TOTL:High-rise player - Mandiri Sekuritas

Unlike its peers, around 75% of TOTL’s projects are private sector related, focusing on high-rise buildings. TOTL has shown improvement in its margins and booked better margins than other construction companies. The company is optimistic that FY10F net income to reach Rp80bn (+53.8%yoy) translating to dividend contribution of Rp9.4/share or equivalent to dividend yield of 3.8%.

Focusing on high-rise buildings. TOTL is a construction company focused on high-rise buildings with 78% of its customers being repeat customers, which shows the company’s good performance. Some of the company’s main customers are the Para Group, Duta Pertiwi, Bina Nusantara, Agung Podomoro Group, and Ramayana Lestari Sentosa.

TOTL booked better margins than its peers. In 2009, TOTL applied the principles of what is known as “Lean Construction Program” in the executions of projects, minimizing waste and improving margins. As the results, gross margin has grown from 5.1% in FY08 to 12.2% in 9M10, so has net margin from 0.9% in FY08 to 5.0% in 9M10. Based on 9M10 results, TOTL’s gross margin was higher than its peer’s average of 9.8%. Meanwhile, net profit margin was above ADHI (2.5%) and slightly below WIKA (5.2%).

FY11 net income to grow by 25%yoy. The company expects FY10F revenue and net profit of Rp1.5tn (-11.8%yoy) and Rp80bn (+53.8%yoy), respectively. For 2011 TOTL’s book order is estimated to be Rp2.8tn (+16.7%yoy), consisting of new contract of Rp1.8tn and carried over contracts valued at Rp992bn. TOTL targets FY11F revenue and net income of Rp1.7tn (+13.3%yoy) and Rp100bn (+25.0%yoy). Declining revenue yoy in FY10 was caused by changes in contracting scheme. Under the new scheme, revenue booked in TOTL doesn't include the project portion for the subcontractor; hence the revenue booked by TOTL is not comparable with the previous years.

Attractive valuation. TOTL’s dividend policy is 40% payout if net profit is between Rp50bn - 200bn, and 50% if it is above Rp200bn. Based on FY10F TOTL’s net profit target of Rp80bn it will translating to EPS of Rp23.5 per share, hence, this year TOTL might deliver dividend up to Rp32bn or equivalent to Rp9.4/share translating into dividend yield of 3.8%. TOTL is trading at PER11F of 8.4x, relatively attractive compared with ADHI of 7.5x and WIKA of 10.7x.