PT PP (Persero) (LHS)

Transcription

1 Indonesia Company Focus Bloomberg: PTPP IJ EQUITY Refer to important disclosures at the end of this report DBS Group Research. Equity 24 Jun 2014 BUY Rp1,775 JCI : 4, (Initiating Coverage) Price Target : 12-month Rp 2,250 Reason for Report : Initiating coverage Potential Catalyst: Positive election outcome, Higher than expected contract wins Analyst CHONG Tjen San, CFA tjensan@alliancedbs.com Deidy WIJAYA Deidy.Wijaya@id.dbsvickers.com Price Relative 2, , , , , , Rp Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 (LHS) Relative JCI INDEX (RHS) Relative Index Forecasts and Valuation FY Dec (Rp bn) 2013A 2014F 2015F 2016F Revenue 11,656 14,347 17,771 21,670 EBITDA 1,087 1,317 1,622 1,989 Pre-tax Profit ,176 1,468 Net Profit Net Pft (Pre Ex.) EPS (Rp) EPS Pre Ex. (Rp) EPS Gth (%) EPS Gth Pre Ex (%) Diluted EPS (Rp) Net DPS (Rp) BV Per Share (Rp) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%) No. of brokers following: B: 9 S: 2 H: 1 ICB Industry : ICB Sector: Principal Business: is Indonesia's leading construction company with business portfolio ranging from building constructions and civil infrastructure constructions. Source of all data: Company, AllianceDBS, DBS Vickers, Bloomberg Finance L.P Highest revenue visibility Highest earnings visibility among peers Record wins to be driven by strong pipeline of building, EPC and port projects Diversification into EPC and Property will enhance ROE Initiate BUY, TP Rp2,250 Strongest earnings visibility. PTPP has the strongest revenue visibility (carry over contract value/revenue) among peers, at 1.7x FY13 revenues compared to the sector average of 1.1x. Moreover, the quality of its orderbook is superior as it comprises the Kalibaru seaport project (we estimate it still has c.rp6tr to recognise as revenue) which has low execution and payment risk. We also like its chances to securing Kalibaru Phase 2 contract worth c.rp7tr, where tenders could open by Strongest in building works. PTPP has carved out a strong niche in the construction of high rise buildings which accounts for c.55% (average for last five years) of its regular construction portfolio. In this space, it competes head on with Total Bangun Persada (TOTL). We believe PTPP, as a SOE, has a better chance of winning Government projects, which could accelerate as the next Government is likely to invest more to develop infrastructure in Indonesia. Diversifying into EPC and Property. PTPP is consciously reducing reliance on its core construction business by venturing into the EPC and property businesses. Hence, construction revenue contribution had dropped to 85% in FY13 (vs. 98% in FY09). The diversification had also lifted group GPM from 8.1% in FY09 to 10.7% in FY13. BUY, TP Rp2,250. We initiate coverage of PTPP with a BUY rating and Rp2,250 TP pegged to 16.8x FY15F EPS (20% discount to WIKA). Our target valuation is justified by strong earnings growth for the next three years (25% CAGR), high earnings visibility, and expectations of record new wins of Rp24tr this year (+24% y-o-y). At A Glance Issued Capital (m shrs) 4,842.4 Mkt. Cap (Rpbn/US$m) 8,595.2 / 410 Major Shareholders Indonesian government (%) 51.0 Employee Cooperative (%) 27.5 Free Float (%) 21.5 Avg. Daily Vol.( 000) 17,126 ed: SGC / sa: MA

2 Business Outlook Record new wins. We expect PTPP to benefit from accelerating infrastructure spending, especially in building and port construction. We estimate new wins will grow by 24% this year to Rp24.2tr, and by another 15% and 17% in FY15 and FY16, respectively. In 5M14, PTPP has won Rp6.63tr worth of new contracts (28% of our FY14 target). Furthermore, having been awarded phase I of the Kalibaru seaport project worth Rp8.2tr, PTPP has an edge to win the tender for Kalibaru phase II (to be tendered out at end FY16, estimated to be worth Rp7tr). About 30% of Kalibaru Phase I has been completed. It is scheduled to be fully completed by FY16. We like PTPP s chances of securing Kalibaru Phase II, if it delivers Phase I strongly. PTPP: Major contract wins (in 5M14) Name Location Value (Rp bn) Mall Sawangan Depok 896 Lexington Apartment Jakarta 442 Wang Residence Citicon Jakarta 400 Hotel Dompu Mangadoro East Nusa Tenggara 318 Pinacle Residence Semarang 200 Hotel Amni Medan 124 Source: Company PTPP: New contracts and carry over (Rpbn) 60,000 50,000 40,000 30,000 20,000 10, F 2015F 2016F New contract (construction) Carryover PTPP: New contracts (2013 vs. 2014E; Rpbn) 30,000 25,000 20,000 15,000 10,000 5,000 1,491 2,526 1, ,467 10,233 10,930 2,318 4,600 1,580 1,331 3, E Buildings Road & Bridge Port Other construction EPC Property, Precast and Equipment Strongest earnings visibility among peers. PTPP also presents the least earnings risk given its large carry over contract. This year, the carry over contract value its Rp19.7tr or 1.7x FY13 revenue. We estimate that 30% of that is from Kalibaru seaport project (phase I), which PTPP won in Since this is a government project, there should be low execution and payment risk, which supports our view that it has a solid orderbook. Moreover, we understand margins for port project are higher at 11-12% vs. 9-10% for building jobs. Construction companies carryover comparisons Companies Carryover (ex JO) FY13 Revenue C arryover/fy 13 revenue WIKA 14,645 11, PTPP 19,798 11, WSKT 6,843 9, ADHI 8,745 9, Average 1.1 Source: Respective companies, AllianceDBS, DBS Vickers EPC and Property will cushion margins and generate more stable revenues. Gross margins from EPC and Property range from 10% to 15%, compared to 10-11% for building jobs. They also provide recurring income, suggesting more stable revenues. Finally, PTPP will be able to leverage on its construction expertise to execute these projects, such as constructing Park Hotel Cawang and PLTU Talang Duku 58MW plant in South Sumatra. Page 2

3 PTPP: Selected property projects Precast & Equipment division a long term investment. The vertical integration of PTPP s construction arm and its Precast & Equipment division bodes well for the longer term, as PTPP would get more competitive pricing for its precast and equipment needs, ensuring stable margins for its construction arm. In FY13, the division only contributed 0.8% to PTPP s consolidated revenue. But that is expected to grow rapidly to account for 5.7% this year. Source: Company PTPP: Selected EPC projects Source: Company Page 3

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5 SWOT Analysis Strengths Strong track record constructing high rise buildings Expertise in seaport with c.40% market share High earnings visibility with carry over contract value at 1.7x FY13 revenue Weakness Higher interest expense relative to peers due to higher gearing of 1.7x vs the average of 1.0x Contracts from private entities (PTPP has substantial exposure) does not have clause to pass on increases in raw materials prices. EPC margins still low Opportunities Growing EPC and Property business offers opportunity to diversify further into higher-margin businesses Precast & Equipment division will support core construction business Likely to clinch new contracts for new phases of Kalibaru Port project if it delivers strongly with Phase 1. Threats Depreciation of IDR would lift raw material costs (in IDR) and affect profitability Sharp rise in interest rate could impact bottom line Stronger participation by foreign contractors could increase competition especially in the high rise segment Slowing property market may be a threat to its building construction business. Source: AllianceDBS, DBS Vickers Page 4

6 Company Background Corporate History. PT PP (PTPP) was established in 1953 under the name NV Pembangunan Perumahan. At that time, it was entrusted to build houses for officers of PT Semen Gresik Tbk. As it gained experience, it was awarded projects to build several high profile buildings, including Hotel Indonesia, Bali Beach Hotel, Ambarukmo Palace Hotel and Samudra Beach Hotel. The company was renamed PT PP in 1971 and became a State Company, but it continued to focus on construction. In 1991, it started to diversify into Property and Realty. It was listed in In 2011, it started to diversify into EPC and Investment. Last year, it acquired PT PP Dirganeka and renamed it PT Precast, and spun off its Property segment to PT PP Property. It also acquired PT Prima Jasa Aldo Dua (in progress) to get into the Equipment business. Sales Trend Rp bn 20,000 15,000 10,000 5, A 2013A 2014F 2015F 2016F Total Revenue Revenue Growth (%) (YoY) 60.0% 55.0% 50.0% 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% Profitability Trend Rp bn 1,909 1,709 1,509 1,309 1, A 2013A 2014F 2015F 2016F Operating EBIT Pre tax Profit Net Profit Management Composition. PTPP s management team consists of six directors who are experienced in the construction business. All the directors have a Civil Engineering education background and have been with PTPP for more than 20 years. Key Management Team Name Age Current Appointment Join Date Education Background Previous Experience Ir. Bambang Triwibowo 60 President Director 1980 Ir. Tumiyana, MBA 49 Finance Director 1985 Ir. Harry Nugroho, MM 56 Director of EPC and Business Development 1984 Ir. Ketut Darmawan 54 Director of Operations 1983 Ir. I Wayan Karioka 54 Director of Engineering and Marketing 1986 Bachelor of Civil Engineering from University of Gajah Mada Bachelor of Civil Engineering from Borobudur University Master of Management from IPWI Borobudur University Bachelor of Civil Engineering from Bandung Institute of Technology Master of Management from Diponegoro University Bachelor of Civil Engineering from Bandung Institute of Technology Bachelor of Civil Engineering from Surabaya Institute of Technology Director of Adhi Karya ( ) Director of Operations at PTPP ( ) Technical Director at PTPP ( ) Chief Operating Division II Jakarta ( ) Head of the Jakarta Branch III ( ) Project Manager Jakarta Branch III ( ) Director of Technical & Business Development ( ) Head of Operations Division II Jakarta ( ) Marketing Director ( ) Head of Marketing ( ) Head of Marketing (EPC) ( ) Head of Operation Division I Medan ( ) Ir. Lukman Hidayat 50 Source: Company Director of Business Develoment, Research and Technology 1990 Bachelor of Civil Engineering from Diponogoro University Chief Operation Division III at Surabaya ( ) Chief Operation Division II at Jakarta ( ) Page 5

7 PTPP: Organisation Structure Source: Company Page 6

8 Competitive Strengths Strength in high rise and seaport projects. PTPP s biggest strength is in the construction of high rise buildings, which account for c.55% of its regular construction portfolio. PTPP also has a good track record in seaport projects and has c.40% market share in that segment currently. Precast & Equipment division will support core construction business. PTPP recently acquired PT PP Dirganeka (renamed PT Precast) and PT Prima Jasa Aldo Dua (in progress). The vertical integration of the construction with precast and equipment divisions would give PTPP s construction business a competitive edge over competitors in the long run. The group will also generate more stable margins going forward. PTPP: Revenue breakdown (Rpbn) 25,000 90% 20,000 15,000 85% 84% 83% 10,000 82% 81% 5, F 2015F 2016F Construction Real estate and Property EPC Construction's contribution 92% 90% 88% 86% 84% 82% 80% 78% 76% PTPP: Breakdown of new wins (regular construction) 25,000 PTPP: Gross profit breakdown (Rpbn) 2,500 86% 20,000 15,000 2,000 1,500 80% 85% 82% 80% 84% 82% 80% 10,000 5, F 2015F 2016F Buildings Roads/bridges Irrigations/dams Ports Mining Energy and Others Growth Strategies Diversifying into other businesses. PTPP is diversifying into other businesses that offer stronger growth and higher margins, such as EPC, Property and Realty. Construction will remain its core business but the other businesses will grow at a faster pace. We estimate PTPP s construction revenue will grow at 21% CAGR over FY13-16, but contribution will drop to 81.3% in FY16F from 85.4% in FY13, because the other businesses will expand at 33% CAGR over the period. Meanwhile, construction gross profit is estimated to expand at 19% CAGR vs. 41% for the other businesses. This would lift group ROE and margins as the average gross margin for construction is 10.5%, and 12% for EPC and 15% for Property. We forecast ROE will improve from 18% in FY11 to 26% in FY16. 1, Key Risks 78% F 2015F 2016F Construction Real estate and Property EPC Construction's contribution Slowdown in high rise developments. PTPP s key strength is constructing high rise buildings, so a major slowdown in this segment would hurt revenues and profit. Low profitability in EPC. PTPP registered only 9.6% gross margins for the EPC division in FY13. If margins do not improve in the next few years, there will be downside risk to PTPP s overall profitability. Higher cost of raw materials. PTPP s projects would be affected if there is a major spike in raw material prices. The management has adopted some measures to mitigate this risk, for example by securing an Umbrella contract for raw materials and including cost-pass-through clause in multi-year government projects. 77% 78% 76% 74% 72% Page 7

9 Key Assumptions FY Dec 2011A 2012A 2013A 2014F 2015F 2016F New Contract Won 10,528 14,728 13,034 15,969 18,291 21,017 Contract Carryover 6,010 10,279 15,870 19,570 25,092 30,802 Construction Gross Profit Margin % 10.1% 10.8% 10.7% 10.5% Segmental Breakdown FY Dec 2011A 2012A 2013A 2014F 2015F 2016F Sensitivity Analysis New Contract Won +/- 5% GPM +/- 0.1% 2014 Net Profit +/- 2.1% Net Profit +/- 2.3% Revenues (Rp bn) Construction 5,025 5,866 8,874 10,790 13,201 15,786 Real Estate Property EPC 408 1,190 1,307 1,682 2,174 2,810 Total 5,526 7,149 10,383 12,774 15,832 19,295 Gross Profit (Rp bn) Construction ,077 1,293 1,549 1,832 Real Estate Property EPC Total ,273 1,573 1,939 2,375 Gross Profit Margins (%) Construction Real Estate Property EPC Total Property and Realty command the highest GPM. EPC margins should improve over time Page 8

10 Income Statement (Rp bn) FY Dec 2011A 2012A 2013A 2014F 2015F 2016F Margins Trend 10.0% Revenue 6,232 8,004 11,656 14,347 17,771 21,670 Cost of Goods Sold (5,526) (7,149) (10,383) (12,774) (15,832) (19,295) Gross Profit ,273 1,573 1,939 2,375 Other Opng (Exp)/Inc (131) (144) (200) (273) (338) (412) Operating Profit ,073 1,300 1,601 1,963 Other Non Opg (Exp)/Inc (82) (115) (148) (179) (222) (271) Associates & JV Inc Net Interest (Exp)/Inc (154) (195) (255) (296) (341) (390) Exceptional Gain/(Loss) Pre-tax Profit ,176 1,468 Tax (178) (236) (346) (427) (528) (642) Minority Interest Preference Dividend Net Profit Net Profit before Except EBITDA ,087 1,317 1,622 1,989 Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (%) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x) % 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2012A 2013A 2014F 2015F 2016F Operating Margin % Net Income Margin % Strong NPAT growth ROE set to improve over time Page 9

11 Quarterly / Interim Income Statement (Rp bn) FY Dec 4Q2012 1Q2013 2Q2013 3Q2013 4Q2013 1Q2014 Revenue 4,061 1,284 2,893 3,078 4,400 1,999 Cost of Goods Sold (3,587) (1,165) (2,604) (2,760) (3,854) (1,802) Revenue Trend 5,000 4,500 4,000 3,500 3,000 2, % 150% 100% 50% Gross Profit Other Oper. (Exp)/Inc (38) (40) (59) (52) (49) (59) Operating Profit Other Non Opg (Exp)/Inc (62) (9) (32) (49) (57) (17) Associates & JV Inc Net Interest (Exp)/Inc (113) (7) (30) (75) (142) (9) Exceptional Gain/(Loss) ,000 1,500 1, Q2011 1Q2012 2Q2012 3Q2012 Revenue 4Q2012 1Q2013 2Q2013 3Q2013 4Q2013 Revenue Growth % (QoQ) 1Q2014 0% -50% -100% Pre-tax Profit Tax (118) (37) (88) (88) (133) (61) Minority Interest Net Profit Net profit bef Except EBITDA Growth Revenue Gth (%) (68.4) (54.6) EBITDA Gth (%) (80.1) (72.6) Opg Profit Gth (%) (82.1) (72.1) Net Profit Gth (%) (79.2) (25.8) (69.6) Margins Gross Margins (%) Opg Margins (%) Net Profit Margins (%) Seasonality in Indonesia s construction sector Page 10

12 Balance Sheet (Rp bn) FY Dec 2011A 2012A 2013A 2014F 2015F 2016F Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts 1,336 1,444 2,573 3,281 4,037 4,945 Inventory 1,586 1,566 1,777 1,813 1,937 2,071 Debtors 3,075 4,323 6,418 6,604 8,180 9,974 Other Current Assets ,134 1,247 1,372 1,509 Total Assets 6,933 8,551 12,416 13,550 16,232 19,322 Asset Breakdown (2014) Debtors % Net Fixed Assets - 2.0% Inventory % Assocs'/JVs - 0.6% Bank, Cash and Liquid Assets % ST Debt 1,406 1,468 1,913 1,913 1,913 1,913 Other Current Liab 3,690 4,564 6,863 7,028 8,576 10,329 LT Debt ,517 2,099 2,740 3,445 Other LT Liabilities Shareholder s Equity 1,425 1,656 1,984 2,370 2,864 3,496 Minority Interests Total Cap. & Liab. 6,933 8,551 12,416 13,550 16,232 19,322 Higher debt than to peers leads to higher interest expense Non-Cash Wkg. Capital 1,611 2,181 2,466 2,636 2,912 3,225 Net Cash/(Debt) (463) (858) (858) (732) (616) (413) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X) NA NA NA NA NA NA Page 11

13 Cash Flow Statement (Rp bn) FY Dec 2011A 2012A 2013A 2014F 2015F 2016F Pre-Tax Profit ,176 1,468 Dep. & Amort Tax Paid (129) (403) (336) (427) (528) (642) Assoc. & JV Inc/(loss) Chg in Wkg.Cap. (42) (570) (286) (170) (277) (312) Other Operating CF (103) Net Operating CF Capital Exp.(net) (12) (105) (93) (107) (123) (142) Other Invts.(net) (172) (411) (35) Invts in Assoc. & JV 0 32 (106) Div from Assoc & JV Other Investing CF (129) Net Investing CF 59 (465) (363) (107) (123) (142) Div Paid (77) (79) (93) (126) (154) (194) Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Currency Adjustments 0 8 (6) Chg in Cash 347 (3) Opg CFPS (Rp) Free CFPS (Rp) Capital Expenditure A 2013A 2014F 2015F 2016F Capital Expenditure (-) Page 12

14 Valuation Strong earnings growth justify valuation. PTPP is currently trading at 15.2x 12M forward EPS. This is +1SD of its 5-year mean valuation and at 18% discount to WIKA s. Our year end TP of Rp2,250 is pegged to 16.8x FY15F EPS (20% discount to WIKA). Our target valuation is justified by its strong earnings growth (25% CAGR) over FY13-FY16. We also believe the construction sector will enter an upcycle soon as there are strong commitments to invest more in infrastructure projects. PTPP: 12M forward P/E Band sd +1 sd Mean -1 sd -2 sd Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Source: Bloomberg Finance L.P. Sensitivity Analysis We performed a sensitivity analysis of key assumptions for PTPP s new contract wins and its construction GPM (FY15). We estimate each 5% difference in new contract wins (from our base case) would swing PTPP s NPAT by 2.1%. And every 10bps difference in construction GPM would swing PTPP s NPAT by 2.3%. PTPP: Sensitivity analysis (New contract wins vs NPAT) 10% lower 5% lower Base Case 5% higher 10% higher New contact win (Rp bn) 16,462 17,377 18,291 19,206 20,120 FY15 Net Profit (Rp bn) Impact on Net Profit -4.2% -2.1% 0.0% 2.1% 4.2% TP (Rp) 2,155 2,200 2,250 2,295 2,340 Source: AllianceDBS, DBS Vickers PTPP: Sensitivity analysis (Construction GPM vs NPAT) Source: AllianceDBS, DBS Vickers -20bps -10bps Base Case +10bps +20bps Construction GPM (FY15) 10.3% 10.4% 10.5% 10.6% 10.7% FY15 Net Profit (Rp bn) Impact on Net Profit -4.6% -2.3% 0.0% 2.3% 4.6% TP (Rp) 2,145 2,195 2,250 2,300 2,350 Page 13

15 DBSV recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e.> -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame) Share price appreciation + dividends GENERAL DISCLOSURE/DISCLAIMER This report is prepared by AllianceDBS Research Sdn Bhd ( ADBSR ) (formerly known as HwangDBS Vickers Research Sdn Bhd), a subsidiary of Alliance Investment Bank Berhad ( AIBB ) and an associate of DBS Vickers Securities Holdings Pte Ltd ( DBSVH ). 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17 Profile PTPP is Indonesia s leading construction company with business portfolio ranging from building constructions and civil infrastructure constructions. The biggest chunk of its regular construction portfolio comes from high rise buildings (c.55%). It is also strong in seaport with c.40% market share and it owns the Kalibaru Seaport Phase I project worth Rp8.2tr. Valuation We peg PTPP s target price to 16.8x FY15 EPS (20% discount to WIKA). We believe that the valuation is justified the as we text expect strong earnings growth of 25% CAGR in FY13-FY16, high earnings visibility and record new wins expected of Rp24tr (+24% y-oy) this year. Rationale Indonesia s construction sector is on an upcycle due to the low investments in prior years. Strong earnings growth of 25% CAGR between FY13-FY16. Positive sentiment post election as new government will focus on infrastructure developments. After generating the document, please refresh in order to show the text. Analyst please update if there is changes on To amend the text highlight the section and press CTRL SHIFT F9 Text within the same para with big gap gave a return for next bullet point. Change semi comma (;) to comma (,) and to Risks Slower than expected roll out of new projects Indonesia s de-rating due to sentiment reversal from foreign investor if election outcome is not favorable Remove addition bullet and this side comment before submit to Analec. Further depreciation of IDR impact contracts that have USD linked costs. Page 16