Company update:
Pembangunan Perumahan Persero (PTPP IJ, BUY, TP: IDR5,100),
Exciting Earnings Outlook Ahead
Pembangunan Perumahan Persero (PTPP IJ, BUY, TP: IDR5,100),
Exciting Earnings Outlook Ahead
We
maintain our BUY call with a new TP of IDR5,100 (from IDR5,400, 37% upside)
based on unchanged P/E target of 22x, +1SD above its historical mean. This is
on the back of a stronger outlook post the completion of its rights issue in
Dec-16. PTPP’s new contracts performance in FY16 was above our estimates and we
expect new contracts to grow to IDR38trn in FY17F, fuelled by power
plants, low cost housing and other infrastructure projects. We expect a lower
interest expense due to stronger balance sheet and earnings to grow 54% YoY in
FY17F.
¨ Rights issue completed. Pembangunan Perumahan
Persero (PTPP) has completed its rights issuance with a high subscription rate.
The company raised IDR4.412trn from the exercise, including IDR2.25trn from the
government. The rights price was set at IDR3,250 and 1,357m new shares issued.
76% of the proceeds would be used to finance top priority projects such as toll
roads and power plant projects while 24% would be used as working capital for
infrastructure projects. We expect to see strong earnings visibility ahead
given the investments made. Net gearing level is expected to fall to 0.04x in
FY17F versus our pre rights issue estimate of 0.95x.
¨ Strong new contract
collection in FY16.
The company generated strong new contract wins of more than IDR32trn last year,
above our estimates of IDR31trn (+14.5% YoY). We estimate carry over contracts
to reach IDR48.7trn (+24%YoY) in 2017 which should allow PTPP to recognise more
projects as revenue in FY17F.
¨ Orderbook. We upgrade our new
contract estimates for FY17 to IDR38trn (+18.8% YoY) on the back of more
contracts from investment projects. We expect its new contracts to be driven by
infrastructure projects including toll roads, power plants, seaports, low cost
housing and other infrastructure projects. Hence, we expect the company to
secure an orderbook of IDR86.7trn in FY17F, 21.8%YoY higher than FY16 estimate.
¨ Robust growth. We expect a more
robust earnings growth in FY17 for PTPP post its rights issuance as many
infrastructure investments are expected to be awarded this year. This is
compounded by lower interest expense and more contribution from EPC projects
which generate higher margins compared to construction services. We expect
PTPP’s gross and net margin to stabilise at 14.7% and 6% respectively in FY17.
We expect its net profit to reach IDR1.4trn (+53.8% YoY) in FY17F, higher than
our initial estimates of IDR1.2trn.
¨ Key Risks for the stock are
delays in infrastructure investments, land clearing progress and lower than
expected government spending.
¨ Maintain BUY with new
TP of IDR5,100.
We reiterate our BUY recommendation with a new TP of IDR5,100 (previous
IDR5,400) as we see a better outlook for the company post rights
issuance. This is also supported by a stronger orderbook, higher
contribution from EPC projects and lower interest expense on the back of a
stronger balance sheet.
Kindly click the following link for the full report: Pembangunan Perumahan Persero : Exciting Earnings Outlook Ahead
Dony Gunawan
Assistant Vice
President
Research Analyst – Construction
PT. RHB Securities
Indonesia
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