Puradelta Lestari ($DMAS): Earnings cuts: Hurt by pre-sales
§ Disappointing revenue on weak pre-sales achievement: DMAS booked disappointing 3Q16 revenue of only IDR36tn, down 91.6% y-y and 90.8% q-q, translating into net profit of just IDR8bn (-98.2% y-y). On the top line, the company booked IDR1tn of revenue in 9M16, down 40.6% y-y, just 49.7% of our and 58.5% the consensus estimates on weak marketing sales of 10.4ha due to uncertainties on government regulations back in 1H16
§ Expecting 4Q16 revenue rise from one-off contract recognition: Given a one-off 38.3ha transaction from Astra Honda Motor (AHM) causing strong 9M16 presales of 52.1ha, DMAS expects 80% of total sales to be booked in 4Q16. If this could materialize, we calculate that DMAS would be able to book IDR709bn of revenue in 4Q16 using an ASP assumption of IDR1.7mn/sqm. However, we assume DMAS will only be able to realize IDR502bn in 4Q16 revenue since the AHM project was secured in 3Q16.
§ Margin pressure on increased operating costs and FX losses: In 3Q16, DMAS booked only IDR4bn (-98.1% q-q) of EBIT on a high IDR23bn of operating costs as a new service apartment’s operation came on-stream, resulting in a weak 11.1% EBIT margin (-44% q-q). On 3Q16 earnings, DMAS saw only IDR8bn of net profit, down 96.1% q-q and 98.2% y-y, on an IDR9bn FX loss stemming from an IDR612bn USD cash level resulting in a poor 23.2% net margin (-32.1% q-q).
Outlook: Lowering earnings estimates on slower revenue recognition
At this stage, we lower our 2016 revenue assumption by 26% due to slower-than-expected revenue recognition from this year’s marketing sales, as we had assumed that 50% of the total AHM deal would be booked in 1H17. Moreover, given DMAS’s IDR612bn USD cash level in 9M16, we forecast FX losses to reach IDR60bn in 2016 and IDR11bn in 2017 on a continued stronger year-end IDR assumption (2016F: IDR12,800; 3Q16: 13,020). Thus, we reduce our 2016-17F net profit by 30-34% (exhibit 5).
Recommendation: Retain BUY and 12M TP of IDR290
While 3Q16 results have disappointed, DMAS’s marketing sales ytd have been higher than expectations, allowing for the stock to perform relatively in line with the market ytd (exhibit 4). On valuation, DMAS trades at an undemanding 2017F PBV of 1.5x, slightly below the sector’s average of 1.6x (exhibit 8). Thus, we retain our BUY call and 12M TP of IDR290, based on an unchanged 60% discount to our end-2016F NAV of IDR722. Risks to our call: Worse-than-expected 4W demand due to high auto-related tenants, slower-than-expected FDI and lower-than-expected marketing sales recognition.