Release date: October 29, 2018

■ 9MFY18 core profit of Rp2.05tr (+27% yoy) was ahead of expectations. The beat mainly came from stronger-than-expected revenues and margins.
■ Revenue growth was driven by both landed development and recurring income. Gross margin also expanded in both segments.
■ Leverage remains one of the lowest in the sector. Maintain Add with a lower TP (due to higher bond yield assumption). PWON is one of our top picks.

Strong 9MFY18 results, beating expectations
9M18 headline net profit of Rp1.8tr (+25% yoy, +15% qoq in 3Q) was ahead at 81%/82% of our/consensus’ FY18 estimates. Excluding forex losses, core profit was at Rp2.05tr (+27% yoy, +7% qoq in 3Q). The beat was largely driven by 1) robust revenues (+19% yoy, +7% qoq in 3Q), and 2) gross margin expansion to 59% in 9M18 from 57% in 9M17. Opex, comprising selling and G&A expenses, was benign (+9% yoy, +9% qoq in 3Q).

Robust revenues supported by landed and recurring income growth
Revenue growth of 19% yoy (+7% qoq in 3Q) was driven by both recurring (+19% yoy, 8% qoq in 3Q) and non-recurring income (+19% yoy, +6% qoq in 3Q). Recurring income growth was due to higher NLA from new retail malls in 2017 (c.99k sqm addition). Nonrecurring income was driven by robust landed development revenues (+50% yoy, +5% qoq in 3Q).

Margin expansion in both recurring and non-recurring segments
Gross margin expanded to 59% in 9M18 from 57% in 9M17. Non-recurring margins expanded to 61% in 9M18, from 60% in 9M17 amid 1) a higher proportion of landed products (at 18% of total revenues in 9M18 vs. 14% in 9M17) that have higher margins compared to high rise, and 2) higher high-rise margins (56% in 9M18 vs. 53% in 9M17). Recurring margins also rose to 56% in 9M18, from 54% in 9M17.

Lowest net gearing among peers

Total debt rose 5% yoy (+3% qoq) to Rp5.9tr in 3Q18, from Rp5.6tr in 3Q17 (Rp5.7tr in 2Q18). Net gearing, however, improved to 15% in 3Q18, from 26% in 3Q17 (13% in 2Q18). PWON has Rp3.7tr in US$ debt, accounting for 63% of total debt (Rp1.5tr hedged up to Rp15k/US$ and Rp2.2tr hedged up to Rp16.5k/US$). After JRPT, PWON has the lowest net gearing among its peers.

Maintain Add
We raise our FY18-19F EPS by 12-19% following the earnings beat, but lowerour TP to Rp690 due to higher bond yield assumption. We also maintain our Add call on PWON on the back of its robust earnings and presales outlook. The stock has underperformed JCI by 20% YTD, now trading at 8.1x 2019 P/E and offering c.57% discount-to-NAV. The main risks are higher interest rates and rupiah depreciation vs. US$.


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