson, La Riz tower at Pakuwon Mall, Angelo, Bella, Chianti tower at Kota Kasablanka and Amor tower at Pakuwon City. In addition, PWON managed to break its all time high quarterly result for revenue, operating profit and net profit which supported our positive view on PWON. Last but not least, the company’s 1H17 top and bottom lines met 52.4% and 44.4% of our full-year estimates, respectively.
One of the strongest achiever for 1H17 marketing sales result
We maintained neutral outlook for property sales growth this year as we believe the industry itself is still lacking key catalyst to trigger full recuperation. We forecasted PWON FY17F marketing sales to be around IDR 2.505 tn, below the company’s target at IDR 2.7 tn. So far, PWON has achieved IDR 1.203 tn, 48.02% of our annual target and 44.5% of the company’s annual target. This achievement made PWON to have one the best marketing sales run rate amongst its competitors (Figure 4). Majority of the sales is comprised of condominium sales (77.58%) then followed by landed residential (21.65%) while office spaces contributed the least (0.77%). The office spaces sold in 2Q17 were Pakuwon Tower and Pakuwon Center in Tunjungan City (1,000 sqm GSA) – this indicates over-supply of office spaces in Jakarta still looms around. It is also noteworthy to point out that sales in Jakarta only contributed 19% while the rest came from Surabaya.
Recurring revenue will play major role going forward
We believe PWON’s recurring revenue would continue to be one of positive aspects going forward. PWON recorded IDR 717 bn in revenue from investment properties (+17.4% YoY vs. IDR 611 bn in 2Q16; +6.1% QoQ vs. IDR 676 bn in 1Q17) which translated to 45.56% out of total revenue for the quarter. PWON still has the biggest portion of recurring revenue amongst all property developers in Indonesia. This is why we have an affirmative view on PWON property-leasing activity as it would play a defensive role during slowdown in the industry like today. We also believe recurring revenue will help to provide smoother cash flow and buffer its earnings against volatility in property sales.
Rating and Valuation
We downgraded our recommendation to HOLD due to recent hike in share price as it moved closer to our target price. Nevertheless, we maintained 12 month forward target price of IDR 710. Our view remains positive on PWON given its solid earnings result in 1H17 and steady marketing sales performance in the midst of sluggish property appetite. Currently, PWON trading at an attractive valuation 15.78x FY17E P/E and 51.3% discount to RNAV.