Pakuwon Jati (PWON IJ)

Investment Property Remains an Underappreciated Growth Driver; Resume Coverage with a Buy Rating

• We believe PWON’s malls assets are poised to reap benefits from the current sectoral trend and will cushion its weak condo marketing sales.
• We expect a stable recurring revenue growth at an avg. of +10% p.a. in FY24F-FY29F with pre-sales of +7%, reflecting the weak condo market.
• We resume coverage with a Buy rating and a higher TP of Rp640, as we include new projects but with a slightly higher disc. of 58% to RNAV.

Strategically Located Mixed-Use Assets as Key Distinctive Factors

We believe PWON’s strategically located mixed-use assets with main focus on retail segment (malls represent ~30% to RNAV) are poised to reap benefits from the increasing inquiries from tenants seeking space in prime locations (please see our last sector note), which will help cushion its property development business amid the weak condo market. PWON’s malls NLA of 785k sqm, the highest in the sector (vs. SMRA’s 337k sqm) with relatively higher blended occupancy (~94% per 1H24 vs. SMRA’s of ~83%), also demonstrated that its mall assets are more mature and better monetized. We expect mall traffic to remain supported as the middle-upper segment’s purchasing power has proven to be resilient under the current condition.

Expect a 10% p.a. average growth in FY24F-FY29F recurring revenue

Taking into account its recurring revenue expansion pipeline located in the new emerging domestic markets (e.g., Semarang, Batam, IKN) and mature tier-1 city locations (exh.1), we expect a stable recurring revenue growth at an average of 10% p.a. in FY24F-FY29F, driven by a projected 5% growth in ARR and a stable blended malls occupancy at ~92%. Meanwhile, we project PWON to achieve pre-sales of Rp1.45/Rp1.53tr for FY24F/FY25F, and to grow at an average rate of 7% for FY26F-FY29F, considering its project launch schedule and our conservative view of the still weak condo market.

Resuming Coverage with a Buy rating and a TP of Rp640

We resume our coverage on PWON with a Buy rating and a slightly higher TP of Rp640, as we include new projects into our RNAV but assume a higher 58% disc. We believe the current 10.2x FY24F P/E (vs. average Indo peers of 10.7x) has already priced in the risk of weak condo market, but overlooks its investment assets value, recurring revenue and expansion pipeline. Key risks are: 1) lower marketing sales 2) discontinuation of gov’t incentive on property sector.

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