Still no structural improvement

NEUTRAL on PTPP with TP of IDR364 with 6.4% upside. In our view, the recent strengthening of their share price is but temporary, as the construction SOE sector continues to lack any catalyst – and two major players (WSKT and WIKA) are not yet out of the woods. Given that, PTPP is in fact one of the better choices, with a healthy balance sheet showing a 0.9x net gearing ratio, and most contracts set with progress payments, which enables PTPP to maintain a positive operating cashflow. On the downside, Company's orderbook has been shrinking since 2018, even with mega-projects such as IKN and PP Property (PPRO, NOT RATED) burdening performance, due to weaker property sector sales.

Stronger new contract, but lower total orderbook

Although 5M24 new contracts surged 31.4% YoY to IDR8.9trn, its achievement is still below Company target – merely accounting for 27.8% of FY24 guidance. Additionally, the yearly total orderbook has been trending downward since 2018; this year's estimated orderbook is likely to decline by 9%, to IDR78.7trn. Despite a recovered contract burn rate to pre-COVID level (above 23%), we do not expect revenue to accelerate in 2024, dragged down by several factors: 1) Lighter orderbook 2) New government cabinet appointment 3) Bad performance from subsidiary PPRO (FY23 sales fell 42%, with net loss of IDR1.3trn. We therefore forecast FY24 top line to be slightly weaker (-2.6% YoY), but bottom line to suffer 49% contraction.

Cashflow improvement effect is temporary

In our view, the recent share price increase in the overall sector is simply cashflow improvement, thanks to the monthly progress payment contract type from IKN projects – and Company was able to fulfill matured bonds of IDR1.25trn However, Government has already spent IDR72trn for IKN, from an initial plan of IDR86trn, leaving a very thin project value from IKN. Therefore, we appraise the impact as but temporary, referring to the news that the newly-elected government will focus on the free-lunch program instead of IKN development.

PTPP - Have They Reached a Turning Point?

PTPP - Have They Reached a Turning Point?

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04 July 2024 - 07.00am

PTPP - Have They Reached a Turning Point?

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