Pembangunan Perumahan Fairly Valued
PTPP warrants a discount to the industry’s average P/E as it is the most leveraged company in the business, which poses downside risks on its ability to take on additional mega-projects. A puzzling 1Q13 result guidance and challenges over its dominance on port projects lead us to deem the stock as having reached its fair value of 15.0x 2013PER (10% discount to industry). NEUTRAL.
20% of FY13 new contracts target achieved; puzzling 1Q13 guidance
The company booked IDR4.5trn worth of new contracts (accounting for 20% of its FY13 target) by end-March – triple what it achieved in the last corresponding period. The company has guided for robust 1Q13 results, with ~IDR1.3trn revenue (twice that of 1Q13) and ~IDR40bn net profit (43% growth y-o-y). We found the latter rather puzzling, considering that its 1Q13 net margin, at 3%, was lower than the 3.8% registered in the past two years.
Kalibaru Stage 1 on track; dominance in port projects challenged
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 had 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 over port projects, forcing the Authority to schedule its IDR1.3trn Belawan project for tender this year on rumors that PTPP had been “pre-assigned” the project. PTPP has yet to include the Belawan Port in its tender pipeline this year, a contrast from the norm among its competitors.
Industry’s highest leverage deserves discount
By end-FY13, we expect the company’s D/E Ratio to hit 1.4x, the highest in the industry, on the back of its bond issuance. PTPP had on 19 Mar successfully launched its five-year bond (rated A-) at 8.375% coupon rate – at the middle of it offering range but much lower than our initial forecast of 9.5% – in light of a dramatic 100bps decrease in corpies spread to govies at the beginning of the year.
We have in turn adjusted our earnings expectation upwards by 6%. Nonetheless, we have a NEUTRAL call on PTPP as its relatively high leverage poses downside risks on its ability to snap up other mega-projects and we deem that its current 10% discount to the industry’s average P/E has captured the stock’s fair value.
