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Good morning,
Indonesia Pondasi
Raya: King Of The Underground
We initiate coverage on Indopora with a BUY
call and IDR2,360 TP (53% upside) based on 15x FY17F P/E. This is at a c.14%
discount to the construction sector’s current weighted average P/E, and
supported by our DCF valuation of IDR3,133. We expect the company’s earnings
to grow following a revival in property demand due to the economic recovery
and Government’s support. We also like Indopora for its healthy balance sheet
and comprehensive range of machineries, which allows the company to gain
market share in the foundation business.
¨ High
margin contractor.
Indonesia Pondasi Raya Tbk PT (Indopora) benefits from high gross and net
profit margins, which stood at 29% and 20% in FY15 respectively vs
competitors’ 9-18% and 9%. This is because the foundation business has higher
average GPMs of 25-30%. Indopora’s focus on foundation works also enables it
to raise its prices, which is possible due to high quality requirements for
such works and its smaller value, at only 20% of total construction costs.
Supported by the diversified range of its fleet, Indopora is able to take on
specific projects and minimise the need for sub-contractors. Such projects
usually provide higher margins, while sub-contractor costs are usually kept
at <10% of its revenue.
¨ Robust
growth in FY17F and strong balance sheet. We expect Indopora’s earnings to
grow by 24.9% in FY17. This is on the back of an improving property outlook
and IDR1.3trn/IDR2trn in new contract targets for FY16-17 respectively. The
company has successfully maintained positive operating cash flows and we
expect this trend to continue in the coming years. Indopora also maintains a
healthy balance sheet with declining gearing levels, averaging at 0.27x
during the 2012-2015 period. Its net gearing stood at -0.22 in FY15, which
indicates a net cash position of IDR220bn. With conservative debt management
and a cash-generating business, we expect the company to maintain its low
gearing and net cash position going forward.
¨ Beneficiary
of a potential recovery in property demand. The Government is encouraging commercial
banks to lower rates to single digits by the end of 2016. It also recently
passed a tax amnesty bill. Both policies will likely stimulate demand in the
property sector, in our view. As Indopora focuses on high-rise building
construction, we see the more favourable property market outlook next year as
a growth catalyst.
¨ Risks
to
our call include:
i. The current soft
demand in the property market;
ii. Competition in the
foundation and precast works segments.
¨ Initiate
coverage on Indopora with a BUY and IDR2,360 TP based on 15x FY17F
P/E, and backed by our DCF valuation of IDR3,133 (TG: 2%, WACC: 10%, and RF:
8 %). (Dony Gunawan, Kristine Putri)
Link
to report: Indonesia Pondasi Raya Tbk PT : King Of The Underground
Link
to Daily report: Indonesia Morning Cuppa - 240816
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Company Updates:
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Indofood Sukses Makmur (INDF IJ, BUY,
TP: IDR9,700), Better Outlook For Indofood CBP And Bogasari
We expect a
brighter outlook for Indofood driven by:
1. Faster
growth at the CBP division on higher consumer spending;
2. Stronger
flour earnings, benefiting from higher sales volume and lower input costs;
3. Recovery
of agri earnings on stronger sales volumes.
We lift our
earnings estimates and SOP-based TP to IDR9,700 (from IDR8,600, 22% upside),
implying 18x/15x FY17F-18F P/Es. Maintain BUY. (Andrey Wijaya)
Link Net (LINK IJ, BUY, TP:
IDR6,100), Ready To Run
Despite its
operational performance facing short-term headwinds from new entrants like
Telkom IndiHome and MNC Play Media, we remain positive on Link Net, given:
1. Its expansion
into a new city (Malang) from July, plus Medan and Batam (3Q16);
2. New re-marketing
strategy and improved product quality.
Maintain
BUY with a higher IDR6,100 TP (from IDR5,500, 26% upside) after rolling
forward our valuation base to 2017. (David
Hartono)
Link to report: Link Net Tbk : Ready To Run
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Media Highlights:
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Corporates
BNI projects 20%
credit growth by the end of 2016
BTN booked IDR5.3trn
on property expo
Link Net appointed
new CFO
Lippo Karawaci
obtain SGD350m loan
Pembangunan
Perumahan achieved IDR19.42trn new contracts
Jasa Marga to
increase shares in two toll routes
Puradelta Lestari
aims additional IDR35bn from rental apartment
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Our Recent Publication:
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Not Rated Note: Delta Dunia Makmur : A
Beneficiary Of The Coal Price Recovery
Link to report: Delta Dunia Makmur : A Beneficiary Of The Coal Price
Recovery
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Company Update:
Indofood CBP : Earnings Likely To Improve In 2H16
Link to report: Indofood
CBP : Earnings Likely To Improve In 2H16
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Economic Highlight: : BI Mantains The BI
7-day Reverse Repo Rate at 5.25% But Cut Lending Facility Rate to 6.00%
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Sector Update: Cement Price Likely To
Continue Declining
Link to report: Cement
Price Likely To Continue Declining
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Company Update: Ciputra Development :
Better Outlook Ahead
Link to report: Ciputra
Development : Better Outlook Ahead
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Economic Highlight: Sluggish Exports Return
while Imports Remain Weak Amid Festive Celebration
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Company Update: Pembangunan Perumahan
Persero : A Heavenly Outlook
Link to report: Pembangunan
Perumahan Persero : A Heavenly Outlook
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Company Update: Astra International : More
Upbeat On Imminent Launch Of New Models
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Company Update: United Tractors : China’s
Domestic Coal Production Cut Is On Track
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Sector Update: Regional Plantation:
Restocking Activities + Hari Raya Month = Lower Inventories
Link to report: Restocking
Activities + Hari Raya Month = Lower Inventories
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Best regards,
Helmy Kristanto
Director
Head of Indonesia Research
PT. RHB Securities Indonesia
