1/15 11/15 12/15 1/16 2/16 3/16 4/16 5/16 6/16 7/16 8/16 9/16 1/16 (PWON IJ) 3Q16 Review: Your shelter in the rain Property Company Report (Upgrade) Buy Target Price (12M, IDR) 865 Share Price (1/31/16, IDR) 72 Expected Return 2.1% Consensus OP (16F, IDRtr) 2.7 EPS Growth (16F, %) 29.8 P/E (16F, x) 18.6 Industry P/E (16F, x) 17.9 Benchmark P/E (16F, x) 17.8 Market Cap (IDRbn) 34,674.9 Shares Outstanding (mn) 48,159.6 Free Float (mn) 23,22.5 Institutional Ownership (%) 45.9 Beta (Adjusted, 24M) 1.5 52-Week Low (IDR) 48 52-Week High (IDR) 765 (%) 1M 6M 12M Absolute 6.7 37.1 69. Relative 5.6 25.1 47.3 (D-1yr=1) 185 165 145 125 15 85 65 JCI PT. Daewoo Securities Indonesia Franky Rivan +62-21-515-114 franky@dwsec-id.com PWON For 3Q16, (PWON) reported satisfying earnings unexpectedly contrary to our bearish view on 3Q16 developers earnings (Property 3Q16 preview: Beware of underlyings), unlike SMRA and BSDE, which 3Q16 earnings came in line with our expectations (3Q16 review: Disappointment continues and 3Q16 review: Still waiting for better days). PWON s revenue, gross profit, operating profit, and net profit went up 5.1%, 11.4%, 25.1%, and 122% YoY, respectively (see Table 1). Top line and bottom line beat our forecast by respectively achieving 59% and 8.3% of our full year estimates (see Table 2). Property-selling remained modest PWON s 3Q16 marketing sales increase was modest, in our view, as it came in at IDR58bn (up 16% YoY and 6.2% QoQ) vs. IDR546bn in 2Q16. However, its 9M16 marketing sales achievement represents a run-rate of 55.5% of the management s full year target of IDR3,1bn (see Figure 1), which we view to be one of the best amongst property developers. PWON s 3Q16 property-selling revenue came in at IDR541.bn (down 1.5% YoY and 7.3% QoQ), which we also view to be modest after factoring in weak property-selling performance of other developers (see Figure 2). We view PWON s ability to recognize its revenue to be also relatively good, as the company s 3Q16 cash conversion cycle stood at 45.2 days (vs. SMRA at 61.4 days and BSDE at 1,594.7 days; see Figure 3). Hence, we believe the company is having more ability to prudently manage its credit risks for the property buyers compared to other developers. Earnings pushed by property-leasing We attribute PWON s splendid earnings in 3Q16 to its property-leasing activity s better earnings performance. The company s property-leasing revenue came in at IDR524.3bn (up 16.2% YoY and 7.8% QoQ; see Figure 2), which we view to be very robust. We believe higher rental price in retail malls to be the key driver of higher property-leasing revenue. Average asking rental price in Jakarta went up 4.2% YTD to IDR566,87/sqm/month, whereas in Jakarta s CBD area it inched up 3.2% YTD to IDR855,965/sqm/month (see Figure 6 to 7). Given the limited supply of retail space in Jakarta (see Figure 9), we believe the strong upside trend of richer property rental price would continue to benefit PWON going forward. Upgrade to Buy with target price of IDR865/share We upgrade our target price to IDR865/share (representing a 2.1% upside from current price) using DCF assumption of 5% perpetual growth rate, 7% risk-free rate, 5.5% market risk premium, and 13% WACC. We also revise up our earnings projection for PWON on the back of better company s property-selling and property leasing performance, as well as company s prudent ability to recognize revenue. Currently, we give a Buy recommendation on PWON. FY (Dec) 12/13 12/14 12/15 12/16F 12/17F 12/18F Revenue (IDRbn) 3,29.8 3,872.3 4,625.1 6,168.8 7,545.8 9,726.3 OP (IDRbn) 1,511.9 1,889.3 2,264.6 2,947.9 3,689.9 4,753.1 OP Margin (%) 49.9 48.8 49. 47.8 48.9 48.9 NP (IDRbn) 1,132.8 2,515.2 1,261.9 1,635. 2,65.6 2,741.9 EPS (IDR) 23.5 52.2 26.2 34. 42.9 56.9 BPS (IDR) 8.6 128. 149.9 179.6 217.1 266.9 P/E (x) 3.6 13.8 27.5 21.2 16.8 12.6 ROE (%) 29.2 4.8 17.5 18.9 19.8 21.3 Note: All figures are based on consolidated data; OP refers to operating profit Source: Bloomberg, Daewoo Securities Indonesia Research Analysts who prepared this report are registered as research analysts in Indonesia but not in any other jurisdiction, including the U.S. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.
Figure 1. Developers 9M16 marketing sales print Figure 2. PWON s revenue breakdown performance (IDRbn) (%) 9M15 (L) 9M16 (L) % to FY16 target (R) YoY change (R) 14, 8 (IDRbn) 8 Property-leasing Property-selling Other revenues 12, 1, 8, 6, 4, 2, 59.4-11.2 48.9-26.5 55.5-31.2 11.4-74.4 41.6-32.8 6 4 2-2 -4-6 -8 7 6 5 4 3 2 1 - BSDE SMRA PWON LPKR Accumulated Note: using company s inception target Figure 3. PWON s comfortable cash conversion cycle -1 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 Figure 4. PWON s revenue composition (3Q16) (days) 45 4 35 44.4 45.2 11% Rental and service charges 3 284.4 15% 39% Sale of condos and offices 25 2 15 1 5% Hotel revenues Sale of land and buildings 5 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 3% Other operating revenues Source: Company data, Bloomberg, Figure 5. PWON s net profit performance Figure 6. Average mall asking rental price in Jakarta (IDRbn) 6 5 4 352.8 416.6 3 2 187.6 1 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 2
Figure 7. Average mall service charges in Jakarta Figure 8. Average mall asking rental price in BoDeTaBek Figure 9. Cumulative supply of retail space in Jakarta 3
Table 1. 3Q16 earnings review (IDRbn, %) 3Q15 4Q15 1Q16 2Q16 3Q16 QoQ YoY Net revenue 1,136.6 1,62.8 1,245.7 1,195.2 1,194.2 -.1 5.1 Cost of revenue -54.3-461. -496.5-578.6-489.7-15.4-2.9 Gross profit 632.3 61.9 749.2 616.6 74.5 14.2 11.4 Final tax expense -155.9-83.2-97.1-115. -18.7-5.5-3.3 Net operating expense 476.4 518.7 652.1 51.6 595.8 18.8 25.1 Operating profit -211.7 14.9 127.8 26.8 13. -51.3 NM Other expenses 29.6-91.6-87.3-77.7-74.5-4.1 NM Net interest expense 294.3 442. 692.5 45.7 534.4 18.6 81.6 Pre-tax profit -78.9-75.1-83.9-79.2-85.2 7.6 8.1 Income tax expense 7.2-16.1-3.4-14.7-6.9-53.1 NM Net profit 222.6 35.8 65.2 356.8 442.2 24. 98.6 Minority interests -35. -31.8-62. -4. -25.7 535.8-26.7 Attributable net profit 187.6 319. 543.2 352.8 416.6 18.1 122. Table 2. PWON 9M16 earnings run rate to full year estimates (IDRbn, %) 9M16 Daewoo FY16F Achievement % Consensus FY16F Achievement % Net revenue 3,635 6,169 58.9 5,496 66.1 Gross profit 2,7 3,434 6.3 3,139 66. Operating profit 1,749 2,948 59.3 2,678 65.3 Attributable net profit 1,313 1,635 8.3 1,882 69.7 Source: Company data, Bloomberg, 4
(Ticker PWON IJ/ Buy/TP: IDR865) Income Statement (Summarized) Balance Sheet(Summarized) (IDRbn) 12/15 12/16F 12/17F 12/18F (IDRbn) 12/15 12/16F 12/17F 12/18F Revenue 4,625 6,169 7,546 9,726 Cash and equivalents 2,71 1,362 1,435 1,572 Cost of revenue -1,957-2,734-3,255-4,197 Other current financial assets 212 Gross profit 2,669 3,434 4,291 5,529 Trade receivables 268 38 464 598 Operating expenses -44-486 -61-776 Inventories 2,254 2,788 3,319 4,28 Operating profit 2,265 2,948 3,69 4,753 Other current assets 64 772 923 1,161 Interest expense -251-456 -5-545 LT investments 1,658 1,8 2,278 2,888 Foreign exchange losses (gains) -277-368 -451-581 Fixed assets 1,344 11,957 13,98 16,98 Net non-operating losses (gains) 4 131 84 91 Other long-term assets 1,368 1,676 1,979 2,53 Pre-tax profit 1,741 2,254 2,823 3,719 Total assets 18,778 2,735 24,379 29,127 Tax expense -341-434 -531-685 Trade payable 198 19 226 291 Net profit 1,41 1,82 2,292 3,33 Short-term borrowing 536 576 691 89 Minority interest -139-185 -226-292 Other short-term liabilities 3,689 3,453 4,413 5,757 Attributable net profit 1,262 1,635 2,66 2,742 Long-term borrowing 4,372 4,69 5,83 5,485 Other long-term liabilities 528 88 997 1,269 Growth (%) 12/15 12/16F 12/17F 12/18F Total liabilities 9,323 9,716 11,411 13,61 Revenue 19 33 22 29 Paid in capital 1,22 1,22 1,22 1,22 Cost of revenue 14 4 19 29 Additional paid in capital 362 362 362 362 Gross profit 24 29 25 29 Retained earnings 5,655 7,85 8,893 11,292 Operating expenses 5 2 24 29 Total equity attributable to majority 7,219 8,65 1,457 12,856 Operating profit 2 3 25 29 Non-controlling interest 2,236 2,37 2,511 2,661 Interest expense -14 82 1 9 Total shareholders' equity 9,455 11,19 12,968 15,517 Foreign exchange losses (gains) 59 33 22 29 Pre-tax profit -39 29 25 32 Tax expense 31 28 22 29 Net profit -46 3 26 32 Minority interest 66 33 22 29 Attributable net profit -5 3 26 33 Key performance indicators Cash Flow Statement (Summarized) 12/15 12/16F 12/17F 12/18F (IDRbn) 12/15 12/16F 12/17F 12/18F Per share data Net profit 1,262 1,635 2,66 2,742 EPS (IDR) 26.2 34. 42.9 56.9 Depreciation 271 287 377 783 EPS growth (%) -49.8 29.6 26.3 32.7 Changes in net working capital -129-88 346 192 BVPS (IDR) 149.9 179.6 217.1 266.9 Operating cash flow 1,44 1,114 2,788 3,717 BVPS growth (%) 17.1 19.8 2.9 22.9 PP&E investing activities -541-343 -433-523 DPS (IDR) 4.5 4.2 5.4 7.1 I.P investing activities -954-1,557-1,967-2,377 Key ratio Others investing activities -882-45 -782-1,16 ROE (%) 17.5 18.9 19.8 21.3 Investing cash flow -2,376-2,35-3,182-4,6 ROA (%) 6.7 7.9 8.5 9.4 Non-current financing activities 318 598 583 673 Gross profit margin (%) 57.7 55.7 56.9 56.8 Changes in equity Operating margin (%) 49. 47.8 48.9 48.9 Changes in minority interest 126 134 141 15 Net profit margin (%) 27.3 26.5 27.4 28.2 Dividend paid -217-24 -258-343 Net debt/equity (x).3.4.3.3 Financing cash flow 228 527 466 48 Debt/equity (x).5.5.4.4 Net worth adjustment 8 Assets/equity (x) 2. 1.9 1.9 1.9 Net cash -737-79 73 137 Current ratio (x) 1.2 1.3 1.2 1.1 Beginning balance 2,89 2,71 1,362 1,435 Quick ratio (x).6.4.4.3 Ending balance 2,71 1,362 1,435 1,572 estimates estimates 5
APPENDIX 1 Important Disclosures & Disclaimers Disclosures As of the publication date, PT Daewoo Securities Indonesia, and/or its affiliates do not have any special interest with the subject company and do not own 1% or more of the subject company's shares outstanding. Stock Ratings Industry Ratings Buy Relative performance of 2% or greater Overweight Fundamentals are favorable or improving Trading Buy Relative performance of 1% or greater, but with volatility Neutral Fundamentals are steady without any material changes Hold Relative performance of -1% and 1% Underweight Fundamentals are unfavorable or worsening Sell Relative performance of -1% * Ratings and Target Price History (Share price (----), Target price (----), Not covered ( ), Buy ( ), Trading Buy ( ), Hold ( ), Sell ( )) * Our investment rating is a guide to the relative return of the stock versus the market over the next 12 months. * Although it is not part of the official ratings at Daewoo Securities, we may call a trading opportunity in case there is a technical or short-term material development. * The target price was determined by the research analyst through valuation methods discussed in this report, in part based on the analyst s estimate of future earnings. The achievement of the target price may be impeded by risks related to the subject securities and companies, as well as general market and economic conditions. Analyst Certification The research analysts who prepared this report (the Analysts ) are registered with the Indonesian jurisdiction and are subject to Indonesian securities regulations. They are neither registered as research analysts in any other jurisdiction nor subject to the laws and regulations thereof. Opinions expressed in this publication about the subject securities and companies accurately reflect the personal views of the Analysts primarily responsible for this report. Except as otherwise specified herein, the Analysts have not received any compensation or any other benefits from the subject companies in the past 12 months and have not been promised the same in connection with this report. No part of the compensation of the Analysts was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report but, like all employees of PT Daewoo Securities Indonesia, the Analysts receive compensation that is impacted by overall firm profitability, which includes revenues from, among other business units, the institutional equities, investment banking, proprietary trading and private client division. At the time of publication of this report, the Analysts do not know or have reason to know of any actual, material conflict of interest of the Analyst or PT Daewoo Securities Indonesia except as otherwise stated herein. Disclaimers This report is published by PT Daewoo Securities Indonesia ( Daewoo ), a broker-dealer registered in the Republic of Indonesia and a member of the Indonesia Exchange. Information and opinions contained herein have been compiled from sources believed to be reliable and in good faith, but such information has not been independently verified and Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy, completeness or correctness of the information and opinions contained herein or of any translation into English from the Bahasa Indonesia. If this report is an English translation of a report prepared in the Indonesian language, the original Indonesian language report may have been made available to investors in advance of this report. Daewoo, its affiliates and their directors, officers, employees and agents do not accept any liability for any loss arising from the use hereof. This report is for general information purposes only and it is not and should not be construed as an offer or a solicitation of an offer to effect transactions in any securities or other financial instruments. The intended recipients of this report are sophisticated institutional investors who have substantial knowledge of the local business environment, its common practices, laws and accounting principles and no person whose receipt or use of this report would violate any laws and regulations or subject Daewoo and its affiliates to registration or licensing requirements in any jurisdiction should receive or make any use hereof. Information and opinions contained herein are subject to change without notice and no part of this document may be copied or reproduced in any manner or form or redistributed or published, in whole or in part, without the prior written consent of Daewoo. Daewoo, its affiliates and their directors, officers, employees and agents may have long or short positions in any of the subject securities at any time and may make a purchase or sale, or offer to make a purchase or sale, of any such securities or other financial instruments from time to time in the open market or otherwise, in each case either as principals or agents. Daewoo and its affiliates may have had, or may be expecting to enter into, business relationships with the subject companies to provide investment banking, market-making or other financial services as are permitted under applicable laws and regulations. The price and value of the investments referred to in this report and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur. 6
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