RHB Indonesia - Bank Mandiri - Spring Has Finally Sprung (Bank Mandiri, Waskita Karya, Pembangunan Perumahan) Unknown Jumat, 05 Mei 2017




Good morning,

Bank Mandiri – Spring Has Finally Sprung
We upgrade Mandiri to BUY (from Neutral) with a new GGM-derived IDR13,300 TP (from IDR11,600, 15% upside) as we believe the worst part of its asset quality issues are over. Corporate and consumer lending would be the key areas to focus on to propel future growth. That said, NIMs would slightly dip to 6% this year as we project a c.30bps reduction in asset yields to 8.7%. In addition, a rebound in 2017 earnings ought to come from manageable opex growth and lower credit costs at 277bps.


¨ Back to the corporate loans segment. Bank Mandiri (Mandiri) continues to refocus its strategy towards its bread and butter business, ie corporate lending. Some of its big corporate borrowers are state-owned electricity company Perusahaan Listrik Negara (PLN), Astra International (ASII IJ, BUY, TP: IDR9,850) and Jasa Marga Persero. Despite lower loan yields from the corporate segment, the bank can also tap into wholesale funding, particularly CASA deposits. As such, we expect a decent contribution from corporate lending at 39.8% of Mandiri’s total loans book by end-2017.
¨ Consumer lending as another growth engine. Aside from the corporate segment, the bank is also aiming to push consumer lending as another main growth engine. Moreover, for the mortgage segment, management recently deployed relationship managers (RM) into the corporate accounts of the big developers. By doing so, Mandiri hopes for a more effective cross-selling of its products. All in, we project 19.4% YoY growth in consumer lending, with a 36.3% contribution to consumer loans from mortgages (end-2016: 35.4%).
¨ Manageable NIMs. We expect a slight dip in NIMs this year to 6%, coming from lower asset yields (by c.30bps) to 8.7%. This is due to changes in its loans mixture, with corporate and consumer lending dominating. In addition, blended cost of funds (CoFs) ought to fall to 3%, given that Mandiri is currently more selective in offer preferential time deposit (TD) rates to its institutional customers.
¨ Expect NPLs to improve. Strong growth in the bank’s top tier corporate and consumer lending segments ought to support lower credit costs in our view. This is given the lower risk profiles attached to those two segments. In addition, new NPL formation has already stabilised. In 1Q17, Mandiri’s new NPL formation was down to IDR7.1trn (1Q16: IDR8.6trn). Hence, we assume credit costs to fall to 277bps this year (FY16: 393bps). Meanwhile, the gross NPL ratio is likely to decline to 3.7%, which ought to result in a 130.4% LLC ratio by the end of year.
¨ Upgrade to BUY (from Neutral) with a new IDR13,300 TP (from IDR11,600). We upgrade our recommendation on Mandiri to BUY (from Neutral) with a new GGM-derived IDR13,300 TP (1.91x 2017F P/BV multiple), assuming a cost of equity (CoE) of 9.3%, 14.9% sustainable ROAEs and 3% long-term growth. Risks to our call are slower-than-expected assets quality improvement (which should result in higher credit costs) and soft GDP growth that would dampen loans demand, particularly for corporate lending. (Eka Savitri)

Link to report: Bank Mandiri : Spring Has Finally Sprung
Link to Daily report: Indonesia Morning Cuppa 050517



Company Update:

Waskita Karya (WSKT IJ, BUY, TP: IDR4,000), Stellar Performance

We maintain our BUY call and TP of IDR4,000 (75% upside) for Waskita, based on unchanged P/E target of 22x. Waskita reported a stellar performance in 1Q17, with earnings growing more than four-fold YoY. Moreover, its new contracts collection continues to provide good earnings visibility ahead. Meanwhile, it is working on further divestments at its toll road subsidiary, in order to support continued toll road development. Waskita is still aiming to acquire more toll roads, after clinching the Cibintung-Cilincing toll road last month.

¨ 1Q17 results above expectations. Waskita Karya (Waskita) booked IDR7.1trn (+133% YoY) of revenue in 1Q17, coming in at 19.3% and 20.1% of our and consensus estimates respectively. 1Q17 revenue was above last year’s seasonality of only 12.9% in 1Q16, supported by toll road projects and projects from Perusahaan Listrik Negara (PLN).
Waskita reported net profit of IDR407bn in 1Q17, surging more than four-fold YoY. The growth was supported by a lower opex-to-revenue ratio, a turnaround at its joint operations (JOs), and lower effective tax expense due to blended tax expense at the precast segment, although its net interest expense more than doubled in 1Q17.
Gross margins normalised to 14.5% in 1Q17 (vs 16.9% in 1Q16), but operating margins were relatively flat at 12.5%, thanks to a lower opex-to-revenue ratio that stood at 2.1% (vs 3.3% in 1Q16), on lower tender expenses.
¨ Superb new contracts collection. Waskita obtained IDR11.65trn worth of new contracts in 1Q17, up nearly four-fold vs 1Q16. This accounted for 16.6% and 14.6% of our and consensus estimates respectively, and ws above last year’s seasonality of 5.6%. In total, Waskita has IDR98.3trn worth of projects in the pipeline up to 1Q17, the highest among state-owned contractors.
¨ Toll road development. Waskita has completed the acquisition of a 55% stake (worth IDR715bn) in the 34.2km Cibitung-Cilincing toll road from MTD CTP Expressway. The remaining 45% would be held by Pelindo II (state-owned seaport operator). The company is eyeing more toll roads to acquire this year to support its long term earnings growth.
To finance this plan, Waskita is currently working on another divestment at Waskita Toll Road (WTR), its toll road operator subsidiary. Management indicated that potential valuations would be higher than the previous divestment of a 29% stake, which was done at P/BV of 1.5x.
¨ Maintain BUY call with an unchanged TP of IDR4,000, based on 2017F P/E of 22x. We continue to like Waskita for its solid orderbook, which underpins its strong earnings visibility, and relatively high margin among contractors. (Dony Gunawan)

Link to report: Waskita Karya : Stellar Performance

Pembangunan Perumahan Persero (PTPP IJ, BUY, TP: IDR5,300), The Most Undervalued Contractor

We remain bullish on PTPP with an unchanged TP of IDR5,300 (87% upside), based on 2017F P/E of 22x. The stock is currently trading at 2017F P/E of 11.8x, and is the cheapest state-owned contractor with strong growth, diversified projects, and a healthy balance sheet. 1Q17 earnings came in below our estimates, as revenue was lower-than-expected. However, its new contracts collection points to a positive outlook. We maintain our conservative earnings growth target of +45.9% YoY as we expect it to record better performances in the coming quarters.

¨ 1Q17 results were lower than expected. Pembangunan Perumahan Persero (PTPP) posted 1Q17 revenue of IDR2.9trn (+13% YoY), which was 11.7%/12.2% of our/consensus estimates, and below last year’s seasonality. 1Q17 was dragged down by lower contributions from the construction and precast business, which registered negative growth in revenue.
1Q17 net profit came in at IDR130.2bn (+32% YoY) or around 8.7%/9.2% of our/consensus estimates, and below 1Q16’s performance of 9.6%. Net profit was dragged down by slow growth at the construction and property segments.
Gross margin stood at 13.4% in 1Q17, lower than 1Q16’s 13.9%, and below our 2017F expectation of 15.2%. The softer gross margin was due to lower-than-expected EPC margin in 1Q17. As a result, its net margin stood at 4.5%, lower than our and consensus expectations of 6%.
¨ Strong new contracts collection. Up to March, PTPP had raked in IDR6.6trn of new contracts (+37% YoY), which accounted for 17.4% of our 2017F’s new contracts target of IDR38trn (+16.6% YoY), above last year’s seasonality of only 14.8% in 1Q16. EPC projects were the biggest contributor to new contracts in 1Q17, with a total of c.IDR1trn. In April, PTPP indicated that additional new projects of c.IDR500bn would result in a total of c.IDR7.7trn in 4M17 (+26.2%). We remain positive on its new projects collection, as many projects including the Kalibaru, Kijing, and Patimban seaports have not yet been announced.
¨ Robust growth and higher margins. We maintain our conservative net profit estimate of IDR1.5trn for 2017F, slightly lower than the company’s guidance of IDR1.6trn. Our estimates are supported by stronger revenue growth of +51.7% YoY, and higher projected contributions from the EPC segment. EPC revenue contribute c.24% to total revenue, an improvement from 14.4% in 2016. We also expect an improvement in gross margin to 15.3%.
¨ Maintain BUY. We reiterate our BUY call on the stock with an unchanged TP of IDR5,300, based on 2017F P/E of 22x. PTPP is currently the cheapest state-owned contractor, trading at 2017F P/E of 11.8x.
Given its healthy balance sheet, diversified projects and strong projected net profit growth of +45.9% YoY in 2017F, we remain confident about PTPP’s outlook, and maintain the stock as our Top Pick in Indonesia construction sector. (Dony Gunawan)

Link to report: Pembangunan Perumahan Persero : The Most Undervalued Contractor

Media Highlights:

Corporate

Bank Tabungan Negara has channeled IDR144.37trn loan for affordable housing
Mitra Adiperkasa allocates IDR750bn to open 200 stores
Perusahaan Gas Negara allocates USD500mn capital expenditures
Medco prepares two corporate actions
Metropolitan Land adds five new projects this year
Lippo group to develop a township worth IDR278trn in Meikara, Cikarang, West Java

Our Recent Publication:
Company Update: Telekomunikasi Indonesia – Blazing The Trail
Results Review: Ciputra Development – Expect Numbers To Improve In The Quarters Ahead
Company Update: Harum Energy – Continued Strong Earnings Ahead
Company Update: Wijaya Karya Beton – Brighter Outlook Ahead
Company Update: Charoen Pokphand Indonesia – Downgrading On Rich Valuations And Margin Erosion
Economics Update: M2, Loan Growth Continue To Pick Up In March
Results Review: Alam Sutera - A Better Tomorrow After a Weak 1Q17
Results Review: Japfa Comfeed – Results Disappoint – Lower Margin Feed, Higher Opex
Results Review: Adhi Karya – Not a Surprise
Company Update: Metrodata Electronics – Riding The Technology Wave
Results Review: Delta Dunia Makmur – Further Robust Volume Ahead


Best regards,

Helmy Kristanto
Director
Head of Indonesia Research
PT. RHB Securities Indonesia


Disclaimer: This message is intended only for the use of the individual or entity to whom it is addressed and may contain information that is confidential and privileged.  If you, the reader of this message, are not the intended recipient, you should not disseminate, distribute or copy this communication.  If you have received this communication by mistake, please notify us immediately by return email and delete the original message.  This message is transmitted on the condition that the recipient accepts the inherent risks in electronic data transmission and agrees to release RHB group and RHB Securities from any claim which the recipient may have as a result of any unauthorized duplication, reading or interference with the contents herein. The contents herein are made in the personal capacity of the above-named author and nothing herein shall be construed as professional advice or opinion rendered by RHB group and RHB Securities or on its behalf.
Tags:
Labels:
Related