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PTPP - 4Q19 Update

MISSING THE TARGET

PTPP registered a revenue of Rp24.7T, which declined by -1.8% (Y/Y) and represented 79% of our FY19 forecast. Pre-tax profit was recorded at Rp2T, much lower than our estimate at 58% due to provision fees, lower JV profit, and loss in associates’ profit. Net profit-wise, the figure reached Rp930B (-38.1% Y/Y) and represented 50.5% of our FY19 estimate.

 

LESS THAN A THIRD-QUARTERS

In 2019, PTPP booked a total new contract value of Rp33.5T, which dropped by -22.9% (Y/Y) from that of 2018 at Rp43.5T and represented 73% of FY19 target at Rp46T. Total new contract value from construction project declined by -42% (Y/Y) to Rp15.6T, while at the same time, a higher total new contract value from EPC, amounting to Rp12.1T (+26.5% Y/Y), was not able to fully offset the decrements. One of the reasons, if not all, is that presidential election, coupled with slower economic growth, has resulted in delayed project tender. This year, PTPP aims to achieve a total new contract value of Rp40.4T (+20.3% Y/Y), dominated by construction (45%) and EPC (25%). However, we estimate the Company to acquire a slightly lower new contract value of Rp36.2T (+11.9% Y/Y) due to 1) global pandemic issue that could halt project tender process and ultimately the construction work and 2) slower global economic growth may result in lower purchasing power and lower property demand, despite a series of accomodative policy issued by the Government in hope of boosting spending.

 

STRONG BUT IT WAS NOT ENOUGH

In 4Q19, PTPP registered a revenue of Rp8.6T, higher than that of 3Q19 by +61% (Y/Y) but lower than that of 4Q18 by -16.8% (Y/Y). Margin-wise, construction GPM was recorded at 8.7% in 2019 vs. 9.1% in 2018, but EPC GPM was seen at 27%, a major improvement from 2018 at 13.7%. Overall, PTPP GPM/NPM stood at 14.1%/3.8% in 2019 vs. 13.8%/6.0% in 2018, respectively. Lower NPM was due to provision fees, lower JV profit, and loss in associates’ profit. In addition, DER rose to 0.9x and could further rise to 1.0x in 2020F, according to our model, which in turn, may supress this year’s net profit. Going forward, we expect PTPP to record a higher revenue of Rp29.3T (+18.9% Y/Y) given its strong carry over contract at Rp68.7T. Bottom line, we estimate PTPP’s net profit to grow by a limited +4.5% (Y/Y) to Rp973B this year.

 

VALUATION

We maintain our BUY recommendation with adjusted 12-month target price of Rp1,780/share (previous TP: Rp2,100/share) based on 3-year P/E target of 10.3x at -1SD, as we see that project tenders and construction works could be further delayed, resulting in weaker new contract achievement vs. the Company’s FY20 target.

Mon March 30Th, 2020

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