Pembangunan Perumahan 1Q13 Results Review: Within Expectations

PTPP’s 1Q13 revenue and net profit came in at IDR1.28trn and IDR43bn, up 44.3% and 33.6% y-o-y respectively, in line with our estimates. Net profit grew at a slower pace than topline as the high-margin segments such as property, realty and EPC posted lower margins y-o-y. We attribute this to PTPP’s seasonality and expect margins to improve going forward. Maintain NEUTRAL and IDR1,200 TP.

1Q13 results in line
On par with our earlier report on the company’s guidance (published 11 Apr 2013), PTPP booked IDR1.28trn in 1Q13, up 44.3% y-o-y. 1Q13 net profit surged 33.6% y-o-y to IDR43bn, making up 11.7% of our FY13 estimate and in line with the company’s full-year historical seasonal pattern.

Net margin shrinks on lower property & realty contributions, but seen to improve
1Q13 net profit margin dropped to 3.3% from 3.9% in 1Q12, weighed by declining topline contributions from the property & realty segments (at 1.3% and 1.1% respectively in 1Q13, down from 7.6% and 9.0% in 1Q12). We expect the situation to improve as the company begins developing its idle landbanks in Mayjend Sungkono Surabaya and Kalimalang Bekasi in 2H13.

1Q13 gross margin for the engineering, procurement and construction (EPC) segment was merely 3.7%, but this is not a cause for concern as PTPP treats its EPC projects with a semi-cash basis. We anticipate the company to book a gross margin of 12.1% for the segment by year-end.

Maintain NEUTRAL, TP IDR1,200
All in all, we see no surprises from PTPP’s 1Q13 results. We maintain our NEUTRAL call as the company’s leverage – the highest in the industry at 1.4x debt-to-equity ratio by year-end – poses downside risks to its ability to clinch other mega infrastructure projects. We continue to remain cautious as rising challenges over its dominance in mega port projects might adversely impact its previously strong orderbook accumulation. PTPP is trading at 18.5x and 14.6x 2013E & 2014E P/Es, in line with the industry average. NEUTRAL.

1Q13 results in line
On par with our earlier report on the company’s guidance about two weeks ago (please refer to Company Update: Pembangunan Perumahan, Fairly Valued, 11 Apr 2013), PTPP booked IDR1.28trn in 1Q13, up 44.3% y-o-y. Net profits surged 33.6% y-o-y to IDR43bn, making up 11.7% of our FY13 estimate and in line with the company’s full-year historical seasonal pattern. PTPP generally books a mere 9%-11% of its full-year net profit in 1Q. IN LINE.

Net margin falls on shrinking property & realty contributions, but set to improve. 1Q13 net profit margin dropped to 3.3% from 3.9% in 1Q12, weighed by declining topline contributions from the property & realty segments (at 1.3% and 1.1% respectively in 1Q13, down from 7.6% and 9.0% in 1Q12), a result of slow progress in new property and real estate developments since 2H12.

However, we expect the situation to improve on the back of the company’s recent IDR700bn bond proceeds, which would partially go to finance its commercial & residential development plans at idle landbanks in Mayjend Sungkono (one of the busiest business districts in fast-growing Western Surabaya) and Kalimalang (an increasingly promising residential area east of Jakarta). Gross margin from EPC improved to 3.7% in 1Q13, compared to a loss in the same period last year.

Note that PTPP’s gross margin from EPC is a far cry from competitors such as PT Wijaya Karya Tbk (WIKA, NEUTRAL, TP: IDR2,500), which booked a 10.6% gross margin in 1Q13. Yet this is not a cause for concern, as we should be looking at PTPP’s EPC revenue booking based on the company’s semi-cash basis treatment on its EPC projects.

PTPP habitually books its EPC project costs as they are disbursed, while revenues are booked based on completion progress. Similar to the 11.9% FY12 EPC gross margin that it booked last year, we anticipate the company to book a gross margin of 12.1% for the segment by year-end.

Dominance in port projects challenged
The development of its IDR9.5trn New Priok (Kalibaru) Stage 1 mega project is on schedule, with 15% completed as at end-1Q13. This project is critical for the company as it has to issue IDR1trn worth of bonds (IDR700bn released on first offering) to finance its working capital. Note that Kalibaru Stage 1 is larger than the company’s FY12 balance sheet. Among the upcoming high profile projects are Indonesia Port Corp (Pelindo)’s Belawan and Sorong Ports, two of the five major ports in the Pendulum Project.

Our channel checks revealed that rivals have reportedly been grumbling about PTPP’s dominance in port projects, which prompted the authority to schedule its IDR1.3trn Belawan project for tender this year on rumors that PTPP had been “pre-assigned” the project. Rumor has it that WIKA has emerged a winner for Belawan. Note that PTPP has yet to include the Belawan Port in its orderbook assumption this year.

Maintain NEUTRAL, IDR1,200 TP. All in all, we see no surprises from PTPP’s 1Q13 results. We maintain our NEUTRAL call as the company’s leverage – the highest in the industry at 1.4x debt-to-equity ratio by year-end – poses downside risks to its ability to snap up other mega infrastructure projects. We continue to remain cautious as the latest trend might adversely impact its dominance in port construction projects, previously an easy feat for the company. PTPP is trading at 18.5x and 14.6x 2013E & 2014E P/Es, in line with the industry average. NEUTRAL.