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Agung Podomoro Land, and Reclamation Case

On April 1, President Director of Agung Podomoro Land (APLN), Ariesman Widjaja, named as a suspect by the Corruption Eradication Commission (Komisi Pemberantasan Korupsi, or KPK) regarding the bribery case of Jakarta Bay Reclamation. The aftermath for related stock is predictable: On Monday, April 4, APLN dropped from Rp300 to 270 per share, then sliding further to as low as Rp232 per share in mid-May. In recent weeks, APLN slowly but surely recovering, and when this article was written, the share price is stable at 248, where based on technical analysis, it appears that it will go up, while on the other hand its PBV is only 0.7 times at the price. An opportunity?

Until first quarter of 2016, APLN hadd revenues of Rp1.18 trillion, up from the same quarter of previous year of Rp995 billion, and the net income also edged up to Rp110 billion. Since most of other property companies posted a decline in revenue and net income in the same period, or the net income had increased but the increase is coming from non-operating income (ie exchange rate profit), then APLN’ financial performance is quite good. Historically too, the company’s net income always rise since 2013, where the annual EPS is consistent in between Rp41 - 42 per share (so that the PER is only 6 times at the price of Rp250 per share), and the equity of the company was now nearly Rp7 trillion. Given the property industry began to slowdown since 2013, then the performance was, once again, quite good.

And if we look at its balance sheet, there is an interesting fact: From APLN’ total liabilitie of Rp16.0 trillion, Rp7.4 trillion of which are deposits from customers that will be recognized as income when later the property has been handed over, and about half of the amount will become revenue within the next year. In its public expose, the management of APLN clearly describe its latest projects that are still under construction, plus the progress of sales of property units in each of these projects (as of November 2015), where the data is quite convincing. Here are the details:

Sales Progress
SOHO @Podomoro City
Apartment sold out, Office 77%
Madison Park
Apartment & Shop sold out, Kiosk 95%
Grand Madison
Apartment 35%
SOHO @Pancoran
Apartment 45%
The Pakubuwono Spring
Apartment 51%
Metro Park Residences
Apartment sold out
Harco Glodok
Kiosk 38%
Plaza Kenari Mas
Kiosk 49%
Pluit City
Podomoro Golf View
Grand Taruma
Rumah 83%, Shop 91%
Podomoro Industrial Park
Vimala Hills
Villa 85%
Parahyangan Residences
Apartment sold out
Bandung International
Indigo Hotel Seminyak
Borneo Bay Residences
Apartment 51%
Orchard Park
House 59%, Shop 78%, Apartment 0%
Podomoro City Deli
Apartment 61%, Condo 41%, Office 8%

Well, from here we can see that APLN revenue for 2016 will likely rise compared to 2015, and indeed in the First Quarter the revenue rose 18.9%. Just like most of other large property companies, APLN also has bonds debt, but the bonds are denominated in Rupiah with low interest rate of 9.75% per annum, thus the company's net earnings is not exposed by risks of Rupiah exchange rate or the cost of debt interests.

And while APLN’ ROE is relatively low at 12 – 13%, thus the shares are not good enough for serious investments (read: long term investment), but on the other hand the ROE is fairly consistent from year to year, and obviously the book value of the company continues to rise. So if we can buy the shares at bargain prices, say at the current price which reflects PBV of 0.7 times, which is fairly cheap considering fundamental aspects, liquidity of the stock, and the company's reputation as one of the leading property developers in the country, then it means? Opportunity, of course.

The case of Pluit City Reclamation?

But when we talk about 'reputation', how about the case of bribery where the company’s President Director was the suspect? Yup, that would harm the company’s reputation a bit, but the management immediately respond in which Mr. Ariesman resigns from his position on May 25. Because Mr. Ariesman was not central figure in the Group of Agung Podomoro (the central figure of the company is its owner, Mr. Trihatma Haliman), then APLN would continue its business activities as usual. In this regard I remember the bribery case of Sentul City (BKSL), also a large property developer, where the president and owner of the company, Cahyadi Kumala,  arrested by KPK in 2014. And since then the financial performance of the company dropped, as the company lost its leader.

Meanwhile, when APLN’ subsidiary, PT Muara Wisesa Samudera (MWS) to stop the reclamation activities on the G Island, which is part of the Pluit City development project (read again the table above), then it has nothing to do with the bribery case, but only because the reclamation project has not obtaining ‘certificates of feasible’ from the Central Government, in this case the Ministry of Environment and Forestry. Previously, after some research and study, MWS obtained legal permission for the project from the Provincial Government of Jakarta in November 2015, so that the company can start the project, but later the Ministry of Environment stated that the reclamation project is still not feasible. But currently the Ministry is studying the impacts that would arise if the reclamation project is continued, whereby if the result is positive, MWS will be free to continue its works.

While when Mr. Ariesman bribed Muhammad Sanusi, the goal is not to gain the permission for the project (because the reclamation project has obtained permission from the Provincial Government since the very beginning), but to ‘leave a message’ to Mr. Sanusi as a member of House of Representatives of Jakarta Province, so that the House could form local regulations which lowers APLN obligations from previously to provide 15% of reclamation area to the Provincial Government, to be 5% only. Previous the Provincial Government, in this case Mr. Basuki Tjahaja Purnama (Ahok) as the Governor, requires the quota of 15% before issuing the permit for the reclamation, where the provincial government-owned lands will be used to build parks, towers, etc., for Jakarta residents who work as maids, drivers etc. in the area of Pluit City.

But for the reclamation project itself, once again, there is no essential problem except it has not yet obtain permission from the Ministry of Environment (or we could say, because of lack of coordination between the provincial and central government), and even Mr. Ahok himself is fully supporting the continuation of the reclamation, though, of course, APLN must fulfil its 15% obligations that mentioned earlier.

But let's take the worst scenario: What if the reclamation project is really stopped? Well, look at the above table once again: APLN still has eighteen other projects beyond Pluit City. So this problem of reclamation problem is actually have no significant effect on the performance of the company, only damaging the company's reputation for the short term. I said short term, because Agung Podomoro has been well known as one of the most prominent developers in Indonesia with products of premium quality properties, so that when this reclamation story is forgotten after some time, the reputation of the company would recover by itself. This is in contrast with Sentul City, for example, that long before the owner was arrested, the company already had a lot of bad stories, including involved in a legal case against their own customers.

Okay so what about the stock? Well, in May JCI, in line with bear market period where the Jakarta Composite Index (JCI) fell, APLN went down from the Rp500 to about 270 per share in September of the same year. But the stock caught my attention only after it was dropped further to as low as Rp210 per share, where the price reflected PBV of 0.7 times, whereas the company's performance is still good. And indeed, when JCI began to rise in year 2014, APLN also continue to rise to as high as 470 in February 2015, gained more than doubled in just about a year. And now, since the PBV is only 0.7 times (again), and the company’s fundamentals are still good in general, then what do you think?

PT Agung Podomoro Land, Tbk (APLN)
Rating of Performance at First Quarter 2016: A
Rating of Share at 248: AA

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