Total Bangun Persada Meeting Targets

We are confident that TOTL will achieve its growth target this year, but a 350% appreciation in its share price since last year has pushed its valuation to 15.2x 2013 P/E – on par with our target P/E and reflecting its earnings expectation for FY13. Macro headwinds and the company’s apparent lack of an expansion plan prompts us to rate the stock as a NEUTRAL.

Poised to achieve targets for 2013
TOTL performance in FY12 was in line with our estimates, booking IDR1.8trn in revenue (up 17% y-o-y) and IDR176bn in net profit (up 41% y-o-y). This year, the company targets to achieve revenue of IDR2.1trn (up 17% y-o-y) and earnings of IDR210bn (up 24% y-o-y). As of 1Q, it has secured IDR200bn worth of new contracts and based on its historical records, we anticipate it to successfully win at least half of its current IDR3.6trn tender bids. This implies that the company will hit its target of IDR2.1trn in new contracts for this year, accumulating IDR4.5trn in its order book which will ensure its sustainability for the next two years.

Slow progress on new businesses
TOTL’s management has continued fleshing out its conservative expansion plan, allocating only IDR50bn for capex this year (half is allocated for Total Persada Indonesia and the rest for the maintenance and refurbishment of equipments). At end-FY12, TOTL had IDR698bn in cash in its balance sheet – which we believe will be distributed to its shareholders at an amount above its 40% dividend policy.

In our base case, the company would pay off ~3.4% of its dividend yield amid low capex – twice the industry’s average but only a third of last year’s 16.0% yield – in light of its shares’ 350% price appreciation since the beginning of its FY12.

An admirable company, but earnings growth is priced in
Although a laggard to its peers at the beginning of this year, TOTL is now priced at 15.2x of its 2013E earnings, which is around +1SD above its historical average and on par with our target P/E. The company has one of the strongest balance sheets in the industry with zero leverage, but we recommend a NEUTRAL stance to TOTL in light of: i) its apparent lack of an expansion plan, ii) its stock price appreciation which has factored in our earnings expectation, and iii) the macro headwinds that lie ahead.