(PTPP IJ) 3Q17 review: Affirmation continues Construction Company Report November 2, 217 (Maintain) Buy Target Price (12M, IDR) 3,73 Share Price (11/1/17, IDR) 2,88 Expected Return 29.5% Consensus OP (17F, IDRtr) 2.6 EPS Growth (17F, %) 45.8 P/E (17F, x) 12. Industry P/E (17F, x) 13.2 Benchmark P/E (17F, x) 17.6 Market Cap (IDRbn) 17,855.7 Shares Outstanding (mn) 6,199.9 Free Float (mn) 3,32.8 Institutional Ownership (%) 66.2 Beta (Adjusted, 24M).9 52-Week Low (IDR) 2,25 52-Week High (IDR) 4,49 (%) 1M 6M 12M Absolute 24.7-3. -26.8 Relative 22.3-9.4-38.3 (D-1yr=1) 11 9 7 5 11/16 11/16 PT. Property 12/16 1/17 1/17 2/17 3/17 JCI 3/17 4/17 5/17 5/17 Franky Rivan +62-21-515-114 (ext. 124) franky@miraeasset.co.id 6/17 7/17 PTPP 8/17 8/17 9/17 1/17 1/17 (PTPP) delivered another strong earnings performance in 3Q17, continuing the trend it has exhibited throughout the year. For the quarter, revenue came in at IDR5.6tr (+8.2% QoQ, +28.9% YoY), operating profit at IDR662.5bn (+1.3% QoQ, +36.9% YoY), and net profit at IDR417.4bn (-5.6% QoQ, +97.4% YoY; see Table 1). The 3Q17 results beat expectations, and brought cumulative 9M17 top and bottom lines to 62.1% and 78.1%, respectively, of our fullyear estimates, and 59.7% and 72.2%, respectively, of the full-year consensus estimates (see Table 2). New contracts go-getter coupled with ample cash inflow We attribute the earnings beat to the company s impressive new contracts achievement as well as robust project payment. In 3Q17, PTPP signed IDR11.7tr worth of new contracts, up 36% YoY (vs. IDR8.6tr in 3Q16). The third-quarter figure brought cumulative January-September new contracts to IDR31.9tr, up 4.5% YoY (vs. IDR22.7tr in 9M16; see Figures 1 and 2), the biggest increase among its competitors. Furthermore, we note that the company s operating cash flow improved sharply to IDR652.5bn in 3Q17 (up 36.7% from 3Q16 s operating cash inflow of IDR477.5bn; see Table 3), which has strengthened PTPP s ability to recognize its revenue. Given its sizable current order book coupled with sound revenue recognition ability, we are upbeat on PTPP s earnings performance going forward. Margin expansion followed by low debt burden On the back of robust revenue growth, PTPP s margins have also expanded. In 9M17, NPM stood at 7.2%, way above the FY16 level of 6.2%. We believe this is likely due to the company s new high-margin projects such as Kulon Progo airport (IDR6.5tr). We also highlight the company s low debt level (see Figures 5 and 6), which has helped margins through a lower interest burden. For 217F and 218F, we revise up our NPM assumptions for PTPP to 6.7% (from 5.7%) and 6.3% (from 5.4%), and hence lift our net profit forecasts to IDR1.49tr (from IDR1.27tr) and IDR1.71tr (from (IDR1.45tr) for 217F and 218F, respectively (see Table 4). However, we lower our terminal year margin, as we think normalization should occur over a longer horizon. Maintain Buy & revise up TP to IDR3,73 All in all, we revise up our TP to IDR3,73 (from IDR3,61) and maintain our Buy recommendation on PTPP. Our DCF-based TP reflects a 5.% perpetual growth rate, 7.5% risk-free rate, 5.5% market risk premium, 1.2 beta, and 13.1% WACC. PTPP is currently trading at 218F P/E of 1.5x, slightly above -1.5 SD from its fiveyear average of 1x (see Figure 7). FY (Dec.) 12/14 12/15 12/16 12/17F 12/18F 12/19F Revenue (IDRbn) 12,427.4 14,217.4 16,458.9 22,142.9 26,925.1 34,23.2 Operating profit (IDRbn) 1,268.4 1,597. 1,968.2 2,733.6 3,392.6 4,166.3 OP Margin (%) 1.2 11.2 12. 12.3 12.6 12.2 Net profit (IDRbn) 533.4 74.2 1,23.4 1,492.1 1,76.8 2,11.3 EPS (IDR) 86. 119.4 165.1 24.7 275.3 324.4 BPS (IDR) 376.3 83.2 1,741.3 2,36.2 2,566.5 2,889.6 P/E (x) 33.5 24.1 17.4 12. 1.5 8.9 P/B (x) 7.7 3.5 1.7 1.2 1.1 1. ROE (%) 22.9 14.4 9.5 1.4 1.7 11.2 ROA (%) 3.7 3.9 3.3 3.7 3.7 3.7 Note: Net profit refers to net profit attributable to controlling interests PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.
November 2, 217 Table 1. PTPP 3Q17 earnings review (IDRbn, %) 3Q16 4Q16 1Q17 2Q17 3Q17 QoQ YoY Revenue 4,373.5 5,613.2 2,917.1 5,29.1 5,635.3 8.2 28.9 Cost of revenue -3,765.3-4,672.3-2,526.1-4,418. -4,823. 9.2 28.1 Gross profit 68.1 94.9 391. 791.1 812.3 2.7 33.6 Operating expenses -124.3-139.3-155.2-137.4-149.8 9.1 2.5 Operating profit 483.8 81.6 235.9 653.7 662.5 1.3 36.9 Net non-operating gains (losses) -26. -12.5 63. 28. 2.4-27.2 NM Interest expense -88.8-215.7-5. -12. -85.9-15.8-3.2 Share of JV profit 23.8 98.6 14.5 48.9 85.1 74.2 257.5 Pre-tax profit 392.8 672. 263.3 628.6 682.1 8.5 73.7 Tax expense -145.1-178.7-11.7-158.3-195.5 23.5 34.7 Net profit 247.7 493.4 161.6 47.3 486.6 3.5 96.4 Minority interests -36.2-36.8-31.4-27.9-69.1 147.5 91. Attributable net profit 211.5 456.6 13.2 442.4 417.4-5.6 97.4 Table 2. PTPP 9M17 earnings run rate to full year estimates (IDRbn, %) 9M17 Mirae Asset FY17F Achievement % Consensus FY17F Achievement % Net revenue 13,762 22,143 62.1 23,37 59.7 Gross profit 1,994 3,215 62. 3,277 6.9 Operating profit 1,552 2,72 57.4 2,646 58.7 Attributable net profit 99 1,268 78.1 1,371 72.2 Source: Company data, Bloomberg, Research Table 3. PTPP quarterly operating cash flow performance (IDRbn) 3Q16 4Q16 1Q17 2Q17 3Q17 Cash receipts from customers 2,766.2 6,168.8 3,551.3 3,494.3 4,737.8 Cash payment to suppliers -1,989.2-2,813.3-4,864.5-3,336.9-3,621.3 Cash paid to directors -8.2 2.2-4.5-5.1-12.6 Cash paid to employees & others -117.9-81.2-92.4-238.9-39.4 Gross operating cash flow 651. 3,276.5-1,41.1-86.6 1,64.6 Cash paid for taxes -165.5-355.1-222.1-417.5-323.2 Cash received from taxes 66.5 51.1 14.7 92. 11.5 Cash paid for interest payment -74.5-226.4-44.7-99.2-1.4 Net operating cash flow 477.5 2,746.2-1,662.2-511.3 652.5 Source: Company data, Bloomberg, Research Table 4. Change in PTPP s assumptions and forecasts 217F previous 217F new Change % 218F previous 218F new Change % Revenue 22.14 22.14. 26.93 26.93. Operating profit 2.7 2.73 1.2 3.39 3.39.2 Net profit 1.27 1.49 17.7 1.45 1.71 17.6 Gross profit margin (%) 14.5 14.5. %p 14.9 14.9. %p Operating profit margin (%) 12.2 12.3.1 %p 12.6 12.6. %p Net profit margin (%) 5.7 6.7 1. %p 5.4 6.3.9 %p (IDRtr) 2
November 2, 217 Figure 1. Builders new contracts achievement, 9M17 (IDRtr) 9M16 (L) 9M17 (L) (%) % to FY17 target YoY change (R) 14 1 12 1 8 6 4 2 55.6-24.6 78.8 78.6 38.1 4.5 47.7-6.4 Note: Targets at 217 inception 65.4 3.7 WSKT WIKA PTPP ADHI Cumulative 8 6 4 2-2 -4 Figure 2. Builders new contracts growth, 3Q17 (IDRtr) 3Q16 (L) 3Q17 (L) YoY change (R) (%) 5 45 4 35 3 25 2 15 1 5-26.8 5.5 36. -6.1 12.7 WSKT WIKA PTPP ADHI Cumulative 6 5 4 3 2 1-1 -2-3 -4 Figure 3. PTPP s 9M17 revenue contributors Figure 4. PTPP s quarterly revenue breakdown performance.7%1.8% (IDRbn) 6, Equipment & energy Precast Property and Realty EPC Construction 13.1% Construction EPC 5, 4, 2.3% Property and Realty 3, 64.% Precast Equipment & energy 2, 1, 3Q11 3Q12 3Q13 3Q14 3Q15 3Q16 3Q17 Figure 5. Construction companies net gearing position Figure 6. Construction companies debt-to-equity position (x) 1.4 WSKT WIKA PTPP ADHI (x) 2. WSKT WIKA PTPP ADHI 1.2 1.8 1. 1.6.8 1.4.6 1.2.4 1..2.8..6 -.2.4 -.4.2 -.6 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17. 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 3
November 2, 217 Figure 7. PTPP s 18F P/E range ( x ) 35 3 25 2 15 1 5 +2 Std Dev +1 Std Dev Avg P/E -1 Std Dev -2 Std Dev 1/12 1/13 1/14 1/15 1/16 1/17 Source: Research 4
November 2, 217 (PTPP IJ/Buy/TP IDR3,73) Income Statement (Summarized) Balance Sheet (Summarized) (IDRbn) 12/16 12/17F 12/18F 12/19F (IDRbn) 12/16 12/17F 12/18F 12/19F Revenue 16,459 22,143 26,925 34,23 Cash and equivalents 9,424 8,443 8,249 8,226 Cost of revenue -14,3-18,928-22,98-29,226 Account receivables 4,776 6,616 8,44 1,227 Gross profit 2,456 3,215 4,17 5,4 Retention receivables 1,238 1,665 2,25 2,574 Operating expenses -487-481 -624-838 ST due from customers 4,96 9,824 11,945 15,186 Operating profit 1,968 2,734 3,393 4,166 Inventories 2,656 4,75 4,931 6,292 Interest expense -49-546 -741-1,65 Other current assets 1,345 1,82 2,186 2,774 Net revenue from JV 155 216 263 334 Fixed assets 4,178 4,85 5,361 5,845 Net non-operating losses (gains) -11 31-62 -45 Other long-term assets 2,711 2,777 2,869 2,996 Pre-tax profit 1,74 2,434 2,852 3,391 Total assets 31,233 4,7 45,612 54,12 Tax expense -552-778 -946-1,126 Account payables 1,237 11,889 14,74 17,96 Net profit 1,151 1,656 1,96 2,265 Short-term debt 3,698 5,821 6,478 7,294 Minority interest -128-164 -199-253 Other short-term liabilities 1,943 2,377 3,175 4,596 Attributable net profit 1,23 1,492 1,77 2,11 Long-term debt 3,48 4,112 4,463 4,899 Other long-term liabilities 1,51 1,51 1,51 1,51 Growth (%) 12/16 12/17F 12/18F 12/19F Total liabilities 2,437 25,79 29,7 36,25 Revenue 15.8 34.5 21.6 27.1 Paid in capital 2,164 2,164 2,164 2,164 Cost of revenue 14.7 35.2 21. 27.6 Additional paid in capital 4,71 6,71 6,71 6,71 Gross profit 22.4 3.9 25. 24.6 Retained earnings 2,922 4,78 5,41 6,961 Operating expenses 18.9-1.3 29.8 34.1 Total equity attributable to majority 9,796 12,953 14,276 15,835 Operating profit 23.2 38.9 24.1 22.8 Non-controlling interest 1, 1,346 1,636 2,8 Interest expense 9.6 33.7 35.7 43.6 Total shareholders' equity 1,796 14,298 15,912 17,915 Net non-operating losses (gains) 26. NM NM -27.7 Pre-tax profit 32.3 42.9 17.2 18.9 Tax expense 24.9 4.8 21.6 19. Net profit 36.2 43.8 15.1 18.8 Minority interest 21.7 28. 21.6 27.1 Attributable net profit 38.3 45.8 14.4 17.8 Key performance indicators Cash Flow Statement (Summarized) 12/16 12/17F 12/18F 12/19F (IDRbn) 12/16 12/17F 12/18F 12/19F Per share data Net profit 1,23 1,492 1,77 2,11 EPS (IDR) 165.1 24.7 275.3 324.4 Depreciation 526 273 344 416 EPS growth (%) 38.3 45.8 14.4 17.8 Changes in net working capital 2,294-4,554-1,511-1,852 BVPS (IDR) 1741.3 236.2 2566.5 2889.6 Operating cash flow 3,844-2,789 54 576 BVPS growth (%) 19.7 32.4 11.3 12.6 PP&E investing activities -1,715-9 -9-9 DPS (IDR) 23.9 54.1 61.9 72.9 I.P investing activities Key ratio Others investing activities -1,971-67 -92-127 ROE (%) 9.5 1.4 1.7 11.2 Investing cash flow -3,686-967 -992-1,27 ROA (%) 3.3 3.7 3.7 3.7 Non-current financing activities 1,317 1,64 351 436 Gross profit margin (%) 14.9 14.5 14.9 14.6 Changes in equity 4,59 2, Operating margin (%) 12. 12.3 12.6 12.2 Changes in minority interest 263 345 291 444 Net profit margin (%) 6.2 6.7 6.3 5.9 Dividend paid -148-335 -384-452 Net debt/equity (x) -.2.1.2.2 Financing cash flow 5,941 3,74 258 428 Debt/equity (x).6.7.7.7 Net worth adjustment 1 Assets/equity (x) 2.9 2.8 2.9 3. Net cash 6,1-682 -194-23 Current ratio (x) 1.5 1.6 1.6 1.5 Beginning balance 3,25 9,125 8,443 8,249 Quick ratio (x).9.7.7.6 Ending balance 9,125 8,443 8,249 8,226 estimates 5
November 2, 217 APPENDIX 1 Important Disclosures & Disclaimers Disclosures As of the publication date, PT., 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% * 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, 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. 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