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PTPP - Management bullish on the outlook
November 27, 2014 09:50

Management bullish on the outlook
In PTPP’s analyst meeting yesterday, we learnt that the management is confident its FY14F targets will be achieved. And for FY15F, the company remains upbeat, targeting net profits growth of 38%y-y to Rp730bn, underpinned by a growing order book and higher contribution from the property segment. In our view, this target is achievable as PTPP will begin 2015 with Rp29tn of carry-over projects, whilst the new government will want to accelerate much-needed infrastructure projects. Of note, the government’s infrastructure development will have a particular focus on water-based projects such as irrigation, dams and seaports – areas where PTPP has been the market leader in the past. Encouraged by these developments, we revise up our earnings estimates by 13%/16% in FY14F/15F. As a result, we raise our TP to Rp3,400, derived from 21.5x 2015 P/E – at par with 1sd above the sector mean. Maintain BUY. 

To achieve the FY14F targets
The management expressed optimism it would beat its Rp530bn FY14F net profit target (+26%y-y), despite a lower new contracts target of Rp21.6tn (+10%y-y) with revenues of Rp14.3tn (+22%y-y). Huge carry-over projects from 2013 have been the driver for growth this year since new contracts have been hard to come by following the government’s spending cuts. Moreover, better-than-expected profitability from the high margin project in New Priok port and higher contribution from property segment also help to meet the target. Up to October 2014, PTPP had won Rp14.5tn of new contracts, predominately from private projects (51%), with high-rise buildings dominating (77% of projects). Taking into account the 9M14 results and the company’s seasonality, we believe the management’s targets are at least achievable. 

Solid 38% earnings growth expected in FY15F
With potential carry-over projects to 2015 of Rp29tn, PTPP looks set to record strong earnings growth in 2015. The management expressed its optimism in this regard, targeting net profits growth of 38%y-y to Rp730bn, backed by the new government’s plans to accelerate infrastructure development. New contracts are estimated to increase 23%y-y to Rp27tn, providing the company with Rp56tn of projects in its FY15F order book.  The property segment is also expected to deliver with earnings forecast to almost triple to Rp300bn in FY15F from Rp114bn in FY14F, mostly coming from recognition of Grand Kamala Lagoon and Grand Sungkono Lagoon pre-sales. 

Huge capex for property development
PTPP has set aside Rp1.8tn for capex in FY15F, up significantly from just Rp447bn budgeted for FY14F. The property segment will absorb half of the capex with the remainder to be used for investment in infrastructure and precast factories. Consequently, PTPP plans to raise Rp1.5tn in equity from a 35% stake in PP Properti through an IPO in 2Q15F. Such would bring down PTPP’s consolidated net gearing to 0.9-1.0x during the peak cycle from the current 1.4-1.5x, giving the company more room to get projects during the infrastructure up-cycle, we believe