Lucror Analytics

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High Yield Experts

Senior Credit Analyst, Lucror Analytics

Trung Nguyen

Senior Credit Analyst

Credit

Pakuwon Jati's Q4 and FY 2018 results were good, with revenue and earnings growth accelerating while debt remained stable. Marketing sales were weaker and missed the company's own target, but this was compensated for by strong cash flows from the retail portfolio. The balance sheet remains healthy and robust, with a sound liquidity risk profile. Within our coverage, it is the best real estate credit in the Indonesia HY space by a substantial margin. The credit is well-supported by visible recurring cash flows from leases (57% of which expire in 2022 and beyond), low leverage and sound liquidity. The group's land bank of 439 ha is enough to sustain over 10 years of development. In 2019, we expect marketing sales to remain muted, on account of the weak macro backdrop, high interest rate, stricter mortgage regulations and falling rental yields. Property development is likely to follow suit and remain soft. However, the credit will be supported by the retail portfolio, which boasts strong and visible cash flows and high margins. As a result, in FY 2019, we expect revenue growth will slow down while margins remain healthy, with slight improvement in the financial risk profile. We do not expect any ratings pressure. The company is rated Ba2/BB/BB by Moody’s, S&P and Fitch, all of which have a stable outlook. Our Credit Bias remains “Positive” on account of the strong operational performance, which we believe may continue in FY 2019 and beyond. That said, we maintain our “Hold” recommendation on the PWONIJ Notes, as we think they are trading tightly compared to other Indonesian real estate peers, albeit for the right reasons.

   Pakuwon Jati's Q4 and FY 2018 results were good, with revenue and earnings growth accelerating while debt remained stable. Marketing sales were weaker and missed the company's own target, but this was compensated for by strong cash flows from the retail portfolio. The balance sheet remains healthy and robust, with a sound liquidity risk profile.    Within our coverage, it is the best real estate credit in the Indonesia HY space by a substantial margin. The credit is well-supported by visible recurring cash flows from leases (57% of which expire in 2022 and beyond), low leverage and sound liquidity. The group's land bank of 439 ha is enough to sustain over 10 years of development.    In 2019, we expect marketing sales to remain muted, on account of the weak macro backdrop, high interest rate, stricter mortgage regulations and falling rental yields. Property development is likely to follow suit and remain soft. However, the credit will be supported by the retail portfolio, which boasts strong and visible cash flows and high margins. As a result, in FY 2019, we expect revenue growth will slow down while margins remain healthy, with slight improvement in the financial risk profile.    We do not expect any ratings pressure. The company is rated Ba2/BB/BB by Moody’s, S&P and Fitch, all of which have a stable outlook.    Our Credit Bias remains “Positive” on account of the strong operational performance, which we believe may continue in FY 2019 and beyond. That said, we maintain our “Hold” recommendation on the PWONIJ Notes, as we think they are trading tightly compared to other Indonesian real estate peers, albeit for the right reasons. 

Pakuwon Jati - Earnings Flash - FY 2018 Results - Lucror Analytics