Initiate with BUY with TP of IDR570
We initiate coverage of PWON, a holistic property developer, with a TP of IDR570. We assign a 45% discount to RNAV, in line with the average for peers. Recommend a BUY for its strong cash flows, high recurring income and high-margin businesses with expansion potential. Our TP implies
11.9x 2016F P/E and 2.9x P/BV. Risks to our call include FX volatility, policy changes, interest rates, economic downturns and land-acquisition hurdles.
Pioneer of mixed-use developments
PWON is a pioneer of mixed-use developments in Jakarta where three of its projects have become the city’s landmarks. Besides property development, it has expertise in investment property management. Secured future growth
We see earnings growth from the Net Leasable Area (NLA) expansion of its retail malls (+26%) and office towers (126%), plus a planned 174% increase of hotel rooms in stages until 2019F. Based on such plans, PWON is set to become the largest mall landlord and operator in Indonesia with NLA of 628k sqm. It also holds a 458ha land bank in prime areas which should be sufficient for more than 10 years of development.
High ROCs with manageable leverage
PWON is one of the most profitable developers in Indonesia with forecast ROEs of above 25% for the next three years through efficient management of investment properties and high-margin property development. We expect its leverage to decline to 19% in FY17 from 43% in FY15. We forecast a 33% earnings CAGR for the next two years from rental growth, new assets and more positive property demand.