Pembangunan Perumahan Persero ($PTPP): Paving The Way For Stronger Growth
Pembangunan Perumahan has set its rights issue price range at IDR2,580-3,583. We expect its outlook to improve post-exercise – as this would lift the overhang on the stock, strengthen its balance sheet and underpin earnings growth. Post-exercise, the company expects to book IDR1.7trn in net profit in FY17, which is much higher than our and consensus estimates. Its current new contracts won and 3Q16 results are in line with our estimates. We recommend a strong BUY on this stock, with an unchanged TP of IDR5,400 (36% upside), pre-rights issue.
¨ Rights issue details. Pembangunan Perumahan has set its rights issue price range at IDR2,580-3,583, with the maximum number of shares at 6,552m units. The company plans to raise IDR4.411trn from the exercise, including a IDR2.25trn fund injection from the Government. It aims to use the funds for capex and working capital for infrastructure projects across the nation. Hence, this may trigger higher earnings growth ahead. We also think that the current overhang on its share price would be eliminated.
¨ 4Q16 outlook. In 9M16, earnings were at IDR566.8bn (+49.9% YoY) or 61% of our FY16 estimate –above its seasonal historical average of 43%. Thus, we are confident that it would likely achieve our FY16F earnings. Moreover, its gross margin could be at 14.5% this year, which marks a YoY increase.
¨ Orderbook. Pembangunan Perumahan recorded strong new contract wins up toIDR25.4trn in 10M16, ie at 82% of our and its full-year estimates. This was also higher than its seasonal historical average of 70% over the past two years. Thus, we are positive that it could easily achieve the FY16 target. For FY17, we expect its new contracts value to improve to IDR36.4trn, supported by infrastructure projects such as power plants, low-cost housing and seaports.
¨ BUY, with TP of IDR5,400. We reiterate our BUY call, with TP of IDR5,400 based on 22x FY17F P/E, +1SD from its historical forward P/E average. Our TP is also supported by our DCF valuation of IDR5,406 per share.
¨ Key risks. There may be a short-term overhang on the stock due to the rights issue. Other downside risks include delays in infrastructure projects and the prolonged soft demand in the property sector in FY17.
¨ Post-rights issue valuation. We expect its outlook to improve post rights issue. With the rights proceeds, its balance sheet would strengthen and its orderbook may improve, and in turn drive earnings growth. The company’s new targeted contract value for FY17 of IDR38trn is 4% higher than our estimate of IDR36.4trn. With the higher targeted contract value, the company also expects to lift FY17 earnings to IDR1.7trn, whichis43%/39%above our/consensus estimates. Having said that and using an unchanged target FY17F P/E of 22x, we expect our TP post-exercise to be around IDR5,507-5,941. (Dony Gunawan)