Big Jump at the Bottom Line

Despite weaker on quarter-on-quarter term, TOTL’s revenues (excluding income from JV projects) in 6M24 have increased to Rp1,437.0 billion or up by 18.3% (yoy) from Rp1,214.5 billion in 6M23. When annualized, 6M24 revenues are estimated to be around Rp2,874 billion and seemingly below the Company’s guidance for FY24 which is set at Rp3.1 trillion. However, based on the historical quarterly revenues and semi-annual revenues, both the second quarters and the second half of the last five fiscal years tend to be 20.0% and 45.9% of full-year revenues, respectively. Hence, we assume that the weaker result in Q2/24 may not necessarily mean that this year’s target is going to be missed. On the other hand, income from JV projects in Q2/24 has continued to decline from Rp3.4 billion in Q1/24 to Rp2.8 billion in Q2/24. Cumulatively, the income from JV has dropped significantly from Rp31.3 billion in 6M23 to Rp6.2 billion in 6M24. At the bottom line, core net profit (excluding non-controlling interests) has increased from Rp52.7 billion in Q1/24 to Rp59.9 billion and from Rp67.6 billion in 6M23 to Rp112.7 billion in 6M24, thanks to stronger profitability margins. According to the Company, this year’s net profit is expected to be around Rp175 billion, which is likely to be achieved based on the 6M24 result.

Solid Margins

At gross level, excluding the income from JV, TOTL’s gross profit margin (GPM) has jumped to 17.4% in 6M24 vs. 13.5% in 6M23 and from 12.9% in Q2/23 to 19.2% in Q2/24. In addition, core operating profit margin (cOPM) has also improved from 9.9% in Q2/23 to 11.8% in Q2/24 as well as from 9.2% in 6M23 to 10.7% in 6M24. Bottom line margin has improved as well as core net profit margin (cNPM) has increased to 9.7% in Q2/24 vs. 6.1% in Q2/23 and also from 5.4% in 6M23 to 7.8% in 6M24. In line with improving margins, both return on assets (ROA) and return on equity (ROE) have also increased to 6.9% and 21.5% as of the end of June 2024, respectively vs. 6.0% and 18.8% as of the end of March 2024, respectively. Note that this ROA and ROE figures are based on the annualized core net profit in the respective periods.

Eleven Completed, Four Added

Eleven projects had been completed in Q2/24 and four new projects added to the list of ongoing projects, bringing the total to 16 ongoing projects. Also, two projects have had their expected completion revised: Living World Grand Wisata and Hotel Novotel BSD. The former was initially expected to be completed on April 26th 2024, but was shifted to July 31st 2025; while the latter was adjusted to be completed in July 31st 2024 vs. initially set June 12th 2024. The four new projects added are DPW3 Gajah Tunggal, SSA Plant 2 Project, Parking Building of Living World Alam Sutera, and Hotel Ashley Cokro. TOTL has stated that it aiming for getting a total of Rp3.5 trillion worth in new projects this year.

Shimizu is Eyeing TOTL Shares

Recently Shimizu Corporation has stated that it is planning on acquiring 19.9% of TOTL’s shares through tender offer, or equivalent to 678.6 million shares at the price of Rp580 per share, with total voluntary tender offer value of Rp393.6 billion. Shimizu said that the objective of the tender offer is to strengthen its position in the construction service sector alongside TOTL. Currently, the Japanese construction company has no stake in TOTL.

Adjusting the Target Price

Since our previous report in early July, TOTL’s share price has climbed to as high as Rp700 per share, but as of August 9th 2024 it was settled at Rp605 per share. To reflect the most recent financial performance, we have updated our assumptions used in our valuation as well as doing some refinements in our valuation method. As a result, our previous target of Rp739 has been adjusted lower to Rp639 per share, which implies 5.6% upside potential from the current price of Rp605 per share. The target price also implies PER (TTM) of 10.0x, P2R (TTM) of 0.7x and PBV (MRQ) of 2.1x.