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FULL REPORT & UPDATE

  • ADHI - 3Q19 Result Update
    WORRIES ARE NOW SEEN
    ADHI registered revenues of Rp8.9T (-5.2% yoy), lower than Rp9.4T in the same period last year, which represents 51.4% of our full year forecast. Net profit was seen to grow (+4.7% yoy), reflecting 46.4% of our estimate. As of 3Q19, ADHI GPM/NPM stood at 15.6%/3.9% from 15.8%/3.6% last year.
     
    FALLING WELL BELOW TARGET
    As of 9M19, ADHI registered new contract of Rp7.6T, which was mostly originated from construction & energy business (81.7%), followed by property (17.9%), and others. However, such figure is still well below the Company’s full year target of Rp30T (25.3%, as of 9M19). Based on the result, the annual run rate would translate to Rp10.1T of value, but it is important to note that it is often the case contractors to receive a large chunk of its projects by the end of year, which may spur the aforementioned figure above.
     
    CASH INFLOWS ARE HIGHLY ANTICIPATED
    In October 2019, ADHI received the fourth LRT payment worth Rp1.4T (after tax) for progress between October 2018 – March 2019, translating to a total payment of Rp8.3T, which should reflect in 4Q19 result. The management expects additional payments to occur by the end of the year, which should boost ADHI’s cash level and DER, both recorded at Rp1.46T and 1.7x respectively, as of 3Q19.
     
    CONCERNS REMAIN
    Construction services dropped -9.3% (yoy) to Rp7.1T, while EPC also plunged by more than half from Rp707B to Rp351B. However, property sales and infrastructure investment supported ADHI’s top line with both posted Rp1T (+76% yoy) and Rp445B (+51% yoy), respectively. The financials though, were underpinned by positive other income if compared with negative income in the same period last month as well as lower tax expenses, leading ADHI to post a moderate +4.7% (yoy) of net profit growth to Rp351B. Going forward, we should brace for sluggish result in the 4Q19 quarter, despite the conclusion of the presidential election, if new project tender will be deferred to next year.
     
    VALUATION
    As we rollover our base year, we reiterate our BUY recommendation with lower 12-month target price of Rp1,425/share (previous TP: Rp1,780/share), given sluggish new contract achievement. The implied target price is based on average historical 5-year P/E multiple target of 5.1x at -2SD. 12-month target price reflects forward P/B of 0.7x. Key risks include: soft new contract achievement due to possibility of tender deferral, late LRT disbursement, and squeezing interest expenses.
    Thursday October 31Th, 2019
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  • SMRA - 3Q19 Result Update
    HAPPY MOMENTS
    SMRA recorded revenues of Rp4.4T (+9.6% yoy) as of 3Q19, on the back of robust housing sales (+40.2% yoy) and commercial building. However, apartment sales plummeted to Rp343B. GPM slightly slipped to 46.5%, but NPM went up to 7.1% from previously 5.1%, as a result of lower minority interest contribution to the parent company. Top line result represents 70.8% of our FY19 estimate (Rp6.23T) and bottom line result reflects 73.6% of our Rp428B of FY19 target. 
     
    CREEPING HIGHER
    As of 8M19, marketing sales figure reached Rp3T, which covers 76% of the company’s FY19 target. Karawang (107%), Makassar (96%), Serpong (80%), and Bekasi (78%) spurred the good result. Seen from July – August period, SMRA was able to add ~Rp400B of marketing sales per month, in our view, should continue until the end of the year, given benign environment following post-presidential election, coupled with dovish interest rate outlook.
     
    IT MAY EXCEED OUR EXPECTATION
    Revenues was seen to hit Rp4.4T (+9.6% yoy), as the company successfully added Rp1.7T (+7.2% qoq, +27.8% yoy) in 3Q19. Housing sales (+40.2% yoy) and commercial building pushed top line higher, while on the other hand, apartment sales dragged down the revenues. Operating expenses were up by +10.7% (yoy), but seen quarterly, it actually declined by -9.7% (yoy). Bottom line, net profit jumped +54.7% (yoy) to Rp315B vs. Rp203B, resulting a net profit margin improvement from 5.1% to 7.1%. According to the annualized run rate, SMRA net profit will be slightly below our initial estimate of Rp428B. However, 3Q19 result gave us hint that demand is now picking up, which we believe, if the Company continues its robust 3Q result in the 4Q19, then SMRA may indeed be able to exceed our expectation.  
     
    VALUATION
    As we rollover our base year, we upgraded our HOLD to BUY recommendation. We arrive at 12-month target price of Rp1,330/share (previous TP: Rp1,280/share, 2-year -2SD at 65% discount to RNAV, WACC: 11.1%, LTG: 3.0%). The target price increase is fueled by optimism regarding strong marketing sales achievement, coupled with Indonesia cabinet establishment and dovish interest rate outlook. The implied target price reflects 12-month forward P/E of 33x and P/B of 1.9x. Key risk to our forecasts includes: soft 4Q19 demand that would result in SMRA’s top line falling below our expectation.
    Thursday October 31Th, 2019
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  • TLKM - 3Q19 Result Update
    NO WORRIES
    TLKM revenues were up by +3.5% (yoy) to Rp102.6T (72.8% of our FY19 forecast). Interest expense rose by +23% (yoy); however, the Company’s bottom line remains strong at Rp16.5T (+15.6% yoy), in line with our estimate (75.5%).
     
    FY19 RESULT: IN LINE WITH FULL YEAR ESTIMATE
    As seen only from 3Q19, data and internet as the biggest source of TLKM’s revenues, slipped by -1.0% (qoq) to Rp20.1T. Legacy business, given lesser customers dependency going forward, dropped by -2.8% (qoq), coupled with interconnection (-13.0% qoq) and network & others (-20.6% qoq). In addition, interest expense went up by +10.9% (qoq), but lower operational and costs has resulted in hefty growth of net profit (+10.9% yoy). EBITDA also grew by +8.4% (qoq, +2.0% yoy). Top line is slightly below our estimate (72.8%) of Rp141T, but bottom line is in line with our estimate of Rp16.5T for FY2019. EBITDA was registered at Rp50T (74.1% of our estimate at Rp67.4T).
     
    BALANCE SHEET REMAINS HEALTHY
    We see TLKM consolidated balance sheet remains healthy, suggested by the fact that DER is still below 1.0x at 0.44x, as of 3Q19 vs. 0.38x in FY18. It is important to note that TLKM interest-bearing debt position stood at Rp50.8T vs. Rp44.1T, an additional ~Rp6.8T of debt. In terms of profitability margin, as 3Q19, EBITDA margin had a turnaround at 48.7%, after posting downtrend result at 50.3% and 47.8% in 1Q19 and 2Q19, respectively. Net profit margin remains solid at 16.0%, unchanged from 16.0% in 2Q19.
     
    GETTING MORE RESOURCEFUL
    As of 15 Oct., Mitratel, as a subsidiary of TLKM, agreed to purchase 2,100 towers from ISAT with a transaction value of Rp4.4T, implying purchase price of Rp2.1B each. The transaction would also add its already-abundant assets to more than 15,800 units. In turn, ISAT would like to lease back its towers to continue its expansion. For TLKM, we think the tower acquisition will surely benefit the Company, given relatively high tenancy ratio, as well as widen network coverage to support 5G technologies when it has been ready to implement in Indonesia, the Company said. 
     
    VALUATION
    As we rollover our base year, we upgraded our HOLD to BUY recommendation with 12-month target price of Rp4,600/share (previous TP: Rp4,300/share). We arrive at the TP by utilizing both DCF (WACC: 12.2%, LTG: 3.5%) and EV/EBITDA (+1.5SD at 7.3x) multiple approaches. 12-month target price reflects forward P/E and P/B of 18.9x and 3.6x, respectively. Key risks include: slower synergy realization from tower acquisition and narrowing legacy business that has acted as buffer.
    Thursday October 31Th, 2019
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