Pembangunan Perumahan a Jolly Good Year

Upon a limited audit review of their financial statements for purposes of bond issuance in FY13, PTPP finally released its 9M12 financial statements yesterday. The company posted 9M12 revenue of IDR3.9trn (up 34% y-o-y, 95% q-o-q), arriving at IDR106bn worth of net profits (up 73% y-o-y, 63% q-o-q). Top-line financial statement items are in-line with our expectation, while net income was booked above expectation at 36% of our FY12 estimate (70%-80% of PTPP’s net profits are generally contributed in 4Q).

We reiterating our BUY call on PTPP and increased our target-PER derived TP to IDR1,200, re-rating PTPP from 11.3x to 14.3x target 2013PER to be at par with industry’s average in light of its robust earning expectation and increased trading volume & liquidity in the constructions market over the past month.

Pleasant surprise on lower than expected operational costs
Net margin was booked at 2.7% of 9M12 revenue, expanding from the same period last year which was recorded at 2.1%. Operating expense came lower than our expectations at 58% of our FY12 estimate. The timid operational costs growth at 10% y-o-y was largely contributed by slow increases in labor costs, which rose 7% y-o-y. Labor costs contribute three-quarters of PTPP’s annual operational expenses. ‘

Gross margin was supported by strong EPC pickup
Gross margin recorded a decline from 10.7% a year earlier to 9.6% this year. The decline was caused by a slight drop in the construction services segment’s margins, which was posted at 8.6% compared to a year earlier at 9.0%. Stronger EPC contribution toward the company’s top-line has largely dampened the growth in cost of revenues (36% y-o-y, slightly above revenue growth). EPC contribution to the consolidated revenue was booked at 21% for 9M12 – up from 4% a year earlier. EPC generates 11.5% gross margin in 9M12, ~300bps higher than regular civil construction work.

Expect higher FY12 earnings than guidance
PTPP generally booked 70%-80% of their FY net profits in 4Q. At IDR105bn net profits for 9M12, the company may potentially book beyond our FY estimate at IDR292bn, especially as income from the Priok Project (expected to reach 5% of FY revenue) starts pouring in in 4Q and robust, high-margin EPC project contributes higher portion to the FY revenue (we had expected a 15% contribution to FY revenue). The company has guided for IDR308bn net profits for FY12. Consensus guided for IDR285bn.

9M12 results arrived better than expected
9M12 revenue was booked at IDR3.9trn (up 34% y-o-y, 95% q-o-q), providing net income at IDR106bn (up 73% y-o-y, 63% q-o-q) – in line with company’s guidance. 9M12 revenue came at 47% of our FY12 estimates at IDR8.4trn and 49% of consensus estimates. Net margin arrived at 2.7% of revenue, expanding from the previous year’s number which was booked at 2.1%. The margin expansion was partly contributed by the slow increase of operating expenses. 9M operating expenses generally contributed to ~75% of FY costs, yet operating expenses grew by a mere 10% y-o-y despite robust top-line growth – booking only 58% of our FY estimates.

Labor expenses, which contributes to three-quarter of the operating costs, rose only by 7% y-o-y. Gross margin recorded a decline from 10.7% a year earlier to 9.6% this year. The decline was caused by a slight drop in the construction services segment’s gross margin, which was posted at 8.6% compared to a year earlier at 9.0%. The still-solid gross margin performance was supported by EPC contribution toward the company’s top-line, which was booked at 21% for 9M12 – up from 4% a year earlier. EPC generates 11.5% gross margin this year, ~300bps higher than regular construction work.

FY net profits may arrive higher than market estimates
9M12 net profit was booked at 36% of our FY estimates, higher than our seasonality-adjusted expectation. PTPP generally booked 70%-80% of their FY net profits in 4Q. Therefore at IDR105bn net profits for 9M12, the company may potentially book beyond our FY estimate at IDR292bn. Our high hopes are founded on the base that income from the Priok Project (expected to reach 5% of FY revenue) would start pouring in in 4Q and robust robust, high-margin EPC project contributes higher portion to the FY revenue (we had expected a 15% contribution to FY revenue). The company has guided for IDR308bn net profits for FY12. Consensus guided for IDR285bn.

Maintain Buy on PTPP
We strongly reiterate our BUY call and upgraded our TP to IDR1,200 from IDR950 earlier. The counter is currently trading at 15.4x and 13.9x 2012e & 2013f PER—a slight discount to the industry average at 18.8x and 14.3x. Given PTPP’s robust performance and in light of the industry’s apparent re-rating on the back of increased trading volume & liquidity, we are revising our target PER-derived TP from 11.3x 2013PER to 14.3x to be at par with the industry average.