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Danareksa Equity Snapshot - PWON 8 Juni 2018
June 08, 2018 09:23

Pakuwon Jati(PWON IJ)

Support from Recurring Income


We expect PWON’s FY18 revenues to be boosted by its new source of recurring income (Pakuwon Mall 2 & 3 and Tunjungan Plaza 6) and the recognition of its high-rise projects. As for its FY18 marketing sales target, the company remains cautious given the prospect of sluggish demand in the pre-election period. All in all, we like PWON for its large recurring income streams and healthy financials. Maintain BUY with a lower TP of Rp710.


More mall revenues coming on stream. We expect Tunjungan Plaza 6 and Pakuwon Mall 2 & 3 to start fully contributing to PWON’s revenues in FY18, after they opened on 23 Sep 17 and 22 Feb 17 respectively. For Tunjungan Plaza 6 (NLA: 23,800sqm), we estimate revenues of Rp83.6bn in FY18 (assuming an 80% occupancy rate), while for Pakuwon Mall 2 & 3 (NLA: 73,379sqm) we forecast revenues of Rp261.4bn in FY18 (assuming a 94% occupancy rate). PWON typically provides a rent free period of 3-6 months for its newly-opened malls. There are several future recurring income projects in the pipeline, including: Pakuwon Mall 4 (NLA: 12,400sqm), East Coast F&B Center 2 (NLA: 20,472sqm), Kota Kasablanka Tower C office (GSA: 48,000sqm), Tunjungan 6 Office Tower (GSA: 24,000sqm) as well as an increase in the number of hotel rooms to 1,771 by 2020 (from 1,251 rooms currently).


Cautious on its FY18 marketing sales. PWON remains cautious on its FY18 marketing sales due to oversupply in the high-rise market and potentially slower demand in the pre-election period. The company targets marketing sales of Rp2.5tn (+0% YoY), mainly driven by sales of its existing inventories (mostly condos in Kota Kasablanka, Tunjungan, Pakuwon City and Pakuwon Mall). As such, the company will not have any new product launches in FY18. The indicative 1H18 marketing sales are around Rp1.2tn.


Solid growth in consolidated revenues in FY18. We still expect PWON to book FY18 revenues of Rp6.5tn (+14.6% YoY), boosted by growth in recurring income of 18.3% (Pakuwon Mall 2&3 and Tunjungan Plaza 6) and the development revenues growth of 10.7% (mostly on-progress completion of its high-rise projects). We foresee a recurring income to development income ratio of 53:47 in FY18, in-line with the company’s target of 50:50. As of Mar 18, PWON’s balance sheet was healthy with net gearing of 11.9%.


Maintain BUY with a lower TP of Rp710. We maintain our BUY call on PWON with a lower TP of Rp710 (reduced from Rp730), based on a higher discount to NAV of 41% (from 40%) to account for higher interest rates. We like PWON given its large portion of recurring income which provides future earnings sustainability and protection against a downturn in property demand, as well as its healthy financials. PWON currently trades at a 56% discount to NAV vs. the sector’s 70%.


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