Tanjung Priok port expansion coming-up => PTPP IJ - JP Morgan

Trade idea – Pembangunan Perumahan Persero (PTPP IJ). Our head of research Aditya Srinath attended the small group meeting with finance minister Agus Marto last Friday night. One of the specifics mentioned during the meeting is that the government seems ready to push for Tanjung Priok port expansion project this year. From various local government websites, infrastructure analyst Liliana Bambang found out that tender process for the project may kick-off as early as in second week of June 2011. State-owned port company Pelindo II will be project leader, so the contest is to select the state construction company that can partner with Pelindo II and do the construction.

Tanjung Priok port expansion project should have been one of the government’s highest priority, with potentially strong contribution to the country’s GDP growth. The port is currently overloaded, with current traffic reaching 4.8mn TEU versus stated capacity of 4.0mn TEU. Stage one of the expansion will add around 1.9mn TEU capacity to the port, with a budget of around Rp10 trillion (US$1.1bn). The longer term plan is that by 2014, Tanjung Priok port capacity should have been expanded to 8.0mn TEU, to become an international hub port. This ambition needs around 300 hectares of reclaimed land, and 6 hectares of land area.

My take – headline news on the Tanjung Priok port expansion project tender process may provide fresh catalyst for the listed construction company PTPP, who in my view could be the front runner to win the construction project. The stock trades on 9.2x P/E for FY11 based on management target.

Sales note re-run: PTPP IJ is one stock to accumulate in weak market
I met with some senior management personnel at PT Pembangunan Perumahan (PTPP) yesterday with the following take-aways:

1) FY11 earnings set to grow aggressively. PTPP entered the year 2011 with Rp6.0trn worth of carry-over project, more than double the amount (Rp2.6trn) when it entered year 2010. The Rp6.0trn backlog, coupled with Rp3.0trn new contracts obtained during 1Q11, stacks-up well against FY11 revenue target of Rp8.5trn (in other words, the revenue projection is almost in the bag). FY10 actual revenue was Rp4.4trn, so the Rp8.5trn forecast represents a 93% yoy increase. PTPP management targets FY11 net profit of Rp335bn, on the back of Rp8.5trn revenue and 4% net margin, or 66% yoy (implied FY11 P/E of 9.2x).

2) Zero option value on the government fixing land acquisition law. Infrastructure investments have picked-up considerably even before the government addressed the land acquisition hurdles, which set to accelerate when it does. I personally think there is a good chance that the law can be passed within the next 12 months, to ensure president SBY leaves with good legacy (his term will end in 2014, and it may take 2 years for the country to feel the impact of explosive infrastructure investments with revised land acq law). PTPP is the stock to buy when the event occurred, being state construction company with low financial leverage, allowing the company to further double revenue in year 2012 without capital constraint.