Pembangunan Perumahan Inflated Valuation is an Achilles’ Heel

We maintain our NEUTRAL call on PTPP at a new IDR1,600 TP, as we roll over our valuation to FY14, implying a 17.0x target 2014 P/E. We foresee that the company will reach its FY13E net profit target on the back of a robust construction pipeline, although its 90% share price rally and inflated valuation YTD remain an Achilles’ heel amid a weak macro sentiment. PTPP is trading at 19.7x & 16.1x 2013 & 2014 P/E.

The good news: IDR7.8trn new contracts booked as at end-May
PTPP had secured IDR7.8trn worth of new contracts as at end-May, comprising 40% of its FY13 target, which is an admirable feat compared with FY12’s IDR2.7trn over the same period last year (16.1% of FY12 target). A quarter of the wins come from government infrastructure projects, including the IDR641bn Soekarno-Hatta Airport expansion in Jakarta, as well as the IDR1.1trn engineering, procurement and construction (EPC) development of Tanjung Uncang gas-fired power plant. PTPP has notably ventured into high-profile private high-rise projects lately, namely Ciputra World Surabaya and Lippo Group’s Kemang Mansion, after winning Lippo’s St. Moritz project earlier.

The bad news: possible delay of Sungkono project
The company shared that its Surabaya Sungkono’s project is slated for groundbreaking in 4Q13, which could potentially push revenue booking from the high-margin property segment to FY14. Note that PTPP’s net margin dropped to 3.3% in 1Q13 from 3.9% a year ago. We have warned that the bullish sentiment that was behind PTPP’s 90% share price rally YTD may have eclipsed its net profit CAGR of merely 23%. This was evident in this week’s highly volatile price movement amid an unsettling macro outlook.

Maintain NEUTRAL, with new rolled-forward TP of IDR1,600
We maintain our NEUTRAL call on PTPP with a new IDR1,600 TP, as we roll over our valuation to FY14E, on the assumption that the company would effectively secure its FY13 net profit target amid a robust construction pipeline. Our TP implies a 17.0x target 2014 P/E – on par with the industry average when we downgraded the sector to a NEUTRAL back in April.