Indonesia Results Review
29 June 2020 Property | Real Estate
Pakuwon Jati (PWON IJ) Buy (Maintained)
Eyeing a Recovery In 3Q20; Keep BUY Target Price (Return): IDR460 (+8%) Price: IDR424 Market Cap: USD1,436m Avg Daily Turnover (IDR/USD) 55,728m/3.83m
BUY, TP unchanged at IDR460, 8% upside with c.5% FY20F yield. Analyst Pakuwon Jati’s 1Q20 revenue of IDR1.6trn is still decent, considering the IFRS 15 adjustments made to revenue recognition from property projects Christopher Andre Benas and COVID-19’s impact on malls since March. Its 1Q20 net profit of +6221 5093 9847 IDR679bn (+2.6% YoY) comprises 29% and 33% of RHB and Street [email protected] estimates. 2Q20 may be its worst quarter this year, but a recovery should be imminent in 3Q20, after its malls begin charging rental on tenants again. Still the king of recurring income. 1Q20 revenue of IDR1.6trn (+3.5% YoY) is above our and Street estimates, at 29.9% and 28.7% of full-year projections. This was due to recurring revenue growing by 1% YoY and
development dropping 9% YoY. 54% of PWON’s earnings come from recurring income, with 42.5% driven by retail mall leasing. This remains the Share Performance (%) developer’s highest recurring portion vs peers. Retail mall occupancy rates YTD 1m 3m 6m 12m remained solid at 96%, but revenue per hotel room fell 32% YoY – within Absolute (25.6) 17.1 36.8 (26.3) (41.9) expectations, as the Government imposed travel restrictions, and there was Relative (3.4) 11.1 23.8 (3.9) (19.6) a dearth of tourists in the quarter. 2Q20 revenue should be its lowest this year, as retail malls were hard hit by 2-3 months of deferred rental, and 52-wk Price low/high (IDR) 268 – 745
occupancy rates in malls on a decline. However, we expect a gradual recovery in 3Q20. Pakuwon Jati Tbk (PWON IJ) Price Close Relative to Jakarta Composite Index (RHS) Slight increase in margin. During 1Q20, PWON recorded a GPM of 60%, 820 107 vs 58% in 1Q19. The margin growth came from its real estate segment (at 720 100 68%, vs 61% in 1Q19). GPM of its shopping centre and service apartments segment narrowed by 1%, from 58% in 1Q19. Its hospitality GPM shrank to 620 94
23% vs 34% in 1Q19, due to the low number of tourists. Further down 520 87 however, PWON booked a FX loss of IDR557bn on debt exposure, as the USD strengthened by 17.8% in 1Q20. Although this was unrealised, if 420 80
included, earnings dropped to a mere IDR67bn. Excluding that, net margin 320 74 was decent at 41%, vs 38% in 1Q19. 220 67
Still booking marketing sales, but launches are few. 1Q20 presales
Jul-19
Apr-20 Oct-19 Oct-19 Apr-20
Jun-19 Jan-20 Jun-20
Feb-20 Feb-20 Mar-20 Mar-20
Nov-19 Nov-19 Dec-19 Dec-19
Sep-19 Aug-19 Aug-19 Sep-19 May-20 grew to IDR365bn, despite sentiment dampening from the COVID-19 May-20 pandemic. Presales mostly stem from condominium projects in Pakuwon Source: Bloomberg City and Pakuwon Mall, with 84.5% and 86.3% of total area sold. As for office towers, Kota Kasablanka is 16%-sold (construction is at the finishing stage), while Tunjungan City and Pakuwon Center are 96%- and 54%-sold. Debts repaid. As of 1Q20 PWON has repaid its IDR390bn long-term loans and aims to fully redeem its matured loans. The company has steadily deleveraged borrowings over the years. As of 1Q20, its NDER was at 4%, and net debts-to-assets ratio was at 3. In the same financial period, it also had cash equivalents amounting to IDR4.3trn. PWON remains our top sector pick, on the expected recovery in recurring income and its solid balance sheet. Its valuation remains undemanding, at a 62% discount to NAV (albeit at a premium to the peer average).
Forecasts and Valuation Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Total turnover (IDRb) 7,081 7,202 5,515 6,587 7,048 Recurring net profit (IDRb) 3,107 2,951 2,370 3,065 3,464 Recurring net profit growth (%) 30.2 (5.0) (19.7) 29.3 13.0 Recurring EPS (IDR) 64.50 61.27 49.22 63.65 71.93 DPS (IDR) 10.89 9.66 19.11 6.00 7.92 Recurring P/E (x) 6.57 6.92 8.62 6.66 5.89 P/B (x) 1.62 1.36 1.23 1.08 0.95 Dividend Yield (%) 2.6 2.3 4.5 1.4 1.9 Return on average equity (%) 22.2 19.7 12.7 14.8 14.9 InterestNet debt cover to equity (x) (%) 12.65 3.1 net 15.17 cash net cash9.67 net 13.64 cash net 16.92 cash
Source: Company data, RHB
See important disclosures at the end of this report 1
Pakuwon Jati Indonesia Results Review
29 June 2020 Property | Real Estate
Financial Exhibits
Asia Financial summary (IDR) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Indonesia Recurring EPS 64.50 61.27 49.22 63.65 71.93 Property EPS 52.80 56.47 41.71 54.60 62.61 Pakuwon Jati DPS 10.89 9.66 19.11 6.00 7.92 PWON IJ BVPS 261.55 310.87 345.06 393.23 447.42 Buy Return on average equity (%) 22.2 19.7 12.7 14.8 14.9
Return on average assets (%) 10.5 10.6 7.6 9.2 9.5 Valuation basis In our SOP valuation, we use DCF to value PWON’s Valuation metrics Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F recurring income, and RNAV to value its property Recurring P/E (x) 6.57 6.92 8.62 6.66 5.89 projects. Our TP of IDR460 reflects a 58% discount to P/B (x) 1.6 1.4 1.2 1.1 0.9 NAV (IDR1,089/share). Dividend Yield (%) 2.6 2.3 4.5 1.4 1.9 Key drivers EV/EBITDA (x) 3.49 3.25 2.99 2.24 1.43 i. Opening of new retail malls and other property projects; Income statement (IDRb) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F ii. Launching of products to drive marketing sales; Total turnover 7,081 7,202 5,515 6,587 7,048 iii. Favourable tax incentives and policy rates. Gross profit 4,050 4,058 3,097 3,913 4,354 EBITDA 3,539 3,639 3,218 3,634 4,099
Depreciation and amortisation (80) (188) (581) (271) (333) Key risks Operating profit 3,459 3,451 2,636 3,363 3,765 i. Weakening of the IDR; ii. Unfavourable policy rate; Net interest (36) 53 8 34 58 iii. Delay in construction progress leading to lower Pre-tax profit 2,854 3,271 2,276 2,953 3,365 revenue recognition. Taxation (27) (31) (46) (59) (67) Reported net profit 2,543 2,720 2,009 2,630 3,015
Recurring net profit 3,107 2,951 2,370 3,065 3,464 Company Profile
Established in 1989, Pakuwon Jati is a diversified real Cash flow (IDRb) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F estate developer with a focus in the Jakarta and Surabaya areas. The company's portfolio includes Change in w orking capital (798) (1,030) 371 (398) (20) retail, residential, commercial and hospitality projects. It Cash flow from operations 2,071 1,868 3,831 3,229 3,816 is the pioneer of the superblock concept in Indonesia – Capex (905) (811) (1,071) (1,071) (1,071) a large-scale integrated mixed-use development of Cash flow from investing activities (905) (811) (1,071) (1,071) (1,071) retail shopping malls, offices, condominiums, and Dividends paid (290) (289) (420) (310) (406) hotels. Cash flow from financing activities (112) (1,204) (687) (248) (357) Cash at beginning of period 3,406 4,460 4,313 6,385 8,294 Net change in cash 1,054 (147) 2,072 1,909 2,388 Ending balance cash 4,460 4,313 6,385 8,294 10,682
Balance sheet (IDRb) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Total cash and equivalents 4,460 4,313 6,385 8,294 10,682 Tangible fixed assets 4,111 4,911 4,587 5,138 5,457
Total investments 11,263 11,303 11,548 11,858 12,063 Total other assets 172 238 183 218 233 Total assets 25,018 26,095 27,109 30,159 33,221 Total long-term debt 4,934 3,885 3,777 4,194 4,194 Total liabilities 9,706 8,000 7,148 7,533 7,702 Shareholders' equity 12,596 14,971 16,618 18,938 21,547 Minority interests 2,716 3,124 3,343 3,688 3,972 Total equity 15,312 18,096 19,961 22,626 25,519 Total liabilities & equity 25,018 26,095 27,109 30,159 33,221
Key metrics Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Revenue grow th (%) 23.2 1.7 (23.4) 19.4 7.0 Recurring net profit grow th (%) 30.2 (5.0) (19.7) 29.3 13.0 Recurrent EPS grow th (%) 30.2 (5.0) (19.7) 29.3 13.0 Gross margin (%) 57.2 56.3 56.2 59.4 61.8 Recurring net profit margin (%) 43.9 41.0 43.0 46.5 49.2 Dividend payout ratio (%) 20.6 17.1 45.8 11.0 12.6
Source: Company data, RHB
See important disclosures at the end of this report 2
Pakuwon Jati Indonesia Results Review
29 June 2020 Property | Real Estate
Figure 1: PWON’s 1Q19 results Results (IDRbn) 1Q19 4Q19 1Q20 QoQ YoY % RHB % Cons Sales 1,711 1,962 1,651 -15.9% -3.5% 29.9% 28.7% COGS (724) (972) (673) -30.7% -7.0% -27.9% -27.4% Gross profit 987 1,020 977 -4.2% -1.0% 31.5% 29.6% Operating expenses (123) (184) (129) -29.8% 5.0% -28.1% -30.3% Operating profit 864 836 848 1.5% -1.8% 32.2% 29.5% EBITDA 993 999 979 -2.0% -1.4% 30.4% 32.7%
Pre-tax profit 859 3,271 134 -95.9% -84.5% 5.9% 5.2% Net profit 662 446 679 52.3% 2.6% 28.6% 32.9% Net profit (FX loss included) 721 569 67 -88.3% -90.7% 2.8% 3.2%
Gross margin 57.7% 52.0% 59.2% Opex to sales -7.2% -9.4% -7.8% Operating margin 50.5% 42.6% 51.4% EBITDA margin 58.0% 50.9% 59.3% Net margin 38.7% 22.7% 41.1%
Source: Company data, RHB
Figure 2: PWON’s 1Q20 results by segment
(IDRbn) 1Q19 1Q20 YoY Contribution
Retail Leasing 678 702 4% 43%
Hotel and Serviced Apartments 140 129 -8% 8% Office Leasing 68 68 -1.1% 4%
Total Recurring Portion 886 898 1.3% 54%
Landed House 166 408 146% 25% Condo Sales 621 310 -50% 19%
Office Sales 38 35 -7.9% 2% Total Development Property 825 753 -8.7% 46%
Total Revenue 1,711 1,651 -3.5% 100%
Gross Profit
Office, Shopping Centre and Service Apartments 443 449 1.4% 46% Real Estate 504 508 0.9% 52%
Hospitality 41 25 -38% 3% Total Gross Profit 987 983 -0.5% 100%
GPM Office, Shopping Centre and Service Apartments 58% 57%
Real Estate 61% 68% Hospitality 34% 23%
Total Gross Profit Margin 58% 60%
Source: Company data, RHB
See important disclosures at the end of this report 3
Pakuwon Jati Indonesia Results Review
29 June 2020 Property | Real Estate
Figure 3: Revenue by project type Figure 4: Revenue by segment
Office Sales; 2.10%
Condo Sales; 18.80% Office 39.20% Leasing; Retail 4.10% Leasing; 42.50% 60.80%
Landed House ; Hotel and 24.70% Serviced Apartments; 7.80% Jakarta Surabaya
Source: RHB
Figure 5: PWON’s 5-year discount to NAV band Discount to NAV (%)
-30% +2 SD = 31% -35% +1 SD = 40% -40%
-45%
-50% Mean = 49%
-55% -1 SD = 58% -60% Disc to NAV = 62% -65% -2 SD = 67%
-70%
-75%
2015 2016 2017 2018 2019 2020
Source: Bloomberg, RHB
Recommendation Chart
Date Recommendation Target Price Price Price Close 2020-05-12 Buy 460 346 850
Recommendations & Target Price 2019-11-25 Buy 780 560
na
780 780 780 780 460 750 2019-07-30 Neutral 780 735 2019-03-27 Buy 780 690 650 Source: RHB, Bloomberg
550
450
350
250 Buy Neutral Sell Trading Buy Take Profit Not Rated Jul-15 Oct-16 Jan-18 Apr-19
Source: RHB, Bloomberg
See important disclosures at the end of this report 4
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RHB Securities Singapore Pte Ltd, its subsidiaries and/or its associated associated companies, (“RHBIB Group”) form a diversified financial group, companies and its analysts do not have a financial interest (including a undertaking various investment banking activities which include, amongst others, shareholding of 1% or more) in the issuer covered in this report. underwriting, securities trading, market making and corporate finance advisory. 3. RHB Securities, its staff or connected persons do not serve on the board or trustee positions of the issuer covered in this report. As a result of the same, in the ordinary course of its business, any member of the 4. RHB Securities Singapore Pte Ltd, its subsidiaries and/or its associated RHBIB Group, may, from time to time, have business relationships with or hold companies do not have and have not within the last 12 months had any corporate positions in the securities (including capital market products) or perform and/or solicit finance advisory relationship with the issuer covered in this report or any other investment, advisory or other services from any of the subject company(ies) covered relationship that may create a potential conflict of interest. in this research report. 5. RHB Securities Singapore Pte Ltd, or person associated or connected to it do not have any interest in the acquisition or disposal of, the securities, specified While the RHBIB Group will ensure that there are sufficient information barriers and securities based derivatives contracts or units in a collective investment scheme internal controls in place where necessary, to prevent/manage any conflicts of interest covered in this report.
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6. RHB Securities Singapore Pte Ltd and its analysts do not receive any compensation or benefit in connection with the production of this research report or recommendation.
Analyst Certification The analyst(s) who prepared this report, and their associates hereby, certify that: (1) they do not have any financial interest in the securities or other capital market products of the subject companies mentioned in this report, except for:
Analyst Company - -
(2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
KUALA LUMPUR JAKARTA RHB Investment Bank Bhd PT RHB Sekuritas Indonesia Level 3A, Tower One, RHB Centre Revenue Tower, 11th Floor, District 8 Jalan Tun Razak - SCBD Kuala Lumpur 50400 Jl. Jendral Sudirman Kav 52-53 Malaysia Jakarta 12190 Tel : +603 9280 8888 Indonesia Fax : +603 9200 2216 Tel : +6221 509 39 888 Fax : +6221 509 39 777
HONG KONG BANGKOK RHB Securities Hong Kong Ltd. RHB Securities (Thailand) PCL 12th Floor, World-Wide House 10th Floor, Sathorn Square Office 19 Des Voeux Road Tower Central 98, North Sathorn Road, Silom Hong Kong Bangrak, Bangkok 10500 Tel : +852 2525 1118 Thailand Fax : +852 2810 0908 Tel: +66 2088 9999 Fax :+66 2088 9799
SINGAPORE RHB Securities Singapore Pte Ltd. 10 Collyer Quay #09-08 Ocean Financial Centre Singapore 049315 Tel : +65 6533 1818 Fax : +65 6532 6211
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