Indonesia Industry Focus
Indonesia Construction Sector
Refer to important disclosures at the end of this report
DBS Group Research . Equity 3 Oct 2018
Time to start constructing
Risk-reward turning positive – upgrade to Overweight JCI : 5,875.60 Upside potential from 2019 presidential election Analyst Undemanding valuation and lower risk to our TP in Victor STEFANO +6221 3003 4934 view of our sensitivity analysis Tjen San CHONG [email protected] [email protected] Upgrade WSKT to BUY, maintain BUY on PTPP and WTON Tjen-San CHONG +603 26043972 [email protected] Sector has bottomed – Overweight. We believe sector valuations have bottomed at -2SD below mean and investors
should start positioning for a recovery moving into 4Q18 and STOCKS 12-mth Performance 2019. Our renewed optimism is based on three factors: 1) still Price Mkt Cap Target (%) solid orderbook backlog that provides an average visibility of 2- Rp US$m Price Rp 3 mth 12 mth Rating 4 years, 2) continued infrastructure spending where the upcoming presidential elections may serve as a catalyst, and 3) Pembangunan Perumahan 1,645 678 3,030 (17.5) (28.8) BUY Waskita Karya 1,735 1,565 2,310 (7.0) (2.3) BUY bargain valuation of 4.9x EV/EBITDA that is near its 5-year Wijaya Karya Beton 364 211 600 (8.1) (32.0) BUY lows, which provides an ideal entry point.
Although there Presidential election a share price catalyst? Source: AllianceDBS, DBSVI, Bloomberg Finance L.P. may be a lull in infrastructure spending of up to six months Closing price as of 2 Oct 2018 from the upcoming presidential elections, we believe this event may still serve as a share price catalyst if the incumbent, Joko Widodo (Jokowi), wins. In spite of a mere 2.5% y-o-y increase Two-variable sensitivity analysis in infrastructure spending in the 2019 State Budget, this still implies a CAGR of 21% during Jokowi’s 5-year administration. TP sensitivity Upside Base- Contract Burn rate Lowest to We believe Jokowi enjoys an upperhand in the election, as he Stock case Price growth assumption TP lowest has a bigger coalition compared to the previous election and TP assumption (-20%) (both) TP appears to be leading based on recent surveys. Our view is that (-20%) the current trend of favouring subsidies over infrastructure PTPP 3,030 1,645 2,360 2,510 1,950 19% spending will not persist in the 2020 State Budget. WSKT 2,310 1,735 1,860 1,900 1,530 -12% WTON 600 364 600 420 420 15% Undemanding valuations. The sector is trading at c.4.9x EV/EBITDA, 5.3x PE, and 0.8 P/BV – which is at -2SD of its 3- Source: AllianceDBS, DBSVI year average and a five-year low. This is too pessimistic given the strong orderbook visibility and solid potential for Indonesia’s infrastructure development. Our sensitivity analysis Construction sector EV/EBITDA using new contracts and burn-rate growth assumptions of -20% indicates a 12% downside in TP for WSKT. Interestingly, 10.0 PTPP and WTON still offer upside potential of 19% and 15%, 9.0 respectively, from their current levels, assuming an identical +2 SD
20% drop for our sensitivity-analysis variables. 8.0 +1 SD We upgrade our call on Valuation and recommendation. 7.0 3-year WSKT to BUY (from HOLD previously) while we maintain our avg. BUY calls on PTPP and WTON. We change our valuation 6.0 -1 SD method to EV/EBITDA (from PE previously) to better reflect the
respective stocks’ operational capabilities. Our new TPs are 5.0 -2 SD based on their 3-year historical averages to strip out the over optimistic valuation arising from the Jokowi rally back in 2014. 4.0 Our TPs are based on c.5x FY19F EV/EBITDA for SOE Sep‐15 Mar‐16 Sep‐16 Mar‐17 Sep‐17 Mar‐18 Sep‐18 Source: AllianceDBS, DBSVI contractors and 7.1x FY19F EV/EBITDA for WTON.
ed: CK / sa:YM, PY, CS
Industry Focus
Contents
Overweight on construction sector ...... 3
Future of infrastructure development for the next regime ...... 5
Less subsidies in favour of more infrastructure spending ...... 8
Ample room for growth ...... 10
YTD new contract wins (8M18) ...... 16
Orderbook replenishment ...... 17
Valuation and recommendation ...... 19
Low risk to our TPs ...... 23
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Industry Focus
Overweight on construction sector
Upgrade from Neutral was expected to be put on hold previously due to a higher We upgrade our call on the construction sector from Neutral current account deficit for the country. to Overweight, with BUY calls across our universe – PTPP,
WSKT and WTON. We believe sector valuations have The Indonesian government has allocated Rp410.7tr for its bottomed at -2SD below mean and investors should start infrastructure budget in 2018 that represents a 5.8% y-o-y positioning for a recovery moving into 4Q18 and 2019. Our increase. Despite its decision not to increase fuel prices amid renewed optimism is based on three factors: 1) still solid rising global crude oil prices and introduce more subsidy- orderbook backlog that provides an average visibility of 2-4 centric policies in 2018, its solid commitment to infrastructure years, 2) continued infrastructure spending where the spending can be seen in the ratio of infrastructure budget upcoming presidential elections may serve as a catalyst, and over total government spending, which stood at 18.5% – flat 3) bargain valuation of 4.9x EV/EBITDA that is near its 5-year y-o-y but still much higher than the previous regime’s c.10%. lows, which provides an ideal entry point.
Share price correlation with government infrastructure Construction sector EV/EBITDA budget 14.0 DBS Construction Index (Rp) - LHS Infra budget (Rp tr) - RHS
4,000 500 12.0 Share price rally driven by positive trend from infra 3,500 450 10.0 spending 3,000 400 8.0 2,500 350
6.0 2,000 300
1,500 250 4.0 2013`s crash current valuation 1,000 200 Share price drop due to concern 2.0 Pre-Jokowi`s 500 over lower infra spending and 150 weak balance sheet - - 100 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 Apr-18 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Source: Bloomberg Finance L.P., DBSVI Source: Bloomberg Finance L.P., CEIC, DBSVI
Solid orderbook with strong revenue visibility Concerns over 2019 presidential election have been priced in Companies in our coverage have strong revenue visibility of Despite the high commitment of the current government to c.2-4x FY18F revenue. This provides a strong enough buffer infrastructure development, concerns over the future direction should new contracts decline in FY19F due to rising of infrastructure spending for the next administration and a uncertainty due to elections. Supported by a huge orderbook general deterioration in balance sheet have resulted in the and still intact growth prospects for future infra projects, we sector’s underperformance relative to the JCI since late 2016. believe the construction sector should gain more traction in Additionally, with the construction sector’s premium over JCI the coming months. narrowing, the downside risk to our call is becoming more limited, in our view. Commitment to infrastructure development Despite the uptrend of infrastructure allocation for the State Construction sector performance vs JCI
Budgets over 2015-19, we notice that the allocation growth DBS Construction Index JCI has decelerated in the last two State Budgets which saw only 500 Construction sector outperformed JCI 450 Approaching presidential an annual increase of only 2.4-2.5%. Notwithstanding the during Jokowi`s government election, construction sector 400 muted growth, the government’s commitment to continue to underperformed JCI 350 infrastructure development can be inferred from its latest 300 infrastructure budget which contradicts previous expectations 250 of shrinking allocation in a tilt towards provision of subsidies, 200 especially those for energy. The commitment to infrastructure 150 can also be seen in the absence of new import income taxes 100 for infrastructure-related materials in the recent past as well 50 0 as the continuation of the 35GW power plant project which Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Source: Company, DBSVI
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Industry Focus
Betting on 2019 presidential election contracts growth assumption set at -20% and burn rate We believe Jokowi will continue to make infrastructure as one assumption at -20% to stress test our TP valuations. Based on of his priorities if he is re-elected while the challenger, our analysis, only WSKT is expected to offer negative return Prabowo, will focus on immediate economic improvement with a downside potential of 10% to our TP, if our stress-test which may not place much emphasis on infrastructure scenario materialises. Interestingly, PTPP and WTON still offer development. However, with the recent surveys pointing to upside potential of 28% and 18%, respectively, from their an early lead for Jokowi in the upcoming presidential election, current levels, assuming an identical 20% drop for our we think that there is a higher-than-expected probability that sensitivity-analysis variables. the sector may re-rate ahead of a Jokowi victory.
Low downside risk to our call
We have conducted a two-variable sensitivity analysis, involving new contracts growth and burn rate, with the new
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Industry Focus
Future of infrastructure development for the next regime
Infrastructure spending in 2019-2024? Infrastructure funding plan for 2015-2019 National We think there is a high probability that Jokowi will continue Medium-term Development Plan to lead the country in the next administration (2019-2024) and stay the course when it comes to developing Indonesia’s infrastructure. As such, we expect Indonesian contractors’ orderbook to remain solid given the country’s slower-than- Private expected infrastructure development. We expect new 36.5% States budget 41.3% contracts for companies in our coverage to grow at a CAGR of 5.03% in FY18F-FY20F (vs CAGR of 30.17% in FY10- FY17), as we take into account the soft economic growth outlook and global economy uncertainties such as the currently escalating US-China trade war. SOE 22.2% Source: Ministry of Finance, DBSVI Infrastructure in the eyes of the current government
“Indonesia will not be able to compete with other countries if Infrastructure outlook for 2018 infrastructure is falling behind. Even more, as an archipelago The Indonesian government has allocated Rp410.7tr for its country Indonesia needs to be well connected.” – Joko infrastructure budget in 2018 that represents a 5.8% y-o-y Widodo increase. Despite its decision not to increase fuel prices amid rising global crude oil prices and introduce more subsidy- Improving Indonesia’s infrastructure is the top policy priority centric policies in 2018, its solid commitment to infrastructure of the current Indonesian President. Subscribing to its slogan spending can be seen in the ratio of infrastructure budget to build from the outskirts, Jokowi has been embarking on over total government spending, which stood at 18.5% – flat intense efforts to build infrastructure in remote areas. By y-o-y but still much higher than the previous regime’s c.10%. improving connectivity across Indonesia, this will help reduce the economic gap throughout the country, thus achieving the In terms of the breakdown of the infrastructure budget, the last principle of Indonesia’s National Basic Principle, “Social Ministry of Housing, which is responsible for providing Justice for All Indonesian People”. affordable housing to the low income segment, receives a 26% allocation of the total government spending or Rp107tr. In the government’s National Medium-term Development Plan The Ministry of Transportation only gets less than half of the (RPJMN) 2015-2019, which focuses strongly on infrastructure amount, at Rp48.2tr. The Special Allocation Fund (DAK) and development, a budget of around Rp4,769tr is needed for its State Asset Management Institution (LMAN) are given 2018 infrastructure development over 2015-2019. However, not all budget allocations of Rp33.9tr and Rp41.5tr respectively. will be funded by the State Budget. The government will allocate Rp1,941tr of its State Budget (41.3% of the required Infrastructure budget allocation in APBN 2018 (Rp tr) total funding) to build infrastructure, while SOEs and the private sector are expected to support state infrastructure programmes by contributing 22.2% and 36.5%, respectively, PMN & LMAN 41.5 of the total funding requirement.
DAK 33.9
Ministry of Transportation 48.2
Ministry of Housing 107.4
0 20406080100120 Source: Ministry of Finance, DBSVI
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Industry Focus
The Rp410tr infrastructure budget is allocated to create new For the latest 2019 State Budget, infrastructure spending infrastructure as well as complete unfinished projects. The stood at Rp420tr, which appears to be relatively flat (+2.5% broad allocation is for: y-o-y) compared to 2018. However, this still implies a CAGR 1. Road building and maintenance (865km for new of 21% for infrastructure spending during Jokowi’s 5-year roads, 25km for toll roads and 8,695m for bridges) administration. At the same time, the budget allocation for 2. Railway facilities (620km) and LRT (23km) subsidies dropped at a CAGR of 11%, while those for 3. Airport completion (eight locations) healthcare and education remain in an uptrend with CAGRs 4. Information and technology (broadband in 100 of 5% and 15% respectively. villages and 380 Base Transceiver Stasion (BTS) in 380 blank spot areas) Infrastructure budget vs overall spending 5. Affordable housing (13,405 apartment units Infra budget (Rp tr) - LHS as % of total spending - RHS 450.0 18.8% 20.0% and174,300 subsidised units) 18.5% 17.2% 400.0 18.0% 15.2% Current vs old government: Subsidies vs infrastructure 350.0 16.0% 12.9% 14.0% The most notable change seen for the incumbent (in relation 300.0 12.0% 250.0 9.4% to the previous administration) is the shift in government 9.0% 10.0% 8.6% 8.2% 200.0 7.6% budget towards infrastructure at the expense of subsidies, 8.0% 150.0 especially those for energy. 6.0% 100.0 4.0% 50.0 In his first State Budget, Jokowi cut subsidies by almost half. 2.0% 0.0 0.0% He then allocated most of the funds freed to infrastructure 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 spending that rose a whopping 66% vs the last State Budget. Source: CEIC, DBSVI
Indonesian government budget (Rp tr) Infrastructure Education Healthcare Subsidies
600.0
487.9 500.0 420.5 400.0
300.0 220.9 200.0 122.0 CAGR: 15% 100.0
0.0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Source: CEIC, DBSVI
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Industry Focus
Changes in State Budget (Rp tr) Rising crude oil prices and rupiah depreciation put pressure on energy subsidies 2014 2015 Despite the higher budget for fuel subsidies, the volume for 450.0 408.5 403.0 fuel subsidies dropped to 15.1m litres in the 2019 State 400.0 375.5 Budget from 16.2m litres in 2018, due to the pressure of 350.0
300.0 rupiah depreciation and higher crude oil prices. Subsidies for 256.3 250.0 3kg LPG still increased to 7m kg from 6.4m kg previously. 212.1 200.0 154.6 150.0 Risks of a higher subsidy budget persist and are dependent on
100.0 74.4 external factors. The government’s macroeconomic 61.2 50.0 assumptions for 2019 State Budget include an exchange rate
0.0 of Rp14,500/US$ while the YTD exchange rate is Infrastructure Education Healthcare Subsidies Rp13,998/US$. Source: CEIC, DBSVI
Rising subsidy budget allocation ahead of presidential election Energy subsidy volume in State Budget not an uncommon development 2017 2018 2019 Ahead of the presidential election in 2019, the incumbent 18000 president’s decision to put more emphasis on subsidies rather 16000 than infrastructure has been a headwind for the construction 14000 sector. The decision to pursue a more populist policy ahead of 12000 the election is a very common development, as the previous 10000 government also ramped up its subsidy budget by 16% y-o-y 8000 prior to the previous presidential election. 6000 4000 2000 In nominal terms, not a lot of difference 0 Despite the huge increase (+41% y-o-y) in subsidies for the Fuel (mn L) LPG (mn Kg) 2019 State Budget compared to the y-o-y 2014 State budget Source: Ministry of Finance, DBSVI increase in subsidies of 16%, both increases only differ by Rp10tr in terms of nominal value. Factoring in the element of Macroeconomic assumptions in State Budget inflation, the latest increase in subsidies is actually not Assumption 2018 2019 significantly higher. Thus, this implies a typical but yet rare deviation in the State Budget prior to a presidential election. GDP (%) 5.4 5.3 Inflation (%) 3.5 3.5 Both periods (2013-2014 and 2018-2019) saw an increase in SPN rate (%) 5.2 5.3 subsidies which was mainly due to the rise in energy Exchange rate (Rp/US$) 13,400 14,500 subsidies, for fuel (oil and gas) in particular. During 2013- 2014, fuel subsidies rose by Rp46.6tr (+23% y-o-y) while it ICP (US$/barrel) 48.0 70.0 rose by Rp53.2tr (+114% y-o-y) over 2018-2019. The y-o-y Source: Ministry of Finance, DBSVI increment differs by a lot due to the low base in 2018 in terms of State Budget subsidies.
Indonesian government’s budget trends ahead of presidential elections
States budget (Rp tr) 2013 2014 y-o-y 2018 2019 y-o-y Subsidies: Fuel 199.9 246.5 46.6 23% 46.9 100.1 53.2 114% Subsidies: Electricity 100.0 103.8 3.8 4% 47.7 56.5 8.8 18% Subsidies: Non-energy 48.3 52.7 4.4 9% 61.7 64.3 2.6 4% Subsidies: Total 348.1 403.0 54.9 16% 156.2 220.9 64.7 41% Source: CEIC, DBSVI
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Industry Focus
Less subsidies in favour of more infrastructure spending
Will the current subsidy budget trend continue? infrastructure spending trend. However, based on his speech If the incumbent, Jokowi, wins the 2019 presidential election, in the media that criticise the current economic situation, we we believe the current trend of favouring subsidies over believe that he will try to focus on short-term economic infrastructure will not continue in the 2020 State Budget, as stimulus with long-term infrastructure programmes being less we believe: of a priority. 1. Jokowi will continue his infrastructure programme 2. Lower crude oil prices will prevail in 2020 Therefore, we believe that the re-election of the incumbent 3. The rupiah will see a slower depreciation president will be more positive for the infrastructure sector.
If the challenger, Prabowo, wins the 2019 election, there are question marks over whether he will maintain the current
Indonesian government`s budget trend (Rp tr) Infrastructure Education Healthcare Subsidies
1400.0
1200.0
1000.0
800.0
600.0 ?
400.0
200.0
0.0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Source: CEIC, DBSVI
Lower crude oil prices to ease subsidy budget More muted rupiah depreciation going forward DBS is revising up its average Brent crude oil forecast for 2019 We believe that sharp moves for the rupiah are unlikely as to US$75-80/bbl (from US$65-70/bbl earlier) and has also Bank Indonesia’s (BI) ability to respond with proactive policies, introduced a lower 2020 average Brent crude oil forecast of local support and foreign investors rebuilding their positions US$70-75/bbl. The key forces that would limit further upside in the country should see the local currency rebounding from are demand destruction in oil importing countries if oil prices its current levels. Indonesia still has room to hike rates, the rise too high, and increasing US shale supplies. For more capacity to control imports, and adequate foreign reserves to details on our crude oil price outlook, please refer to our intervene in the currency market. regional sector report: Regional Oil and Gas: Bullish near-term outlook. Indonesia has always been singled out as one Asia’s most vulnerable countries in terms of capital flight due to its
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Industry Focus
sizeable current account deficit and the fact that foreign Although its foreign reserves have deteriorated since early investors hold around 36% of its debt. The current sentiment 2018, Indonesia still has adequate foreign reserves that can for the rupiah is weak but we do not think that it would end finance 7.0x its imports in Aug 2018. This is slightly lower up like Turkey and Argentina, or like in 1997, when it had to than its average of 7.7x but still much higher than the raise rates sharply to defend its currency. Its current foreign international standard of 3.0x foreign reserves to import ratio. reserves as a percentage of debt and as a percentage of imports are stronger than the two abovementioned countries, Indonesia’s foreign reserves per total imports compared to 1997 levels. 14.0
12.0 DBS USD/IDR currency forecasts (Rp/US$) 10.0 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 10,000 average=7.7x 8.0
11,000 6.0
12,000 4.0 international standard for foreign reserves
13,000 2.0
14,000 - Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 Apr-18 15,000 Source: Bloomberg Finance L.P., DBSVI 15,000 15,050 15,100 15,150 15,200 15,250 16,000 Source: DBS Bank, DBSVI Risk of further rupiah depreciation as current account balance remains in the red Room for more interest rate hikes Despite its ample room to increase interest rates and Despite the 150bps increase this year, we believe that BI still adequate balance of foreign reserves, Indonesia still faces has room to increase its benchmark interest rates (if deemed economic risks arising from strong rupiah depreciation and necessary) to soften the impact of rupiah depreciation arising the government’s need to balance between spending on from the US Fed’s rate hikes going forward. infrastructure and subsidies, which can impact the construction sector in general.
Indonesia interest rate (%)
14 Indonesia’s foreign reserves per total imports 6,000 0 12 4,000 2,000 2,000 10 4,000 0 6,000 8 (2,000) 8,000 (4,000) 6 10,000 (6,000) 12,000 4 (8,000)
(10,000) 14,000 2 (12,000) 16,000
0 Jul‐05 Jul‐06 Jul‐07 Jul‐08 Jul‐09 Jul‐10 Jul‐11 Jul‐12 Jul‐13 Jul‐14 Jul‐15 Jul‐16 Jul‐17 Jul‐18 Source: Bloomberg Finance L.P., DBSVI Current account balance (US$ mn) ‐ LHS USD/IDR (Rp/US$) ‐ RHS Source: Bloomberg Finance L.P., DBSVI Still manageable foreign reserves As of end-Aug 2018, Indonesia’s foreign reserves have dropped by US$14.1bn from its peak at end-Jan 2018, representing a sharp drop of 10.7%. The drop in foreign reserves was caused by the use of foreign exchange for the payment of government foreign debt and the stabilisation of the rupiah amid high uncertainty in global financial markets.
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Industry Focus
Ample room for growth
A lot of infrastructure targets still to be fulfilled The government is speeding up the construction of various Despite all the endeavours to boost investment in various infrastructure projects in all corners of the archipelago. Some sectors related to infrastructure, i.e. improvement in have approached the 2015-2019 National Medium Term regulatory, fiscal, and institutional aspects, the progress of Development Plan (RPJMN) targets. But quite a few still lag far infrastructure rollout in Indonesia is still sluggish due to behind expectations. As of end-Oct 2017, the government has obstacles encountered at various project stages, from the delivered 2,623km of new roads, thus almost fulfilling its preparatory to execution stages. Problems for land acquisition RPJMN 2015–2019 target of 2,650km. However, the fast pace often hinder projects from achieving financial close, in of progress for building new roads is not evident for other addition to the lack of investment interest due to the infra projects such as toll roads, dams, railways and airports limitation on guarantees being provided by the government. which have thus far only fulfilled 13%, 57%, 66%, and 13% of their respective targets in RPJMN 2015-2019.
Indonesia’s RPJMN targets and realisation in the past three years
Projects Unit RPJMN Target Realisation Unrealised % realised
Road Km 2,650 2,623 27 99%
Toll road Km 1,851 240 1,611 13%
Dam Unit 65 37 28 57%
Railway Km 3,258 2,154 1,104 66%
Airport Unit 15 2 13 13%
Source: Tempo, DBSVI
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Industry Focus
Indonesia’s National Strategic Project distribution
Rp564tr 24 projects Rp638tr - Serang-Balikpapan-Samarinda toll road 61 projects - Mine mouth power plant - 15 segments of Trans Sumatera toll road - Balikpapan oil refinery revitalisation - Kuala Tanjung International seaport - Railway system in East Kalimantan - Palembang LRT - Indonesian Deepwater Development - Mine mouth power plant - Bontang oil refinery - Dumaiand Plaju oil refinery revitalisation - Water supply system in Lampung Rp444tr 13 projects - Steam based power plant - Palapa Ring Broadband - Tangguh Train 3 development
Rp150tr 27 projects - Waste resources power plant in Makassar - Manado-Bitung toll road Rp1,065tr - Makassar-Parepare railway system 93 projects - Bitung international seaport - Serang-Panimbang toll road - Palapa Ring Broadband in Manado - Jabodetabek LRT - Mine mouth power plant in Manado - Railway system in Jakarta - Batang power plant - Indramayu power plant - Jakarta MRT Rp11tr - National Capital Integrated Coastal Development, Jakarta 15 projects - Patimban international seaport - Waste resources power plant in 8 cities - Soekarno-Hatta express train - Steam based power plant - Eternal field Masela Block
Source: Tempo, DBSVI
Progress of Priority Project Progress of 37 Priority Projects as at end-Dec 2017 As at end-Dec 2017, there is no Priority Project which has been fully operational. According to KPPIP (Committee for 4 Under construction and partly Acceleration of Priority Infrastructure Delivery), only four operating projects of the 37 Priority Projects are partially operational. 11 4 Under construction and will There are 23 projects that are under construction while nine operate in 2018 Under construction and will projects are expected to commence operation from 2020 operate in 2019 onwards. Despite being on the priority list, there are still 14 Under construction and will 6 operate after 2019 In transcation stage projects which have yet to start construction (three are in the 3 transaction phase and 11 are still in the preparatory stage). In preparation stage This suggests that there is ample room for long-term contract 9 growth for Indonesia’s infrastructure development.
Source: KPPIP, DBSVI
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Industry Focus
Indonesia’s 37 Priority Projects Projects Location Completion Stage Investment (Rp tr) Water and Sanitation Jakarta Sewerage System (JSS) DKI Jakarta 2022 Preparation 150.0 West Semarang Drinking Water Supply System Semarang, Jawa Tengah 2022 Transaction 0.9
National Capital Integrated Coastal Development (NCICD) Phase A DKI Jakarta 2018 - 2.4 Drinking Water Supply System (SPAM) Lampung Bandar Lampung 2020 Transaction 0.7 Sistem Penyediaan Air Minum (SPAM) Jatiluhur Jatiluhur Jawa Barat 2022 - 1.7 Minyak dan Gas Oil Refinery in Bontang Bontang, Kalimantan Timur 2023 Transaction 197.6 Oil Refinery in Tuban Tuban, Jawa Timur 2024 Transaction 199.3 Cilacap, Jawa Tengah; Balongan, Jawa Barat; Dumai, Riau; Balikpapan, Refinery Development Master Plan (RDMP) 2025 Transaction 246.2 Kalimantan Timur; dan Plaju, Sumatera Selatan Abadi Field Development in Masela Block - - - - Jambaran - Tiung Biru Gas Field Unitization - - - - Indonesian Deepwater Development Project/IDD (Gendalo, Maha, ---0.1 Gandang, Gahem, and Bangka) Tanguh LNG Train 3 Project - - - 0.1 Ketenagalistrikan Sumatera Selatan, Lampung, Banten, High Voltage Direct Current (HVDC) 2024 - 33.4 Jawa Barat PLTU Mulut Tambang Sumsel 8 Sumatera Selatan 2023 Construction 18.0 The 500KV Sumatera Transmission Pulau Sumatera 2019 Construction 24.4 Central-West Java Transmission Line 500kV Jawa Barat dan Tengah 2019 Construction 7.6 PLTU Indramayu Indramayu, Jawa Barat 2019 Preparation 27.0 Batang Power Plant/Central Java Power Plant - 2019 Construction 40.0 Energy From Big Cities' Waste (Semarang, Makassar, Tangerang) - - Construction -
Combined-Cycle Power Plant - - - - Jalan dan Jembatan Sumatera Utara, Riau, Sumatera Tra ns Suma te ra Toll Roa d 2016 Construction 81.0 Selatan dan Lampung Balikpapan-Samarinda Toll Road Kalimantan Timur 2018 Construction 10.0 Manado-Bitung Toll Road Sulawesi Utara 2019 Construction 5.1 Serang-Panimbang Toll Road Banten 2019 Construction 5.3 Yogyakarta-Bawen Toll Road Yogyakarta 2020 Preparation 12.1 Probolinggo-Banyuwangi Toll Road Jawa Timur 2019 Transaction 11.7 Transportasi Perkotaan MRT Jakarta (North - South Corridor) DKI Jakarta 2019 Construction 39.5 Light Rail Transit (LRT) South Sumatera Palembang, Sumatera Selatan 2018 Construction 12.5 Light Rail Transit (LRT) Jakarta, Bogor, Depok, Bekasi DKI Jakarta dan Jawa Barat 2019 Construction 23.0 Kereta Api Potensi KPBU 2018 Preparation 24.5 Soekarno-Hatta International Airport (SHIA) Express Railway DKI Jakarta dan Banten 2022 Preparation 24.5 Makassar - Parepare Railway Sulawesi Selatan 2018 Construction 8.3 East Kalimantan Railway Kalimantan Timur 2021 Preparation 53.3 General Railway Organization in Jakarta Tangerang, Banten 2019 Construction 4.0 Pelabuhan Bitung International Hub Seaport Bitung, Sulawesi Utara 2022 Preparation 34.0 Kuala Tanjung International Hub Seaport Kuala Tanjung, Sumatera Utara 2021 Preparation 30.0 Patimbang Seaport Patimban, Subang, Jawa Barat 2019 Preparation 43.2 Inland Waterways/Cikarang-Bekasi-Java Sea (CBL) DKI Jakarta dan Jawa Barat 2021 Preparation 3.4 Teknologi Informasi Palapa Ring Broadband Seluruh Indonesia 2018 Construction 5.1
Source: KPPIP, DBSVI
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Industry Focus
Progress of National Strategic Project The government has placed 223 projects and three As at end-2016, 20 National Strategic Projects were programmes under the National Strategic Project (PSN). Based completed with a value of Rp33.3tr. Then, at the end of on the progress so far, we believe the government still has a 2017, there were an additional 10 projects completed with a lot to do to fulfil the RPJMN 2015-2019 targets. KPPIP aims to value of Rp61.5tr. During 1H18, the government completed complete 10 more National Strategic Projects by the end of two strategic projects, which are Prabumulih-Kertapati 2018. If this goes according to plan, there will be 40 National Railway and Raknamo Dam, NTT. Thus, since 2016, the Strategic Projects finished by the end of 2018, leaving the government has completed a total of 32 National Strategic remaining 183 projects classified as in progress. Projects.
32 National Strategic Projects are completed National Strategic Projects Completed in 2016 (20 projects) Investment Value (Rp bn) Project Name
Gempol - Pandaan Toll Road (14km) 1,470
Sentani Airport, Jayapura 1,471
Juwata Airport, Tarakan 1,391
Fatmawati Soekarno Airport, Bengkulu 1,674
Mutiara Airport, Palu 1,391
Matahora Airport, Wakatobi 662
Labuan Bajo Airport, Komodo Island 662
Development of Soekarno Hatta Airport (including Terminal 3) 4,700
Kalibaru Seaport 12,000
Belawan-Sei Mangkei Gas Pipe with 75 mmscfd capacity 1,215
Cross- Border Post (PLBN) Development & Its Supporting Facilities Entikong, Sanggau District 152
Cross- Border Post (PLBN) Development & Its Supporting Facilities, Mota’ain, Belu District 82
Cross- Border Post (PLBN) Development & Its Supporting Facilities Motamassin, Malaka District, East Nusa Tenggara 128
Cross- Border Post (PLBN) Development & Its Supporting Facilities, Skouw, Jayapura 166
Paya Seunara Dam, Sabang City, NAD 57
Rajui Dam, Pidie District, NAD 138
Jatigede Dam, Sumedang City, West Java 4,825
Bajulmati Dam, Banyuwangi, East Java 454
Nipah Dam, Madura, East Java 213
Titab Dam, Buleleng District, Bali 496 Total 33,347
National Strategic Projects completed in 2017 (10 projects)
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Industry Focus
Investment Value (Rp bn) Project Name
Soreang-Pasirkoja (11km) Toll Road 1,510
Mojokerto-Surabaya Toll Road (36.3km) 4,980
Tanjung Priok Access Road (16.7km) 6,270
Raden Inten II Airport, Lampung 1,472
Development of Jangkrik and Jangkrik North East fields, Muara Bakau 45,500
Cross- Border Post (PLBN) Development & Its Supporting Facilities, Nanga Badau, Kab. Kapuas Hulu 154
Cross- Border Post (PLBN) Development & Its Supporting Facilities Aruk, Sambas District, West Kalimantan 131
Cross- Border Post (PLBN) Development & Its Supporting Facilities Wini, North Timor Tengah District, East Nusa Tenggara 130
Teritip Dam 262
Umpu System (Way Besai) Irrigation Development 1,078 Total 61,487
National Strategic Projects completed in 1H18 ( two projects) Investment Value (Rp bn) Project Name
Prabumulih – Kertapati Train (80km – part of Trans-Sumatera Railway) 1,281
Raknamo Dam, East Nusa Tenggara 782 Total 2,063 Source: KPPIP, DBSVI
Palapa Ring realisation is slow in East Indonesia Progress and target of Palapa Ring as at end-Dec 2017 One of the key projects to be addressed is the Palapa Ring. (km) Palapa Ring is an infrastructure project that spans 36,000km Progress Target in Indonesia. The project consists of seven small fibre optic 8,000 circles (for Sumatra, Java, Kalimantan, Nusa Tenggara, Papua, 7,000 Sulawesi, and Maluku) and one backhaul to connect all of 6,000 them. As of end-Dec 2017, the progress of West, Central, 5,000 and East packages has reach more than 2,000km each. 4,000
However, in terms of realisation, the East package is still 3,000 95.1% 71.9% 32.7% lagging behind its target with only 32.7% realisation as at 2,000 end-Dec 2017. 1,000
- West package Central package East package Source: KPPIP, DBSVI
Slowdown in toll road progress Despite being on track for the first two years of RPJMN 2015- 2019, toll road developments have lagged behind somewhat and achieved 59% of the 2017 target. This is not surprising
Page 14
Industry Focus
given the frequent delays for projects due to land acquisition, Finished toll road projects as at end-Dec 2017 right-of-way and environmental clearance issues. Toll Road Completed Year Total Based on BPJT data, 614.5km of planned toll roads are slated Length (km) to commenced operations in 2018. The planned toll roads Gempol-Pandaan toll road 2015 12.0 include the Bakauheni-Terbanggi toll road package size 1-4 Porong-Gempol toll road 2015 (126.8 km), Pemalang-Batang sections I and II (39.2 km), Kayu Kejapanan-Gempol segment 3.5 Agung-Palembang-Betung sections I-III (111.6 km), Cikopo-Palimanan toll road 2015 116.7 Semarang-Solo sections IV and V (32.5 km), Batang-toll road Surabaya-Mojokerto toll road 2016 43.7 Semarang sections I-V (75 km), and Gempol-Pasuruan section Pejagan-Pemalang sections I and II 2016 II (8.1 km). toll road 20.2
Kertosono-Mojokerto section III toll 2016 Progress of and target for toll roads as at end-Dec 2017 road 5.0 (km) Tanjung-Priok toll road 2017 11.4 Gempol-Pasuruan I-A2 2017 7.9 Progress Target Gempol-Pasuruan I-A1 2017 7.8 2000 Kertosono-Mojokerto section I 2017 19.9 1800 2017 1600 Semarang-Solo section III 17.5
1400 Palembang-Indralaya section I 2017 7.8 1200 Medan-Binjai 2017 10.6 1000 Medan-Kualanamu-Tebing Tinggi 2017 800 sections I-VI 41.6 600 400 59% 29% 18% Bekasi-Cawang-Kampung Melayu 2017 100% 200 100% sections IB and IC 8.4
0 Soreang-Pasirkoja 2017 8.2 2015 2016 2017 2018 2019 Source: KPPIP, DBSVI Surabaya-Mojokerto sections IB, II, 2017 and III 15.5 Source: KPPIP, DBSVI
Page 15
Industry Focus
YTD new contract wins (8M18)
Mixed results for 8M18 new contract achievement and 61% of our forecast of Rp45.75tr. PTPP’s historical Companies within our coverage have shown mixed results for achievement of 61% is slightly higher than the company’s their 8M18 new contract achievement. We have compared target and in line with our forecast. the respective stocks’ 8M18 achievement with their 8M performance in the past three years. The results show that WSKT’s 8M18 new contract wins trail our and management WTON’s 8M18 achievement is above, PTPP’s is in line with, targets. WSKT only booked 8M18 new contracts of Rp9.2tr, and WSKT’s is below their respective historical averages. representing 13% of the company’s target of Rp70tr and 18% of our forecast of Rp50tr. Its 8M18 new contract WTON leads 8M18 new contract wins by securing Rp4.30tr achievement is far below its historical average of 61%. Note new contracts. This represents 57% of the company’s FY18 that the company has indicated that it will revise down its target of Rp7.56tr and 59% of our forecast of Rp7.23tr. FY18 new contract target by 10-15%. But this still implies a WTON’s 8M18 showing trumps its historical average of 46%. new contract growth of 6.6-12.8% compared to last year.
PTPP booked 8M18 new contract wins of Rp27.75tr, representing 57% of the company’s FY18 target of Rp49.10tr
8M18 new contract wins (Rp bn) % of company 3-year average 8M 8M18 Company target % of DBSVI forecast DBSVI forecast target achievement
PTPP 27,750 57% 49,100 61% 45,754 61%
WSKT 9,200 13% 70,000 18% 49,994 61%
WTON 4,300 57% 7,560 59% 7,230 46% Source: Company, Various sources, DBSVI
Page 16
Industry Focus
Orderbook replenishment
New contract growth to slow down in FY18F-FY20F Strong orderbook to support revenue visibility We expect new contract growth for companies within our Companies in our coverage show a strong revenue visibility coverage to slow down in FY18F-FY20F due to the transition that is driven by strong new contract wins in the past few period from the election period in 2018-2019 and softening years. PTPP and WSKT have revenue visibility of 3.9x and 3.0x macroeconomic conditions. We expect a moderate aggregate FY18F revenue respectively. This revenue visibility will support new contract win CAGR of 5.03% in FY17-FY20F for SOE both contractors’ earning delivery should new contract contractors and WTON, which is much lower than the CAGR growth decelerate during the election period. of +30.17% experienced in FY10-FY17. We like PTPP for its higher revenue visibility and more diverse orderbook. Note that the majority of WKST’s orderbook is Among companies in our coverage, we expect PTPP to book highly leveraged to toll road projects. the highest new contract growth of +11.41%, driven by its property and precast business. We expect a slightly slower We also like WTON’s revenue visibility of 1.9x FY18F revenue. new contract growth for WSKT mainly due to its stellar CAGR Despite its smaller revenue base compared to the bigger of 35.92% over FY10-FY17 and its weakening balance sheet contractors, we note that WTON’s burn rate is also more than that may hinder its growth. We expect WTON to book annual double that of its bigger cousins (WTON’s burn rate stands at new contract growth of 6.56% in FY17-FY20F, partly driven c.50% vs c.20-30% for contractors). by its parent company’s new contract growth. Revenue visibility Aggregate new contracts of construction companies Outstanding orderbook (Rp bn) Revenue FY18F (Rp bn) Outs. Order book/revenue FY18F (Rp bn) 160,000 5
45,000 4 +5.03% 140,000 3.9 40,000 4 120,000 35,000 3.0 3 100,000 3 30,000 80,000 2 25,000 +30.17% 1.9 60,000 2 20,000 40,000 1 15,000 20,000 1 10,000 0 0 PTPP WSKT WTON 5,000 Source: Company, DBSVI - 10 11 12 13 14 15 16 17 18F 19F 20F Source: Company, DBSVI *consists of SOE contractors and WTON
Aggregate orderbook of construction companies (Rp bn) 120,000 +8.49%
100,000
80,000
60,000 +33.14%
40,000
20,000
- 10 11 12 13 14 15 16 17 18F 19F 20F Source: Company, DBSVI *consists of SOE contractors and WTON
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Industry Focus
PTPP new contracts (Rp bn) PTPP orderbook (Rp bn) 60,000 160,000 +11.41% 140,000 +20.37% 50,000 120,000 40,000 100,000
30,000 +24.98% 80,000 +32.97% 60,000 20,000 40,000 10,000 20,000
- - 10 11 12 13 14 15 16 17 18F 19F 20F 10 11 12 13 14 15 16 17 18F 19F 20F Source: Company, DBSVI Source: Company, DBSVI
WSKT new contracts (Rp bn) WSKT orderbook (Rp bn)
80,000 160,000 +0.94%
70,000 140,000 -0.42% 60,000 120,000
50,000 100,000 +35.92% +43.16% 40,000 80,000
30,000 60,000
20,000 40,000
10,000 20,000
- - 10 11 12 13 14 15 16 17 18F 19F 20F 10 11 12 13 14 15 16 17 18F 19F 20F Source: Company, DBSVI Source: Company, DBSVI
WTON new contracts (Rp bn) WTON orderbook (Rp bn) 10,000 16,000
9,000 +6.56% 14,000 +9.92% 8,000 12,000 7,000 10,000 6,000 +27.62% 5,000 8,000 +24.52%
4,000 6,000
3,000 4,000 2,000 2,000 1,000
- - 10 11 12 13 14 15 16 17 18F 19F 20F 10 11 12 13 14 15 16 17 18F 19F 20F Source: Company, DBSVI Source: Company, DBSVI
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Industry Focus
Valuation and recommendation
Overweight on construction sector We upgrade our rating on the construction sector from Maintaining PTPP and WTON as our top picks Neutral to Overweight, with BUY calls on PTPP, WSKT and We like PTPP for its attractive valuation and promising growth WTON. Our renewed optimism is based on three factors: 1) outlook. It is also worth noting that PTPP has a smaller capex still solid orderbook backlog that provides an average visibility commitment compared to WSKT, and a relatively less of 2-4 years, 2) continued infrastructure spending where the leveraged balance sheet to support its future earnings and upcoming presidential elections may serve as a catalyst, and 3) new contract growth. We forecast PTPP’s net profit to grow bargain valuation of 4.9x EV/EBITDA that is near its 5-year at a CAGR of 18% in 2017A-2020F. At the current share lows, which provides an ideal entry point. price, PTPP’s valuation is at 3.7x 12M forward EV/EBITDA, lower than the SOE contractor peer average of 4.6x and Change our valuation to EV/EBITDA WSKT’s 7.1x. We change our valuation of WSKT’s construction business and PTPP to EV/EBITDA from PE previously, as we believe this As new contract growth decelerates in the next few years, can better reflect their operational capabilities and make them project execution and delivery will become more important more comparable with peers – EV/EBITDA strips out than earnings delivery. As work on the new projects depreciation and interest expenses which are highly commences, WTON is also in a sweet spot to receive new dependent on interest capitalisation. orders being dished out by contractors/project owners. We view WTON as a good proxy to the infrastructure sector given Using -1SD of 3-year average as our valuation base its strong presence across Indonesia. We are applying -1SD to factor in uncertainties stemming from next year’s presidential election. At the same time, we are also using the 3-year average to remove the overly optimistic valuation arising from the Jokowi rally in 2014.
Old vs new valuations Old New Stock Call TP Valuation method Call TP Valuation method
PTPP BUY 4100 P/E BUY 3010 EV/EBITDA WSKT HOLD 2050 SOTP BUY 2800 SOTP WTON BUY 600 EV/EBITDA BUY 600 EV/EBITDA Source: DBSVI
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Industry Focus
SOE contractors 12M forward EV/EBITDA PTPP 12M forward EV/EBITDA
10.0 10.0
9.0 +2 SD 9.0 +2SD 8.0 8.0 +1 SD +1SD
7.0 3-year 7.0 3-year avg. avg. 6.0 -1SD 6.0 -1 SD
5.0 -2SD 5.0 -2 SD 4.0 4.0 Sep‐15 Mar‐16 Sep‐16 Mar‐17 Sep‐17 Mar‐18 Sep‐18 Sep‐15 Mar‐16 Sep‐16 Mar‐17 Sep‐17 Mar‐18 Sep‐18 Source: Bloomberg Finance L.P., DBSVI
WSKT 12M forward EV/EBITDA WTON 12M forward EV/EBITDA
10.0 20.0
9.5 +2SD 18.0 +2SD
9.0 16.0 +1SD 8.5 +1SD 14.0 8.0 3-year 12.0 7.5 avg. 3-year 10.0 avg. 7.0 -1SD 6.5 8.0 -1SD 6.0 6.0 -2SD 5.5 4.0 -2SD
5.0 2.0 Sep‐15 Mar‐16 Sep‐16 Mar‐17 Sep‐17 Mar‐18 Sep‐18 Sep‐15 Mar‐16 Sep‐16 Mar‐17 Sep‐17 Mar‐18 Sep‐18
Source: Bloomberg Finance L.P., DBSVI
SOE contractors 12M forward PE PTPP 12M forward PE 35.0 35.0
30.0 30.0 +2SD +2SD 25.0 25.0 +1SD +1SD 20.0 20.0 5-year 5-year avg. avg. 15.0 15.0 -1SD -1SD 10.0 10.0 -2SD 5.0 5.0 -2SD ‐ ‐ Jan‐10 Jan‐11 Jan‐12 Jan‐13 Jan‐14 Jan‐15 Jan‐16 Jan‐17 Jan‐18 Apr‐11 Apr‐12 Apr‐13 Apr‐14 Apr‐15 Apr‐16 Apr‐17 Apr‐18 Source: Bloomberg Finance L.P., DBSVI
Page 20
Industry Focus
WSKT 12M forward PE WTON 12M forward PE
35.0 80.0
70.0 30.0
60.0 +2SD 25.0 +2SD 50.0 +1SD 20.0 +1SD 40.0 5-year 15.0 30.0 5-year avg. avg. 10.0 20.0 -1SD -1SD 10.0 5.0 -2SD ‐ -2SD ‐ Apr‐14 Apr‐15 Apr‐16 Apr‐17 Apr‐18 Dec‐12 Dec‐13 Dec‐14 Dec‐15 Dec‐16 Dec‐17 Dec‐18 (10.0) Source: Bloomberg Finance L.P., DBSVI
SOE contractor 12M forward P/BV PTPP 12M forward P/BV
4.5 4.5 4.0 +2SD 4.0 3.5 3.5 +1SD +2SD 3.0 3.0 +1SD 2.5 5-year 2.5 avg. 5-year 2.0 2.0 avg. -1SD 1.5 1.5 -1SD 1.0 -2SD 1.0 -2SD 0.5 0.5 ‐ ‐ Aug‐12 Aug‐13 Aug‐14 Aug‐15 Aug‐16 Aug‐17 Aug‐18 Apr‐11 Apr‐12 Apr‐13 Apr‐14 Apr‐15 Apr‐16 Apr‐17 Apr‐18
Source: Bloomberg Finance L.P., DBSVI
WSKT 12M forward P/BV WTON 12M forward P/BV
4.0 6.0 +2SD 3.5 5.0
+1SD 3.0 +2SD 4.0
5-year +1SD 2.5 3.0 avg. 5-year 2.0 avg. 2.0 -1SD -1SD 1.5 1.0 -2SD -2SD 1.0 ‐ Dec‐12 Dec‐13 Dec‐14 Dec‐15 Dec‐16 Dec‐17 Dec‐18 Apr‐14 Apr‐15 Apr‐16 Apr‐17 Apr‐18 Source: Bloomberg Finance L.P., DBSVI
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Industry Focus
PTPP gearing vs peer average PTPP EBITDA to interest cover
Gross gearing peers avg. 6.0X
1.4 5.1X 5.0X 4.5X 1.2 4.3X 4.4X 4.1X 3.9X 3.8X 1.0 4.0X 3.6X 3.2X 3.3X 0.8 3.0X
0.6 2.0X 0.4
1.0X 0.2
0.0 0.0X 11 12 13 14 15 16 17 18F 19F 20F 11 12 13 14 15 16 17 18F 19F 20F Source: Company, DBSVI
WSKT gearing vs peer average WSKT EBITDA to interest cover
Gross gearing peers avg. 8.0X 7.6X
2.5 7.0X
6.0X 6.0X 2.0 5.1X 5.0X 4.3X 1.5 4.0X 3.7X 3.6X 3.3X 3.4X 3.1X 3.0X 1.0 3.0X
2.0X 0.5 1.0X
0.0 0.0X 11 12 13 14 15 16 17 18F 19F 20F 11 12 13 14 15 16 17 18F 19F 20F Source: Company, DBSVI
WTON gearing vs peer average WTON EBITDA to interest cover
Gross gearing peers avg. 45.0X 42.2X
1.2 40.0X
1.0 35.0X 30.0X 0.8 25.0X
0.6 20.0X
15.0X 0.4 10.2X 9.4X 10.0X 7.9X 6.5X 6.6X 7.3X 0.2 5.1X 5.0X 0.0X 0.0X 0.0 0.0X 11 12 13 14 15 16 17 18F 19F 20F 11 12 13 14 15 16 17 18F 19F 20F Source: Company, DBSVI
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Industry Focus
Low risk to our TPs
Two-variable sensitivity analysis shows limited downside to WSKT still exposed to burn-rate risks our TP Our burn-rate growth assumption of -20% for WSKT implies We have conducted a two-variable sensitivity analysis, a burn rate of 28%. Such a burn rate still has downside risks involving new contracts growth and burn rate, with the new as WSKT’s all-time low burn rate stands at 23% (which was contracts growth assumption set at -20% and burn-rate recorded in 2016). However, our burn-rate assumption of assumption at -20% to stress test our TP valuations. Based on 28% is still significantly lower than its 5-year historical burn- our analysis, only WSKT is expected to offer negative return rate average of 38%. with a downside potential of 12% to our TP, if our stress-test scenario materialises. Interestingly, PTPP and WTON still offer We have the lowest implied burn rates of 20% and 42% for upside potential of 19% and 15%, respectively, from their PTPP and WTON, respectively, and these numbers are actually current levels, assuming an identical 20% drop for our lower than their respective all-time low burn rates of 23% sensitivity-analysis variables. and 46% and well below their 5-year averages. This suggests that the pessimistic burn-rate growth assumption of -20% Contractors are more vulnerable to contract growth might not materialise at all for PTPP and WTON. We have also conducted a one-variable sensitivity analysis on both new contract growth and burn-rate assumptions. Our Lowest implied burn rates vs historical trends analysis suggests that contractors are slightly more susceptible to new contract growth compared to burn rate. Therefore, Historical Assumption 5‐year average we advise investors to keep a close eye on new contract win 70% 59% achievement that has more influence on a contractor’s 60% profitability and thus, its share price direction. 50% 46% 42% 40% 38% Precast companies are more sensitive towards burn rate 30% 27% 28% Based on our sensitivity analysis, we believe that burn rate has 23% 23% 20% more influence on a precast company’s earnings and share 20% price movement. Normally, as a precast company has a higher 10% burn rate, it makes sense for such a company’s performance 0% to be more vulnerable to burn rate. PTPP WSKT WTON Source: Ministry of Finance, DBSVI
Summary of two-variable sensitivity analysis
TP sensitivity Base-case Upside to Stock Price TP Contract growth Burn rate assumption (- Lowest TP lowest TP assumption (-20%) 20%) (both)
PTPP 3,030 1,645 2,360 2,510 1,950 19%
WSKT 2,310 1,735 1,860 1,900 1,530 -12%
WTON 600 364 600 420 420 15% Source: Bloomberg Finance L.P., DBSVI
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Industry Focus
Waskita Karya (WSKT) sensitivity analysis
WSKT one-variable sensitivity analysis
Contract growth 0% -20% -10% 10% 20%
FY19F net profit (Rp bn) 4,530 3,644 4,068 5,028 5,564
FY19F EBITDA (Rp bn) 10,168 9,004 9,562 10,822 11,523
TP 2,310 1,860 2,070 2,560 2,830
Burn rate 0% -20% -10% 10% 20%
FY19F net profit (Rp bn) 4,530 3,840 4,204 4,819 5,072
FY19F EBITDA (Rp bn) 10,168 9,218 9,717 10,570 10,923
TP 2,310 1,900 2,110 2,480 2,640
Source: DBSVI
WSKT two-variable (contract growth and burn rate) sensitivity analysis Net profit (Rp bn) Contract growth 4,530 0% -20% -10% 10% 20% 0% 4,530 4,530 4,530 5,028 5,564 -20% 3,840 3,108 3,460 4,251 4,691 -10% 4,204 3,393 3,782 4,659 5,147
Burn rate 10% 4,819 3,860 4,319 5,360 5,941 20% 5,072 4,042 4,535 5,654 6,279
TP Contract growth 2,310 0% -20% -10% 10% 20% 0% 2,310 1,860 2,070 2,560 2,830 -20% 1,900 1,530 1,710 2,110 2,330 -10% 2,110 1,700 1,900 2,340 2,590
Burn rate 10% 2,480 1,990 2,230 2,760 3,050 20% 2,640 2,110 2,360 2,930 3,250
Source: DBSVI
Page 24
Industry Focus
PT PP (PTPP) sensitivity analysis
PTPP one-variable sensitivity analysis
Contract growth 0% -20% -10% 10% 20%
FY19F net profit (Rp bn) 1,774 1,205 1,478 2,094 2,436
FY19F EBITDA (Rp bn) 3,752 2,927 3,323 4,214 4,710
TP 3,030 2,360 2,680 3,400 3,800
Burn rate 0% -20% -10% 10% 20%
FY19F net profit (Rp bn) 1,774 1,382 1,583 1,956 2,126
FY19F EBITDA (Rp bn) 3,752 3,169 3,468 4,021 4,275
TP 3,030 2,510 2,780 3,270 3,500
Source: DBSVI
PTPP two-variable (contract growth and burn rate) sensitivity analysis
Net profit (Rp bn) Contract growth 1,774 0% -20% -10% 10% 20% 0% 1,774 1,205 1,478 2,094 2,436 -20% 1,382 905 1,134 1,649 1,934 -10% 1,583 1,059 1,311 1,876 2,191 10% 1,956 1,341 1,636 2,300 2,670 Burn rate 20% 2,126 1,468 1,784 2,496 2,893
TP Contract growth 3,030 0% -20% -10% 10% 20% 0% 3,030 2,360 2,680 3,400 3,800 -20% 2,510 1,950 2,220 2,820 3,150 -10% 2,780 2,160 2,460 3,120 3,480 10% 3,270 2,550 2,890 3,670 4,100 Burn rate 20% 3,500 2,720 3,100 3,930 4,400
Source: DBSVI
Page 25
Industry Focus
Wijaya Karya Beton (WTON) sensitivity analysis
WTON one-variable sensitivity analysis – contract growth
Contract growth 0% -20% -10% 10% 20%
FY19F net profit (Rp bn) 401 401 401 401 401
FY19F EBITDA (Rp bn) 847 847 847 847 847
TP 600 600 600 600 600
Source: DBSVI
Burn rate 0% -20% -10% 10% 20%
FY19F net profit (Rp bn) 401 256 328 473 546
FY19F EBITDA (Rp bn) 847 660 754 941 1,035
TP 600 420 510 690 770
Source: DBSVI
WTON two-variable (contract growth and burn rate) sensitivity analysis Net profit (Rp bn) Contract growth 401 0% -20% -10% 10% 20%
0% 401 401 401 401 401
-20% 256 256 256 256 256
-10% 328 328 328 328 328
Burn rate 10% 473 473 473 473 473
20% 546 546 546 546 546
TP Contract growth 600 0% -20% -10% 10% 20%
0% 600 600 600 600 600
-20% 420 420 420 420 420
-10% 510 510 510 510 510
Burn rate 10% 690 690 690 690 690
20% 770 770 770 770 770
Source: DBSVI
Page 26
Indonesia Company Guide Pembangunan Perumahan
Version 7 | Bloomberg: PTPP IJ | Reuters: PTPP.JK Refer to important disclosures at the end of this report
DBS Group Research . Equity 3 Oct 2018
BUY Ample balance sheet capacity to Last Traded Price ( 2 Oct 2018): Rp1,645 (JCI : 5,875.60) Price Target 12-mth: Rp3,030 (84% upside) (Prev Rp4,100) sustain growth
Analyst Maintain BUY on attractive EV/EBITDA valuation. We maintain Victor STEFANO +6221 3003 4934 [email protected] our BUY call on PTPP. We have changed our valuation Tjen San CHONG +60 3 26043972 [email protected] methodology to EV/EBITDA from PE (Our previous TP was Rp4,100) as we believe this would better reflect its operational What’s New capabilities and makes it more comparable with its peers Maintain BUY with lower TP of Rp3,030 (EV/EBITDA strips out depreciation and interest expenses which Changed our valuation methodology to EV/EBITDA are highly dependent on interest capitalisation). Our new TP of Rp3,030 is based on 5.1x FY19F EV/EBITDA which is pegged to - Strongest balance sheet vs peers implies sufficient room 1SD of its 3-year EV/EBITDA mean to factor in uncertainties to take on more contracts stemming from next year’s presidential election. We have used Secured Rp27.7tr in new contracts in 8M18 (57% of the 3-year mean as a reference point to remove the overly target) optimistic valuation arising from the Jokowi rally in 2014. Where we differ: We value the stock using EV/EBITDA. Contrarian to consensus valuation of using PE, we value the Price Relative counter using EV/EBITDA as we believe it better reflects the company`s operational capabilities. Potential catalyst: Strong growth in value of new contracts clinched. As the company`s balance sheet is expected to remain healthy in our forecast years, we believe strong growth in value of new contracts will drive the share price up. We forecast new
contracts of Rp45.7tr in FY18, lower than management’s target Forecasts and Valuation of Rp49.1tr. Our new contract forecast implies 11% growth in FY Dec (Rpbn) 2016A 2017A 2018F 2019F Revenue 16,459 21,502 25,479 29,996 value of new contracts y-o-y. EBITDA 2,071 2,820 3,181 3,752 Pre-tax Profit 1,704 2,436 2,711 3,009 Valuation: Net Profit 1,023 1,453 1,635 1,775 We maintain our BUY call with lower TP of Rp3,030 (pegged Net Pft (Pre Ex.) 1,023 1,453 1,635 1,775 Net Pft Gth (Pre-ex) (%) 38.2 42.0 12.5 8.5 to 5.1x FY19F EV/EBITDA) as we change our valuation to EPS (Rp) 211 234 264 286 EV/EBITDA (previously we used 15.5x FY18F P/E valuation). EPS Pre Ex. (Rp) 211 234 264 286 EPS Gth Pre Ex (%) 38 11 13 9 Diluted EPS (Rp) 165 234 264 286 Key Risks to Our View: Net DPS (Rp) 39.5 56.0 63.0 68.4 Prolonged slowdown in property sector. PTPP has both direct BV Per Share (Rp) 1,580 1,847 2,055 2,278 and indirect exposure to the property sector. A prolonged PE (X) 7.8 7.0 6.2 5.7 slowdown in the economy and demand for property can PE Pre Ex. (X) 7.8 7.0 6.2 5.7 P/Cash Flow (X) 8.1 7.0 5.6 5.9 negatively impact earnings and cash flows. EV/EBITDA (X) 3.0 4.0 3.4 2.8 At A Glance Net Div Yield (%) 2.4 3.4 3.8 4.2 Issued Capital (m shrs) 6,200 P/Book Value (X) 1.0 0.9 0.8 0.7 Mkt. Cap (Rpbn/US$m) 10,199 / 678 Net Debt/Equity (X) CASH CASH CASH CASH Major Shareholders (%) ROAE (%) 14.4 13.7 13.5 13.2 Republic of Indonesia (%) 51.0
Earnings Rev (%): 0 (1) (8) Koperasi Karyawan Pemegang 0.1 Consensus EPS (Rp): N/A 277 341 Free Float (%) 48.9 Other Broker Recs: B: 22 S: 0 H: 2 3m Avg. Daily Val (US$m) 1.8 Source of all data on this page: Company, AllianceDBS, DBSVI, ICB Industry : Industrials / Construction & Materials Bloomberg Finance L.P
ed: JS / sa:MA, CW, CS Company Guide
Pembangunan Perumahan
WHAT’S NEW Ample balance sheet to sustain growth
Maintain BUY on attractive EV/EBITDA valuation PTPP’s forward EV/EBITDA band We maintain our BUY call on PTPP. We have changed our 12.0
valuation methodology to EV/EBITDA from PE (Our previous 10.0
TP was higher TP at Rp4,100) as we believe this would better EV/EBITDA 8.0 reflect its operational capabilities and makes it more MEAN
comparable with its peers (EV/EBITDA strips out depreciation 6.0 +1 STDEV and interest expenses which are highly dependent on interest +2 STDEV 4.0 capitalisation). Our new TP of Rp3,030 is based on 5.1x ‐1 STDEV ‐2 STDEV FY19F EV/EBITDA which is pegged to -1SD of its 3-year 2.0 EV/EBITDA mean to factor in uncertainties stemming from ‐ next year’s presidential election. We have used the 3-year Jan‐11 Jan‐12 Jan‐13 Jan‐14 Jan‐15 Jan‐16 Jan‐17 Jan‐18 mean as a reference point to remove the overly optimistic Source: Company, DBSVI valuation arising from the Jokowi rally in 2014. PTPP’s forward PE band Secured Rp27.7tr in new contracts in 8M18 35.0 PTPP secured new contracts worth Rp27.7tr in 8M18 which 30.0 represents 57% of management’s FY18 target of Rp49.1tr. We have assumed a slightly lower value of Rp45.7tr for FY18. 25.0 P/E MEAN In term of achievement and contract size, PTPP’s new contract 20.0 win has outperformed its SOE contractor peers. +1 STDEV 15.0 +2 STDEV ‐1 STDEV Strong balance sheet to maintain growth 10.0 ‐2 STDEV Among SOE contractor peers, PTPP has the strongest balance 5.0 sheet. We expect PTPP’s gross gearing to increase from 56% ‐ in FY17 to 74% in FY20F to account for higher orderbook. Jul‐10 Jul‐11 Jul‐12 Jul‐13 Jul‐14 Jul‐15 Jul‐16 Jul‐17 Jul‐18 However, we believe the company’s has strong capability to Source: Bloomberg Finance L.P., DBSVI manage its working capital requirements to maintain a net cash position. PTPP’s forward P/B band
Valuation and recommendation 4.5 We maintain our BUY call with lower TP of Rp3,030 (pegged 4.0 3.5 to 5.1x FY19F EV/EBITDA) as we change our valuation P/BV 3.0 methodology to EV/EBITDA (previously we used 15.5x FY18F MEAN 2.5 P/E valuation). +1 STDEV 2.0 +2 STDEV PTPP’s gross gearing (%) 1.5 ‐1 STDEV 1.4 1.0 ‐2 STDEV 0.5
1.2 ‐ Aug‐12 Aug‐13 Aug‐14 Aug‐15 Aug‐16 Aug‐17 Aug‐18 1.0 Source: Bloomberg Finance L.P., DBSVI
0.8
0.6
0.4
0.2
- 14 15 16 17 18F 19F 20F Source: Company, DBSVI
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Company Guide Pembangunan Perumahan
New Contract Win (Rp bn) CRITICAL DATA POINTS TO WATCH
Critical Factors Maintaining positive new contract growth momentum post rights issue. PTPP raised Rp4.4tr cash through a rights issue in December 2016. The plan is to use 76% of the rights issue proceeds to fund its equity investments in infrastructure projects, among which are Kuala Tanjung Multi-Purpose Terminal and Industrial Estate, five toll roads (among which are Balikpapan-Samarinda toll road, Manado- Bitung toll road, Pandaan-Malang toll road), a 2x200MW power plant in Sumatra and low-cost apartments, while the remaining 24% will be used for working capital. With ample cash post rights Carry Over Contract (Rp bn) issue, the company will be able to take on more projects going forward. The company is eyeing new contracts worth Rp49.1tr in FY18F, a 20% increase y-o-y.
Beneficiary of Indonesia’s port build-out. PTPP has over the years developed a niche in port construction in Indonesia. According to Bapennas, Indonesia would need as much as Rp59tr to develop and expand 24 ports from 2015-2019. Among the larger projects are the multi-year expansion projects at Kuala Tanjung port (Rp18.4tr) and Tanjung Perak port (Rp8.6tr). Both ports were initially built by Construction Gross Margin (%) PTPP, hence this gives the company a competitive edge to secure work contracts once the projects are out for tender. This year, Pelindo I-IV, the state-run port operators that will carry out a significant part of the government’s port development plan, have allocated capex of more than Rp13tr for port expansion.
Redirecting focus to government-related infrastructure projects. We estimate that 15%-20% of PTPP’s backlog came from private property developers. The project execution may be slower amid the still subdued property market, therefore negatively affecting the company’s contract burn rate and earnings. Since 2016, Gross Margin (%) management has redirected its focus to government-related infrastructure projects, including the higher margin EPC projects. Currently, PTPP has three power plant projects in its order book with total capacity of 420 MW. The company plans to bid for more small-scale power plant projects in the future. With this strategy, we expect the value of EPC contracts to grow by 10% annually in FY18F-FY20F.
EV/EBITDA band 12.0
10.0
EV/EBITDA 8.0 MEAN
6.0 +1 STDEV +2 STDEV 4.0 ‐1 STDEV ‐2 STDEV 2.0
‐ Jan‐11 Jan‐12 Jan‐13 Jan‐14 Jan‐15 Jan‐16 Jan‐17 Jan‐18 Source: Company, AllianceDBS, DBSVI
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Company Guide
Pembangunan Perumahan
Appendix 1: A look at Company's listed history – what drives its share price?
Orderbook as future revenue and share price driver
Share price (Rp) - LHS Orderbook (Rp bn) - RHS
5000 120,000
4500 100,000 4000
3500 80,000 3000
2500 60,000
2000 40,000 1500
1000 20,000 500
0 - Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17
Source: Company, Bloomberg Finance L.P., DBSVI
As the one to drive revenue and share price, PTPP’s orderbook Despite the rising subsidies in 2018, we continue to see that the has been on an uptrend from 2009-2017 with value of new government’s commitment over infrastructure spending contracts growing at 33% CAGR. PTPP’s share price has been continues to rise. We believe PTPP’s order book will continue on moving in tandem with order book size as it is the main a positive trajectory at c.11% CAGR over FY18F-FY20F, driven earnings driver. by the growth in its property and precast business.
However PTPP’s share price has been dropping since late 2015 We expect PTPP to secure RP45.7tr worth of new contracts in on concerns that government spending on infrastructure would FY18F, lower than management’s guidance of Rp49.1tr. Our fall as the government is likely to put more emphasis on new contract forecast represents 11.4% y-o-y new contract subsidies following weak consumption and rising crude oil price. growth.
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Company Guide Pembangunan Perumahan
Leverage & Asset Turnover (x) Balance Sheet: Strong balance sheet enables PTPP to take on more projects. PTPP is in a net cash position after receiving rights issue proceeds of Rp4.4tr in December 2016. We forecast PTPP’s debt to rise with gross gearing of 0.7x in FY19F as the company starts to fund its equity investments in a number of infrastructure projects.
Share Price Drivers: Award of a large-sized, multi-year infrastructure contracts. The award of large-sized, multi-year contracts will further Capital Expenditure improve PTPP’s revenue and earnings visibility, and ultimately Rpbn lead to re-rating of its share price.
Key Risks: Slowdown in property sector PTPP’s exposure to the property sector has increased notably with EBIT contribution from the property arm at 23% in FY17. We estimate that 15%-20% of PTPP’s outstanding order book is from private developers. A prolonged slowdown in the property market may pose risks to PTPP’s earnings and cash flows. ROE (%) Prolonged weak economic conditions If the economic conditions do not improve in the subsequent years, it might pressure the government to reallocate infrastructure spending to subsidies.
Rupiah depreciation Weakening rupiah could pressure government to delay some projects which has high exposure to imported goods such as EPC and high rise buildings. Higher material cost on the back of weakening rupiah could also put some pressure on Forward PE Band (x) contractors’ margins if they could not renegotiate the contracts.
Company Background PTPP is Indonesia's leading construction company with a portfolio ranging from building engineering to infrastructure construction projects. It has established a solid reputation in the construction of high-rise buildings and ports.
PB Band (x)
Source: Company, AllianceDBS, DBSVI
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Company Guide
Pembangunan Perumahan
Key Assumptions FY Dec 2015A 2016A 2017A 2018F 2019F
New Contract Win (Rp bn) 27,074 32,600 41,070 45,754 50,957 Carry Over Contract (Rp 29,867 39,600 41,400 58,668 73,943 Construction Gross 10.7 12.1 12.5 12.5 12.5 margins
Segmental Breakdown FY Dec 2015A 2016A 2017A 2018F 2019F
Revenues (Rpbn) Construction 11,611 11,857 15,074 16,168 18,890 Real Estate and Property 1,573 2,180 2,732 2,845 2,987 EPC 928 2,366 3,244 4,263 5,238 Others 106 56.1 453 2,203 2,880
Total 14,217 16,459 21,502 25,479 29,996 Gross Profit (Rpbn) Construction 1,244 1,433 1,877 2,014 2,353 Real Estate and Property 680 593 654 659 692 EPC 206 359 556 730 898 Others (124) (558) 193 302 391
Total 2,007 1,827 3,280 3,704 4,333 Gross Profit Margins (%) Construction 10.7 12.1 12.5 12.5 12.5 Real Estate and Property 43.3 27.2 24.0 23.1 23.1 EPC 22.2 15.2 17.1 17.1 17.1 Others (117.1) (995.3) 42.5 13.7 13.6
Total 14.1 11.1 15.3 14.5 14.4
Income Statement (Rpbn) FY Dec 2015A 2016A 2017A 2018F 2019F
Revenue 14,217 16,459 21,502 25,479 29,996 Cost of Goods Sold (12,210) (14,003) (18,251) (21,774) (25,663) Gross Profit 2,007 2,456 3,252 3,704 4,333 Other Opng (Exp)/Inc (410) (487) (726) (872) (992) Operating Profit 1,597 1,968 2,525 2,832 3,341 Other Non Opg (Exp)/Inc (50.5) (69.4) (61.4) (61.4) (61.4) Associates & JV Inc 67.0 155 364 449 449 Net Interest (Exp)/Inc (326) (350) (392) (508) (720) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 1,288 1,704 2,436 2,711 3,009 Tax (442) (552) (712) (808) (953) Minority Interest (105) (128) (271) (268) (282) Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 740 1,023 1,453 1,635 1,775 Net Profit before Except. 740 1,023 1,453 1,635 1,775 EBITDA 1,678 2,071 2,820 3,181 3,752 Growth Revenue Gth (%) 14.4 15.8 30.6 18.5 17.7 EBITDA Gth (%) 26.6 23.4 36.2 12.8 17.9 Opg Profit Gth (%) 25.9 23.2 28.3 12.1 18.0 Net Profit Gth (Pre-ex) (%) 38.8 38.2 42.0 12.5 8.5 Margins & Ratio Gross Margins (%) 14.1 14.9 15.1 14.5 14.4 Opg Profit Margin (%) 11.2 12.0 11.7 11.1 11.1 Net Profit Margin (%) 5.2 6.2 6.8 6.4 5.9 ROAE (%) 22.0 14.4 13.7 13.5 13.2 ROA (%) 4.4 4.1 4.0 3.7 3.5 ROCE (%) 12.8 9.1 8.3 7.8 7.9 Div Payout Ratio (%) 33.2 33.0 33.9 26.9 25.9 Net Interest Cover (x) 4.9 5.6 6.4 5.6 4.6 Source: Company, AllianceDBS, DBSVI
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Company Guide Pembangunan Perumahan
Quarterly / Interim Income Statement (Rpbn) FY Dec 2Q2017 3Q2017 4Q2017 1Q2018 2Q2018
Revenue 5,209 5,635 7,741 3,683 5,824 Cost of Goods Sold (4,418) (4,823) (6,484) (3,125) (4,919) Gross Profit 791 812 1,257 558 905 Other Oper. (Exp)/Inc (137) (150) (284) (219) (237) Operating Profit 654 663 973 339 668 Other Non Opg (Exp)/Inc (12.9) (9.3) (24.8) (11.7) 37.5 Associates & JV Inc 49.0 90.0 209 31.4 41.2 Net Interest (Exp)/Inc (61.3) (61.1) (296) (39.9) (118) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 629 682 862 319 629 Tax (158) (196) (256) (120) (195) Minority Interest (27.9) (69.1) (142) (48.2) (105) Net Profit 442 417 463 151 329 Net profit bef Except. 442 417 463 151 329 EBITDA 766 829 1,214 464 794
Growth Revenue Gth (%) 78.6 8.2 37.4 (52.4) 58.1 EBITDA Gth (%) 144.4 8.3 46.5 (61.8) 71.3 Opg Profit Gth (%) 177.2 1.3 46.9 (65.2) 97.0 Net Profit Gth (Pre-ex) (%) 239.9 (5.6) 11.0 (67.4) 117.9 Margins Gross Margins (%) 15.2 14.4 16.2 15.2 15.5 Opg Profit Margins (%) 12.6 11.8 12.6 9.2 11.5 Net Profit Margins (%) 8.5 7.4 6.0 4.1 5.6
Balance Sheet (Rpbn) FY Dec 2015A 2016A 2017A 2018F 2019F
Net Fixed Assets 2,989 4,178 5,790 6,093 6,335 Invts in Associates & JVs 272 486 1,184 1,184 1,184 Other LT Assets 467 2,225 4,902 4,902 4,902 Cash & ST Invts 3,302 9,424 9,587 11,906 15,091 Inventory 2,499 2,656 2,421 2,888 3,404 Debtors 8,829 10,920 15,915 17,761 20,910 Other Current Assets 800 1,345 1,986 1,986 1,986 Total Assets 19,159 31,233 41,783 46,719 53,811
ST Debt 1,722 3,698 2,763 2,763 2,763 Creditor 7,372 10,237 14,506 16,387 19,313 Other Current Liab 1,677 1,943 3,431 3,431 3,431 LT Debt 1,827 3,048 5,144 6,644 9,144 Other LT Liabilities 1,414 1,510 1,696 1,696 1,696 Shareholder’s Equity 4,410 9,796 11,454 12,741 14,125 Minority Interests 737 1,000 2,789 3,058 3,339 Total Cap. & Liab. 19,159 31,233 41,783 46,719 53,811
Non-Cash Wkg. Capital 3,080 2,739 2,384 2,818 3,556 Net Cash/(Debt) (247) 2,678 1,680 2,498 3,184 Debtors Turn (avg days) 206.3 219.0 227.8 241.2 235.3 Creditors Turn (avg days) 216.6 231.2 251.5 263.1 258.0 Inventory Turn (avg days) 77.8 67.7 51.6 45.2 45.5 Asset Turnover (x) 0.8 0.7 0.6 0.6 0.6 Current Ratio (x) 1.4 1.5 1.4 1.5 1.6 Quick Ratio (x) 1.1 1.3 1.2 1.3 1.4 Net Debt/Equity (X) 0.0 CASH CASH CASH CASH Net Debt/Equity ex MI (X) 0.1 CASH CASH CASH CASH Capex to Debt (%) 11.8 19.3 16.5 6.9 5.5 Z-Score (X) 1.8 1.4 1.3 1.3 1.5 Source: Company, AllianceDBS, DBSVI
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Cash Flow Statement (Rpbn) FY Dec 2015A 2016A 2017A 2018F 2019F
Pre-Tax Profit 1,288 1,704 2,436 2,711 3,009 Dep. & Amort. 80.6 103 295 349 411 Tax Paid (442) (552) (712) (808) (953) Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0 Chg in Wkg.Cap. (497) 341 355 (434) (738) Other Operating CF (403) (608) (911) 0.0 0.0 Net Operating CF 25.8 987 1,463 1,818 1,729 Capital Exp.(net) (420) (1,305) (1,305) (653) (653) Other Invts.(net) (83.3) (124) (124) 0.0 0.0 Invts in Assoc. & JV (125) (440) (440) 0.0 0.0 Div from Assoc & JV 0.0 0.0 1.00 0.0 0.0 Other Investing CF (33.7) 42.8 (2,035) 0.0 0.0 Net Investing CF (662) (1,826) (3,904) (653) (653) Div Paid (106) (177) (245) (347) (391) Chg in Gross Debt 405 2,663 2,663 1,500 2,500 Capital Issues 0.0 4,412 4,413 0.0 0.0 Other Financing CF 884 1.50 (4,135) 0.0 0.0 Net Financing CF 1,182 6,899 2,696 1,153 2,109 Currency Adjustments 71.1 39.9 3.20 0.0 0.0 Chg in Cash 617 6,100 258 2,318 3,186 Opg CFPS (Rp) 108 133 179 363 398 Free CFPS (Rp) (81.5) (65.8) 25.4 188 174 Source: Company, AllianceDBS, DBSVI
Target Price & Ratings History
Source: AllianceDBS, DBSVI Analyst: Victor STEFANO Tjen San CHONG
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Indonesia Company Guide Waskita Karya
Version 8 | Bloomberg: WSKT IJ | Reuters: WSKT.JK Refer to important disclosures at the end of this report
DBS Group Research . Equity 3 Oct 2018
BUY(Upgrade from HOLD) Sufficient orderbook despite slow Last Traded Price ( 2 Oct 2018): Rp1,735 (JCI : 5,875.60) Price Target 12-mth: Rp2,310 (33% upside) (Prev Rp2,050) new contract achievement
Upgrade to BUY with different valuation. We upgrade our call Analyst to BUY and change our valuation of WSKT’s construction Victor STEFANO +6221 3003 4934 [email protected] business to EV/EBITDA from PE (previously, we had a HOLD call Tjen San CHONG +60 3 26043972 [email protected] with a TP of Rp2,050) as we believe this can better reflect its operational capabilities and makes it more comparable with its What’s New peers (EV/EBITDA strips out depreciation and interest expenses Upgrade to BUY with higher TP of Rp2,310 which are highly dependent on interest capitalisation). We Change our valuation to EV/EBITDA to better reflect its maintain our market capitalisation valuation and DCF valuation operation capabilities for its precast and toll road businesses respectively. We are Undemanding valuation of single-digit PE at -2SD applying -1SD of its 3-year EV/EBITDA mean to factor in below mean uncertainties stemming from next year’s presidential election. We reckon that the 3-year mean can remove the overly Secured Rp9.2tr new wins in 8M18 (13% of target) optimistic valuation arising from the Jokowi rally in 2014. Thus, our SOP-based TP rises from Rp2,050 to Rp2,310.
Price Relative Where we differ: We are valuing WSKT using EV/EBITDA. Contrary to consensus PE valuation, we are valuing WSKT’s construction business using EV/EBITDA which we believe reflects its operational capabilities better.
Potential catalysts: Toll road divestment. We believe tits successful toll road divestment will help re-rate WSKT’s share Forecasts and Valuation FY Dec (Rpbn) 2016A 2017A 2018F 2019F price as this will ease the burden on its balance sheet, remove Revenue 23,788 45,213 47,790 47,123 the uncertainty of future interest expenses, and help fund the EBITDA 3,527 8,255 8,521 10,251 future expansion of its construction business. Pre-tax Profit 2,481 6,056 5,192 5,190 Net Profit 1,713 3,882 4,327 4,530 Net Pft (Pre Ex.) 1,713 3,882 4,327 4,530 Valuation: Net Pft Gth (Pre-ex) (%) 79.4 126.6 11.5 4.7 Our SOP-based TP rises to Rp2,310, as we change our EPS (Rp) 126 286 319 334 valuation basis of WSKT`s construction business to EV/EBITDA EPS Pre Ex. (Rp) 126 286 319 334 from PE. EPS Gth Pre Ex (%) 79 127 11 5 Diluted EPS (Rp) 126 286 319 334 Net DPS (Rp) 37.9 57.2 63.8 66.8 Key Risks to Our View: BV Per Share (Rp) 816 1,032 1,294 1,564 Lower-than-expected new contract wins due to balance sheet PE (X) 13.7 6.1 5.4 5.2 constraints, especially if it fails to divest its toll road. PE Pre Ex. (X) 13.7 6.1 5.4 5.2
P/Cash Flow (X) nm nm 2.5 4.0 EV/EBITDA (X) 12.4 8.5 8.5 6.8 At A Glance Net Div Yield (%) 2.2 3.3 3.7 3.8 Issued Capital (m shrs) 13,574 P/Book Value (X) 2.1 1.7 1.3 1.1 Mkt. Cap (Rpbn/US$m) 23,551 / 1,565 Net Debt/Equity (X) 0.9 1.7 1.5 1.3 Major Shareholders (%) ROAE (%) 16.6 31.0 27.4 23.4 Republic of Indonesia 68.0 Earnin gs Rev (%): Free Float (%) 32.0 Consensus EPS (Rp): N/A 319 337 3m Avg. Daily Val (US$m) 4.6 Other Broker Recs: B: 19 S: 0 H: 7 ICB Industry : Industrials / Construction & Materials Source of all data on this page: Company, AllianceDBS, DBSVI, Bloomberg Finance L.P
ed: CK / sa:MA, PY, CS Company Guide
Waskita Karya
WHAT’S NEW Sufficient orderbook despite slow new contract achievement
Upgrade to BUY with EV/EBITDA valuation WSKT’s orderbook (Rp bn) We upgrade our call to BUY and change our valuation of 160,000 Flat growth at high level WSKT’s construction business to EV/EBITDA from PE 140,000 (previously, we had a HOLD call with a TP of Rp2,050) as we 120,000
believe this can better reflect its operational capabilities and 100,000 makes it more comparable with its peers (EV/EBITDA strips 80,000 Exponential order out depreciation and interest expenses which are highly book growth 60,000 dependent on interest capitalisation). We maintain our market capitalisation valuation and DCF valuation for its 40,000 precast and toll road businesses respectively. We are applying 20,000 -1SD of its 3-year EV/EBITDA mean to factor in uncertainties - stemming from next year’s presidential election. We reckon that the 3-year mean can remove the overly optimistic valuation arising from the Jokowi rally in 2014. Thus, our Source: Company, DBSVI SOP-based TP rises from Rp2,050 to Rp2,310. WSKT’s forward EV/EBITDA band Secured Rp9.2tr new contracts in 8M18 18.0 WSKT secured new contracts worth Rp9.2tr in 8M18 which 16.0 represent only 13% of its FY18 new contract target of 14.0 EV/EBITDA Rp70tr. Our current forecast is Rp50tr which is 29% below 12.0 MEAN 10.0 management’s forecast. Management has stated that it will +1 STDEV 8.0 revise down its new contract target by c.10-15%. WSKT's +2 STDEV 6.0 YTD new contract achievement has lagged behind other SOE ‐1 STDEV contractors but we expect a huge surge in 4Q18 driven by 4.0 ‐2 STDEV 2.0 turnkey toll road projects. ‐ Sufficient orderbook to sustain growth Mar‐13 Mar‐14 Mar‐15 Mar‐16 Mar‐17 Mar‐18 Source: Bloomberg Finance L.P., DBSVI Despite the weak YTD new contract achievement, we expect the company to book Rp50tr new contracts in FY18F, WSKT’s forward PE band
representing a 12.5% y-o-y drop in new contract wins. Going 35.0 forward, we expect a moderate 5% growth in new contract 30.0 wins for WSKT. We expect a lower new contract growth as most of WSKT`s future projects will be turnkey toll road 25.0 P/E MEAN projects, which will stretch its balance sheet. 20.0 +1 STDEV Thus, our annual orderbook forecast for WSKT remains stable 15.0 +2 STDEV at c.Rp140tr in FY18F-FY20F. Given its strong orderbook ‐1 STDEV 10.0 outlook, we believe that WSKT deserves a higher valuation ‐2 STDEV than what the market is currently valuing it. 5.0
‐ Valuation and recommendation Dec‐12 Dec‐13 Dec‐14 Dec‐15 Dec‐16 Dec‐17 Source: Bloomberg Finance L.P., DBSVI Our SOP-based TP rises to Rp2,310, as we change our
valuation basis of WSKT`s construction business to EV/EBITDA from PE.
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Company Guide Waskita Karya
WSKT’s forward P/B band
4.5
4.0
3.5 P/BV 3.0 MEAN 2.5 +1 STDEV 2.0 +2 STDEV 1.5 ‐1 STDEV 1.0 ‐2 STDEV 0.5
‐ Aug‐12 Aug‐13 Aug‐14 Aug‐15 Aug‐16 Aug‐17 Aug‐18 Source: Bloomberg Finance L.P., DBSVI
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Company Guide
Waskita Karya
CRITICAL DATA POINTS TO WATCH
Critical Factors New Contract Wins (Rp bn) A shift in business model. Following the toll road acquisition spree over the past two years, WSKT has shifted its business model to become more of a toll road developer from a pure civil contractor previously. The company would continue to acquire greenfield toll road concessions in the foreseeable future, build them and divest the stakes after the construction is completed to free up capital. This way, it would be able to secure profit in a shorter time span compared to if it operates the toll roads over the concession period on its own, as the company would be able to reap gain from both the civil work (during construction phase) and the asset divestment. Its subsidiary Waskita Toll Road is the majority stakeholder for ten Carry Over Contract (Rp bn) toll road concessions in Java and one in Sumatra with a total investment value of Rp65tr. It also owns minority stakes in eight other toll road concessions.
All eyes on toll road divestment. The change in business model makes toll road divestments crucial for WSKT given the high capital requirements to build the toll roads. The investment in toll road would further exacerbate its weak operating cashflow position. Given the potential surge in interest expenses with the end of the interest capitalisation period, its earnings outlook could be at risk. We believe toll road divestments will remain a key focus for WSKT Construction Gross Margin (%) in shoring up its balance sheet and funding its expansion plan.
PT Waskita Toll Road (WTR) managed to reap large funds worth Rp 5 trillion obtained through the issuance of Equity Investment Fund (RDPT) of the Danareksa Infrastructure Toll Trans Java Road. The RDPT uses underlying assets in the form of WTR shares in the investment company PT Waskita Transjawa Toll Road (WTTR). WTTR currently manages three toll roads, namely Kanci-Pejagan, Pejagan- Pemalang, and Pasuruan Probolinggo with a total length of 123.8 kilometers. Precast Gross Margin (%) New wins from government or external parties. The award of new contracts had been a key positive driver of WSKT’s share price. This was evident where the strong growth in new contracts in 2015- 2016 drove the shares’ outperformance in the same period. However, we think the concern over the sustainability of its new contract wins has outweighed the excitement over its recent new contract wins, especially since most of the growth in its orderbook has been driven by its internal toll road projects instead of government or external projects. Note that internal toll road projects are riskier in nature as the profit would only fully translate into cash upon the divestment of the concessions – a process that Toll road start-up losses (Rp bn) would likely take additional time. This has caused WSKT’s share price to underperform the market despite the company’s relatively strong new contract and earnings growth (refer to Appendix 1) in the past few months.
Source: Company, AllianceDBS, DBSVI
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Company Guide Waskita Karya
Appendix 1: A look at Company's listed history – what drives its share price?
Orderbook as future revenue and share price driver
3500 160,000
3000 140,000
120,000 2500
100,000 2000 80,000 1500 60,000
1000 40,000
500 20,000
0 - Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18
Share price (Rp) - LHS Orderbook (Rp bn) - RHS
Source: Company, AllianceDBS, DBSVI
As the one to drive revenue and share price, WSKT`s orderbook We expect WSKT to secure RP40.9tr new contracts in FY18F, has been on the uptrend from 2009-2017 as new contract was lower than management’s potentially lower guidance of growing at 32% CAGR. Since its initial public offering back in Rp59.5tr-Rp73tr. Our new contract forecast represents a lower December 2012 WSKT’s share price movement has been in y-o-y contract growth of 12.5%. tandem with its orderbook size and reached its peak in early 2019. Despite the slower new contract assumption, we expect WSKT’s orderbook to plateau until 2020 at c.Rp140tr, which we believe However WSKT’s share price has trended downward as its new should be supportive of its share price. In view of its high contracts began to decline in FY17, coupled with slow YTD new orderbook size and the possibility of securing more contract achievement. As end of Aug 2018, WSKT only infrastructure projects post presidential election in 2019, we achieved 13% of its FY18 new contract target of Rp70tr. believe WSKT’s current share price downtrend should see a Management stated that it will revise down its target by c.10- reversal. 15%.
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Waskita Karya
Leverage & Asset Turnover (x) Balance Sheet: Further fund raising needed. As at end-June 2018, WSKT had a net debt of Rp23.3tr, translating to a net gearing of 1.1x. We expect its debt to rise as the company extends its business model to include the capital-intensive toll road operating business and expansion of its precast business.
Share Price Drivers: Award of large-sized infrastructure contracts. The award of large-sized, multi-year projects will improve WSKT’s revenue and earnings visibility, and ultimately lead to an upward re- Capital Expenditure rating of its share price. Rpbn
Toll road divestment. After divesting a 29% stake in Waskita Toll Road to SMI and Taspen, WSKT is planning to raise more funds by further divesting its stakes in WTR and individual toll road concessions. These corporate actions are targeted to take place next year and are crucial for WSKT given its high capex needs.
Key Risks: Persistently weak operating cashflow. We have yet to see positive operating cashflows at WSKT despite strong contract ROE (%) wins last year. Its venture into the toll road operating business could also deteriorate WSKT’s operating cashflow during the early years of operations. As such, its balance sheet could remain stretched, forcing it to make another right or bond issue in the future. Delay in toll road divestment. A delay in toll road divestment would be negative for WSKT. As it continues to acquire new greenfield toll road concessions to grow its orderbook, a timely fund raising is needed to make sure that the projects do not stall due to cashflow constraints. Forward PE Band (x) Prolonged weak economic condition If the economic condition does not improve in the subsequent years, it might be pressure the government to reallocate infrastructure spending to the provision of subsidies. Rupiah depreciation A weakening rupiah could pressure the government to delay some projects that have high import content such as EPC and high-rise building projects. Higher material costs on the back of a weakening rupiah could also weigh down the margins of contractors, if they are unable to renegotiate their contracts.
PB Band (x) Company Background PT Waskita Karya Tbk (WSKT) is a state-owned contractor engaged in a wide variety of construction activities including toll roads, bridges, ports and buildings. It is the most leveraged proxy to the Indonesian construction sector, deriving c. 95% of its revenues from construction.
Source: Company, AllianceDBS, DBSVI
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Company Guide Waskita Karya
Key Assumptions FY Dec 2015A 2016A 2017A 2018F 2019F
New Contract Wins (Rp 32,084 69,974 55,834 49,994 52,494 Carry Over Contract (Rp 19,746 34,049 82,274 91,630 88,094 Construction Gross 13.0 16.1 20.2 18.0 18.0 Precast Gross Margin (%) 15.9 22.2 27.4 19.0 18.0
Segmental Breakdown FY Dec 2015A 2016A 2017A 2018F 2019F
Revenues (Rpbn) Construction 12,052 22,373 42,347 43,637 42,309 Building rentals/Property 0.60 46.8 251 327 425 Precast 2,069 1,149 2,224 2,974 3,122 Energy 0.0 1.80 76.9 76.9 76.9 Others 31.8 218 314 775 1,190 Total 14,153 23,788 45,213 47,790 47,123 Gross Profit (Rpbn) Construction 1,561 3,591 8,558 7,855 7,616 Building rentals/Property 0.60 17.7 61.1 79.4 103 Precast 328 255 610 565 562 Energy 0.0 1.70 54.2 54.2 54.2 Others 0.0 102 147 363 652 Total 1,889 3,968 9,430 8,916 8,987 Gross Profit Margins (%) Construction 13.0 16.1 20.2 18.0 18.0 Building rentals/Property 100.0 37.9 24.3 24.3 24.3 Precast 15.9 22.2 27.4 19.0 18.0 Energy N/A 94.9 70.4 70.4 70.4 Others 0.0 46.8 46.8 46.8 54.8 Total 13.4 16.7 20.9 18.7 19.1
Income Statement (Rpbn) FY Dec 2015A 2016A 2017A 2018F 2019F
Revenue 14,153 23,788 45,213 47,790 47,123 Cost of Goods Sold (12,232) (19,821) (35,749) (38,874) (38,136) Gross Profit 1,921 3,968 9,464 8,916 8,987 Other Opng (Exp)/Inc (518) (788) (2,104) (1,309) (1,298) Operating Profit 1,403 3,180 7,360 7,608 7,689 Other Non Opg (Exp)/Inc 159 103 268 0.0 0.0 Associates & JV Inc 10.1 (7.4) 26.1 69.2 82.2 Net Interest (Exp)/Inc (267) (795) (1,598) (2,486) (2,583) Exceptional Gain/(Loss) 92.8 0.0 0.0 0.0 0.0 Pre-tax Profit 1,398 2,481 6,056 5,192 5,190 Tax (350) (667) (1,854) (973) (869) Minority Interest 0.10 (99.8) (320) 109 210 Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 1,048 1,713 3,882 4,327 4,530 Net Profit before Except. 955 1,713 3,882 4,327 4,530 EBITDA 2,041 3,527 8,255 8,521 10,251 Growth Revenue Gth (%) 37.6 68.1 90.1 5.7 (1.4) EBITDA Gth (%) 118.5 72.9 134.0 3.2 20.3 Opg Profit Gth (%) 106.9 126.6 131.5 3.4 1.1 Net Profit Gth (Pre-ex) (%) 90.4 79.4 126.6 11.5 4.7 Margins & Ratio Gross Margins (%) 13.6 16.7 20.9 18.7 19.1 Opg Profit Margin (%) 9.9 13.4 16.3 15.9 16.3 Net Profit Margin (%) 7.4 7.2 8.6 9.1 9.6 ROAE (%) 17.0 16.6 31.0 27.4 23.4 ROA (%) 4.9 3.7 4.9 4.2 4.2 ROCE (%) 7.8 7.1 8.7 8.0 7.5 Div Payout Ratio (%) 20.0 30.0 20.0 20.0 20.0 Net Interest Cover (x) 5.3 4.0 4.6 3.1 3.0 Source: Company, AllianceDBS, DBSVI
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Waskita Karya
Quarterly / Interim Income Statement (Rpbn) FY Dec 2Q2017 3Q2017 4Q2017 1Q2018 2Q2018
Revenue 8,193 12,986 16,679 12,397 10,503 Cost of Goods Sold (6,618) (10,026) (12,865) (9,606) (8,565) Gross Profit 1,575 2,960 3,814 2,791 1,938 Other Oper. (Exp)/Inc (219) (358) (1,360) (179) (413) Operating Profit 1,356 2,602 2,454 2,612 1,525 Other Non Opg (Exp)/Inc 82.1 224 (34.9) (5.3) 1,704 Associates & JV Inc 15.9 90.2 (90.5) 73.3 (37.3) Net Interest (Exp)/Inc (277) (427) (527) (388) (208) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 1,178 2,489 1,801 2,292 2,984 Tax (177) (1,010) (505) (557) (781) Minority Interest (86.3) (189) 13.6 (215) (733) Net Profit 914 1,290 1,310 1,520 1,470 Net profit bef Except. 914 1,290 1,310 1,520 1,470 EBITDA 1,571 3,049 2,580 2,880 3,208
Growth Revenue Gth (%) 11.4 58.5 28.4 (25.7) (15.3) EBITDA Gth (%) 49.1 94.1 (15.4) 11.6 11.4 Opg Profit Gth (%) 43.1 91.9 (5.7) 6.4 (41.6) Net Profit Gth (Pre-ex) (%) 148.6 41.1 1.6 16.0 (3.3) Margins Gross Margins (%) 19.2 22.8 22.9 22.5 18.5 Opg Profit Margins (%) 16.6 20.0 14.7 21.1 14.5 Net Profit Margins (%) 11.2 9.9 7.9 12.3 14.0
Balance Sheet (Rpbn) FY Dec 2015A 2016A 2017A 2018F 2019F
Net Fixed Assets 1,923 3,275 4,742 14,903 14,748 Invts in Associates & JVs 1,572 2,071 3,449 3,449 3,449 Other LT Assets 11,009 19,197 37,277 37,277 37,277 Cash & ST Invts 5,522 10,664 6,097 12,612 15,298 Inventory 442 1,819 2,186 2,167 2,031 Debtors 7,824 19,795 39,154 31,154 30,720 Other Current Assets 2,018 4,605 4,989 5,431 5,616 Total Assets 30,309 61,425 97,896 106,994 109,139
ST Debt 3,483 15,344 25,880 25,880 25,880 Creditor 8,773 14,653 24,126 20,979 19,670 Other Current Liab 1,409 1,464 2,303 2,303 2,303 LT Debt 4,547 9,890 17,892 26,695 26,695 Other LT Liabilities 2,394 3,300 4,940 4,940 4,940 Shareholder’s Equity 9,547 11,070 14,006 17,557 21,222 Minority Interests 157 5,704 8,748 8,639 8,429 Total Cap. & Liab. 30,309 61,425 97,896 106,994 109,139
Non-Cash Wkg. Capital 102 10,101 19,901 15,470 16,394 Net Cash/(Debt) (2,508) (14,570) (37,675) (39,963) (37,278) Debtors Turn (avg days) 189.1 211.9 237.9 268.5 239.6 Creditors Turn (avg days) 217.9 218.5 201.3 216.4 208.0 Inventory Turn (avg days) 11.9 21.1 20.8 20.9 21.5 Asset Turnover (x) 0.7 0.5 0.6 0.5 0.4 Current Ratio (x) 1.2 1.2 1.0 1.0 1.1 Quick Ratio (x) 1.0 1.0 0.9 0.9 1.0 Net Debt/Equity (X) 0.3 0.9 1.7 1.5 1.3 Net Debt/Equity ex MI (X) 0.3 1.3 2.7 2.3 1.8 Capex to Debt (%) 11.7 2.4 5.6 20.9 4.4 Z-Score (X) NA NA NA NA NA Source: Company, AllianceDBS, DBSVI
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Company Guide Waskita Karya
Cash Flow Statement (Rpbn) FY Dec 2015A 2016A 2017A 2018F 2019F
Pre-Tax Profit 1,398 2,480 6,055 5,191 5,189 Dep. & Amort. 468 251 600 843 2,479 Tax Paid (350) (667) (1,854) (973) (869) Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0 Chg in Wkg.Cap. 2,417 (10,099) (9,791) 4,431 (925) Other Operating CF (3,275) 272 (971) 0.0 0.0 Net Operating CF 658 (7,762) (5,960) 9,492 5,875 Capital Exp.(net) (938) (611) (2,435) (11,004) (2,324) Other Invts.(net) 0.0 0.0 0.0 0.0 0.0 Invts in Assoc. & JV (498) (172) (938) 0.0 0.0 Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 Other Investing CF (5,491) (8,772) (15,866) 0.0 0.0 Net Investing CF (6,927) (9,555) (19,239) (11,004) (2,324) Div Paid (100) (210) (514) (776) (866) Chg in Gross Debt (729) 17,227 19,687 8,803 0.0 Capital Issues 5,348 0.0 0.0 0.0 0.0 Other Financing CF 5,580 5,442 1,458 0.0 0.0 Net Financing CF 10,099 22,459 20,631 8,027 (866) Currency Adjustments 5.90 0.60 0.30 0.0 0.0 Chg in Cash 3,836 5,143 (4,567) 6,515 2,686 Opg CFPS (Rp) (130) 172 282 373 501 Free CFPS (Rp) (20.7) (617) (619) (111) 262 Source: Company, AllianceDBS, DBSVI
Target Price & Ratings History
Source: AllianceDBS, DBSVI Analyst: Victor STEFANO Tjen San CHONG
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Indonesia Company Guide Wijaya Karya Beton
Version 7 | Bloomberg: WTON IJ | Reuters: WTON.JK Refer to important disclosures at the end of this report
DBS Group Research . Equity 3 Oct 2018
BUY Limited downside risk to earnings Last Traded Price ( 2 Oct 2018): Rp364 (JCI : 5,875.60) Price Target 12-mth: Rp600 (65% upside) (Prev Rp600) Strong revenue visibility with contract backlog reaching 84% of our FY18 revenue forecast. We see limited downside risk to Analyst our FY18 earnings forecast of Rp401bn (+19% y-o-y), as we Victor STEFANO +6221 3003 4934 [email protected] believe our FY18F revenue is achievable and our margin Tjen San, CHONG +603 26043972; [email protected] forecast is quite conservative. We forecast Wijaya Karya Beton What’s New (WTON) to book revenue of Rp6.5tr which is lower than management’s target of Rp6.9tr but higher than consensus Strong revenue visibility with contract backlog reaching 84% of our FY18 revenue forecast estimate of Rp6.2tr. Meanwhile, our gross margin assumption of 12.7% is at the mid-range of management’s guidance of First contract of Rp400bn from Jakarta-Bandung HSR 12-14%. secured, another Rp800-1,100bn expected next year Where we differ: Highest revenue with lowest net profit Bargain valuations at FY19F PE of 8.2x and P/BV of 1.1x forecasts. Our revenue forecast is the highest across the street
while our net profit is the lowest. While we believe the 21% y- Maintain BUY with lower TP of Rp600 o-y revenue growth is achievable, we are taking a more cautious stance in view of its higher interest expenses. Potential catalyst: 2019 presidential election. WTON is trading Price Relative at 5.0x FY19F EV/EBITDA and 8.2x FY19F PE that is at -1.5SD of its adjusted 5-year average. Based on the previous presidential election, we believe the 2019 presidential election will serve as a re-rating catalyst for its share price.
Valuation: We change our TP valuation for WTON to EV/EBITDA. Our TP
of Rp600 (vs Rp760 previously) is based on 7.1x EV/EBITDA Forecasts and Valuation FY Dec (Rpbn) 2016A 2017A 2018F 2019F and implies 12.4x FY18F PE. Our valuation multiple is based on Revenue 3,482 5,362 6,485 6,937 -1SD of its adjusted 5-year average to account for uncertainty EBITDA 529 698 849 909 in the upcoming presidential election next year. Previously, we Pre-tax Profit 353 436 518 546 Net Profit 272 337 401 422 had used 16.5x FY18F PE (based on its 2-year average). We Net Pft (Pre Ex.) 272 337 401 422 maintain our BUY call with 44% upside to our TP. Net Pft Gth (Pre-ex) (%) 56.7 23.7 18.9 5.3 EPS (Rp) 32.7 40.4 48.1 50.6 EPS Pre Ex. (Rp) 32.7 40.4 48.1 50.6 Key Risks to Our View: Delay in project rollout, particularly for the Jakarta-Bandung EPS Gth Pre Ex (%) 57 24 19 5 Diluted EPS (Rp) 31.3 38.7 46.0 48.4 HSR, would result in lower-than-expected earnings for WTON. Net DPS (Rp) 9.38 11.6 13.8 14.5 BV Per Share (Rp) 278 307 341 376 At A Glance PE (X) 11.1 9.0 7.6 7.2 Issued Capital (m shrs) 8,715 PE Pre Ex. (X) 11.1 9.0 7.6 7.2 Mkt. Cap (Rpbn/US$m) 3,172 / 211 P/Cash Flow (X) nm 5.5 3.8 4.6 Major Shareholders (%) EV/EBITDA (X) 6.5 5.6 4.8 4.7 Net Div Yield (%) 2.6 3.2 3.8 4.0 PT Wijaya Karya (Persero) Tbk 60.0 P/Book Value (X) 1.3 1.2 1.1 1.0 KKMS 8.8 Net Debt/Equity (X) 0.1 0.3 0.3 0.3 Treasury Stock 4.3 ROAE (%) 11.8 13.2 14.2 13.5 Free Float (%) 26.9 Earnin gs Rev (%): 0 0 0 3m Avg. Daily Val (US$m) 0.30 Consensus EPS (Rp): N/A 91.1 110 ICB Industry : Basic Materials / Industrial Metals Other Broker Recs: B: 12 S: 0 H: 1 Source of all data on this page: Company, AllianceDBS, DBSVI, Bloomberg Finance L.P
ed: CK / sa:MA, CW, CS Company Guide Wijaya Karya Beton
WHAT’S NEW Limited downside risk to earnings
Limited downside risk to earnings 300bn is expected in 2H19. The total expected contracts for We see limited downside risk to our FY18 earnings forecast of the HSR project are valued at c.Rp1.2-1.5tr, which is lower Rp401bn (+19% y-o-y), as we believe our FY18F revenue is than Rp2-3tr previously. achievable and our margin forecast is quite conservative. We New contracts still on track to meet FY18 target forecast Wijaya Karya Beton (WTON) to book revenue of WTON is targeting to book Rp7.56tr (+5% y-o-y) new Rp6.5tr which is lower than management’s target of Rp6.9tr contracts this year. As of end-July 2018, WTON had secured but higher than consensus estimate of Rp6.2tr. Meanwhile, new contracts of Rp3.7tr (+11% y-o-y) which represent 48% our gross margin assumption of 12.7% is at the mid-range of of its FY18 new contract target. The 7M18 new contract management’s guidance of 12-14%. achievement is still in line with the historical level with 60- FY17 carryover order book to support FY18F revenue 70% new contracts being booked in the second half. Of the Our FY18F revenue of Rp6.5tr (+21% y-o-y) is lower than new contract target, management has guided that 70% management’s target of Rp6.9tr but higher than consensus would have come from government projects. estimate of Rp6.2tr. We believe our revenue forecast is Valuation conservative in view of its carryover order book of Rp5.4tr We change our TP valuation for WTON to EV/EBITDA. We (84% revenue visibility). We believe Rp5.0tr of this order believe it is a more appropriate valuation methodology now book can be recognised in FY18 revenue, as we assume as it directly reflect the company`s operational capabilities. c.RP400bn carryover loss that is equal to 7.8% of carryover, Our TP of Rp600 (vs Rp760 previously) is based on 7.1x its 5-year average. EV/EBITDA and implies 12.4x FY18F PE. Our valuation With only Rp1.5tr left to be achieved for our FY18 revenue multiple is based on -1SD of its adjusted 5-year average to forecast, we believe there is limited downside risk to our account for uncertainty in the upcoming presidential election numbers. As at end-March 2018, WTON had secured new next year. Previously, we had used 16.5x FY18F PE (based on contracts of Rp1.5tr which are likely to be booked in FY18 its 2-year average). We maintain our BUY call with 44% revenue. upside to our TP. We use a more conservative approach for our FY18F new contracts target by assuming new contracts of Rp7.2tr Quarterly net gearing
(flattish y-o-y). This compares to management’s target of 60% Rp7.56tr. 53% 49% Conservative gross margin 50% 41% Our gross margin assumption of 12.7% is at the mid-range of 40% 32% management’s guidance of 12-14%. As we are forecasting 29% 30% 21% y-o-y higher revenue in FY18F, our gross margin inches 25% up from 12.4% in FY17. Net margin, however, is expected to 20% 13% drop slightly from 6.3% to 6.2% on the back of higher 10% 10% interest expenses. 10%
Higher gearing from lower cash balance 0% 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 WTON’s net gearing stood at 49% as of end-June 2018, Source: Company, AllianceDBS, DBSVI slightly lower vs end-March 2018. WTON’s net gearing is on an upward trend as the company has a lower cash balance WTON EV/EBITDA band due to its higher receivables. WTON`s managements indicate 40.0 a lower receivable as they expect more collection in 2H18. 35.0 Excluding Jul-14 to They also maintain gearing at a comfortable level of 100%. 30.0 Dec-15 valuation First contract from Jakarta-Bandung High Speed Railway 25.0 20.0 +2sd Despite prolonged delays for the Jakarta-Bandung HSR, 15.0 +1sd mean WTON has finally secured its first contract for the project with 10.0 -1sd -2sd a value of Rp400bn. Management expects contracts for ready 5.0 mix of c.Rp700-800bn to be awarded at the beginning of ‐ 18 17 16 15 14 18 17 16 15 14 18 17 16 15 14 18 17 16 15 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Jul Jul Jul Jul Jul Jan Jan Jan Jan Oct Oct Oct Oct Oct Apr Apr Apr Apr 2019 at the earliest. The remaining contract of c.Rp100- Apr Source: Company, Bloomberg Finance L.P., AllianceDBS, DBSVI
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Gross margin (%)
CRITICAL DATA POINTS TO WATCH
Critical Factors Clear beneficiary of Jakarta-Bandung HSR. The Jakarta- Bandung high-speed railway (HSR) project is estimated to require 3-3.5m tons of precast concrete in 2017-2019 with a contract value of Rp6tr-Rp9tr. WTON expects to win at least Rp1.2tr-Rp1.5tr of the total contract size. The company plans to set up several temporary production facilities near HSR’s construction site to cater to this large order. In addition, the Production capacity ('000 tons) HSR consortium also plans to build a Transit Oriented Development (TOD) in the vicinity of HSR’s four stations. First-mover advantage in ex-Java market. WTON has continued to expand its coverage to markets outside Java where there are fewer competitors. In these areas, the company often serves as the only large-scale precast producer, allowing it to maintain higher pricing and margins compared to those in Java. Based on our channel checks, WTON’s state-run competitors will still be focusing on expanding in the Java market in the near future. Therefore, we are confident that WTON’s position Sales volume ('000 tons) outside Java markets will remain firm. The rollout of toll roads and port projects outside Java should benefit WTON as it will be able to meet the precast requirements. In FY17, the net margin of the ex-Java market was 400bps higher than Java’s. Best proxy to domestic construction boom. We believe WTON is in a sweet spot to benefit from the government’s ambitious infrastructure buildout plan given that it has the most extensive product offerings and geographical reach. It is worth noting that more than 20% of WTON’s total installed capacity (610,000 ton p.a.) is located outside Java, the largest among Utilisation rate (%) peers. As the government plans to place more focus on infrastructure development outside Java, we believe WTON would be the biggest beneficiary of this shift.
Forward P/E band (x) 80.0
70.0
60.0 P/E 50.0 MEAN 40.0 +1 STDEV 30.0 +2 STDEV
20.0 ‐1 STDEV ‐2 STDEV 10.0
‐ 14 15 16 17 14 15 15 16 16 17 17 18 18 14 15 16 17 18 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ (10.0) ‐ ‐ ‐ ‐ ‐ Jul Jul Jul Jul Jul Jan Jan Jan Jan Oct Oct Oct Oct Apr Apr Apr Apr Apr Source: Company, AllianceDBS, DBSVI
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Company Guide Wijaya Karya Beton
Appendix 1: A look at Company's listed history – what drives its share price?
WTON`s share price vs peers*
WTON share price (LHS) WTON vs. construction (RHS)
1,600 2.0
1,400 A 1.8
B 1,200 C 1 1.6
1,000 C 2 1.4
800 1.2 D 600 1.0
400 0.8
200 0.6
0 0.4
-14 -15 -16 -17 -18 r-14 r-15 r-16 r-17 r-18 g g g g g
p p p p p Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 Oct-14 Feb-15 Oct-15 Feb-16 Oct-16 Feb-17 Oct-17 Feb-18 A A A A A Dec-14 Dec-15 Dec-16 Dec-17 Au Au Au Au Au *Listed state-owned contractors Source: Bloomberg Finance L.P., AllianceDBS, DBSVI
A: Strong pricing power C: Jakarta-Bandung high-speed railway (HSR) WTON’s share price rally post IPO in April 2014 was driven by Despite the declining order book from state-owned its strong earnings growth. WTON had a strong competitive contractors, the appointment of its parent company, WIKA, position with market share of 38.6% in 2013, while the as one of the main contractors for the mega project Jakarta- second largest player only commanded 15.9% market share. Bandung HSR is positive for WTON. Initially, management had This allows the company to enjoy strong pricing power and indicated a potential contract worth Rp6tr-Rp9tr from the margin expansion. mega project. This positive news caused WTON’s share price to rally following the ground breaking of the project in early B: Intensifying competition 2016 (C1). However, after a prolonged series of negotiations Slower-than-expected rollout of government’s infrastructure with China, management had guided that it would likely get projects along with intensifying competition, especially a significantly lower contract target of Rp2tr-Rp3tr as it was among state-owned precast producers, caused WTON’s share unable to meet some of the product specifications. This along price to de-rate in 2015. In FY15, WTON saw its revenue with the delay in HSR construction caused the share price to declining by 19% on the combination of declining ASP and de-rate (C2). revenue contribution from state-owned contractors. State- D: Margin improvement owned contractors such as Waskita Karya, Hutama Karya and PTPP started to expand precast production capacity and opted WTON’s share price continued to underperform in view of its to source their precast requirements internally. This caused lower gross margin from lower ASP arising from tight revenue contribution from state-owned contractors to decline competition in the industry. WTON’s gross margin stood at by 43% y-o-y in FY15 with contribution to WTON’s 12.4% in FY17 (back to the FY15 level) after improving to consolidated sales shrinking from 13% to 9%. Meanwhile, 14.5% in FY16. In 1Q18, gross margin remained weak at we reckon intense competition resulted in WTON lowering its 11.5% but recovered strongly to 14.1% in 2Q18. The strong selling price to maintain market share. margin improvement has yet to be reflected in WTON’s share price.
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Leverage & Asset Turnover (x) Balance Sheet: Robust balance sheet to fund expansion plan. As at end of June 2018, WTON had Rp1,569bn interest-bearing debt, bringing its gross and net gearing to 56% and 49% respectively. The company has allocated a capex budget of Rp676bn for FY18 which will be funded by the combination of internal cash and debt. The company also plans to sell its treasury stocks to the public starting this year. Assuming the treasury stocks are sold at Rp600/share, the proceeds raised would be Rp226bn.
Share Price Drivers: Capital Expenditure Award of large-sized, multi-year contracts. Among the potential Rpbn contracts are the Jakarta-Bandung HSR and Giant Sea Wall. There is also a clear pipeline of multi-year contracts from its parent WIKA which could amount to Rp1.5tr.
Better progress of Jakarta-Bandung HSR construction. The construction progress of the Jakarta-Bandung HSR project is running behind schedule after breaking ground in January 2016. The construction work has finally resumed after months of delay but the consortium has to wait for land clearing process before it can accelerate the construction progress. Better progress for the project would be a re-rating catalyst for ROE (%) WTON’s earnings and share price.
Key Risks: Delay in government’s infrastructure project rollout, particularly for the Jakarta-Bandung HSR, would result in lower-than-expected order book and profit for WTON. Delays in infrastructure project execution will cause WTON’s revenue to fall short of expectations, and also lower WTON’s profitability given its high operating leverage.
Forward PE Band (x) Increasing competition in the Java market. Major SOE contractors are looking to increase their precast production capacities, particularly in the Java market. Intensifying competition may weaken WTON’s pricing power in Java and erode its margins. In FY17, Java contributed 60% and 44% of WTON’s consolidated revenue and earnings respectively.
The bulk of WTON’s cost of goods sold (COGS) is in USD. Steel and cement make up 30% and 20% of WTON’s COGS respectively. Additionally, some overhead costs for its production facilities are also in USD, which exposes WTON’s PB Band (x) profitability to currency fluctuations. Nevertheless, the company has mitigated this risk by signing umbrella contracts for its key raw materials, enabling it to lock in prices for three months.
Company Background WTON is the dominant market leader in precast concrete with over 30% market share.
Source: Company, AllianceDBS, DBSVI
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Key Assumptions FY Dec 2015A 2016A 2017A 2018F 2019F
Gross margin (%) 12.4 14.5 12.4 12.7 12.6 Production capacity ('000 2,335 2,540 3,065 3,600 4,003 Sales volume ('000 tons) 1,413 1,520 1,841 2,054 2,546 Utilisation rate (%) 60.5 59.8 60.1 57.0 63.6
Segmental Breakdown FY Dec 2015A 2016A 2017A 2018F 2019F
Revenues (Rpbn) Concrete 2,591 3,349 4,818 5,832 6,218 Service 61.7 133 545 654 719
Total 2,653 3,482 5,362 6,485 6,937 Operating Profit (Rpbn) Concrete 231 393 467 564 594 Service 7.20 15.5 63.6 76.3 83.9
Total 238 408 530 640 678 Operating Profit Margins Concrete 8.9 11.7 9.7 9.7 9.6 Service 11.7 11.7 11.7 11.7 11.7
Total 9.0 11.7 9.9 9.9 9.8
Income Statement (Rpbn) FY Dec 2015A 2016A 2017A 2018F 2019F
Revenue 2,653 3,482 5,362 6,485 6,937 Cost of Goods Sold (2,324) (2,977) (4,696) (5,659) (6,059) Gross Profit 329 504 667 827 877 Other Opng (Exp)/Inc (90.2) (96.2) (136) (187) (199) Operating Profit 238 408 530 640 678 Other Non Opg (Exp)/Inc (6.4) (16.0) (10.5) 0.0 0.0 Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc (25.9) (40.2) (84.7) (123) (133) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 206 353 436 518 546 Tax (34.3) (70.5) (94.7) (113) (119) Minority Interest 2.10 (9.1) (3.3) (4.0) (4.2) Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 174 272 337 401 422 Net Profit before Except. 174 272 337 401 422 EBITDA 322 529 698 849 909 Growth Revenue Gth (%) (19.1) 31.3 54.0 20.9 7.0 EBITDA Gth (%) (34.5) 64.2 32.0 21.6 7.2 Opg Profit Gth (%) (41.9) 71.2 29.9 20.7 5.9 Net Profit Gth (Pre-ex) (%) (47.1) 56.7 23.7 18.9 5.3 Margins & Ratio Gross Margins (%) 12.4 14.5 12.4 12.7 12.6 Opg Profit Margin (%) 9.0 11.7 9.9 9.9 9.8 Net Profit Margin (%) 6.6 7.8 6.3 6.2 6.1 ROAE (%) 8.0 11.8 13.2 14.2 13.5 ROA (%) 4.2 6.0 5.7 5.5 5.4 ROCE (%) 6.9 10.6 11.0 11.3 11.2 Div Payout Ratio (%) 30.0 30.0 30.0 30.0 30.0 Net Interest Cover (x) 9.2 10.2 6.3 5.2 5.1 Source: Company, AllianceDBS, DBSVI
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Company Guide
Wijaya Karya Beton
Quarterly / Interim Income Statement (Rpbn) FY Dec 2Q2017 3Q2017 4Q2017 1Q2018 2Q2018
Revenue 1,267 1,429 1,937 1,193 1,402 Cost of Goods Sold (1,094) (1,270) (1,704) (1,056) (1,205) Gross Profit 173 159 233 137 197 Other Oper. (Exp)/Inc (35.6) (31.8) (48.9) (29.4) (44.9) Operating Profit 137 127 184 108 152 Other Non Opg (Exp)/Inc 1.60 3.70 (17.7) (5.5) 16.2 Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc (22.3) (21.9) (25.7) (19.6) (27.8) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 116 109 141 82.4 141 Tax (30.1) (24.0) (23.9) (24.8) (38.1) Minority Interest (0.2) (1.8) (0.5) 0.0 (0.2) Net Profit 86.0 83.5 117 57.6 102 Net profit bef Except. 86.0 83.5 117 57.6 102 EBITDA 139 131 167 102 169
Growth Revenue Gth (%) 73.7 12.8 35.5 (38.4) 17.5 EBITDA Gth (%) 66.0 (5.4) 27.1 (38.8) 65.1 Opg Profit Gth (%) 67.9 (7.0) 44.7 (41.6) 41.6 Net Profit Gth (Pre-ex) (%) 68.5 (2.8) 39.7 (50.6) 77.6 Margins Gross Margins (%) 13.6 11.1 12.0 11.5 14.1 Opg Profit Margins (%) 10.8 8.9 9.5 9.0 10.9 Net Profit Margins (%) 6.8 5.8 6.0 4.8 7.3
Balance Sheet (Rpbn) FY Dec 2015A 2016A 2017A 2018F 2019F
Net Fixed Assets 1,998 2,219 2,680 3,317 3,787 Invts in Associates & JVs 0.0 0.0 32.8 32.8 32.8 Other LT Assets 3.70 3.90 4.40 4.40 4.40 Cash & ST Invts 824 343 639 483 323 Inventory 623 695 1,034 1,043 1,115 Debtors 570 654 1,220 1,133 1,211 Other Current Assets 439 750 1,460 1,506 1,525 Total Assets 4,456 4,663 7,068 7,519 7,998
ST Debt 212 470 1,445 1,445 1,445 Creditor 558 664 1,223 1,139 1,218 Other Current Liab 1,025 730 1,548 1,779 1,874 LT Debt 320 200 0.0 0.0 0.0 Other LT Liabilities 79.2 108 104 104 104 Shareholder’s Equity 2,205 2,423 2,676 2,976 3,277 Minority Interests 58.2 68.5 71.9 75.9 80.1 Total Cap. & Liab. 4,456 4,663 7,068 7,519 7,998
Non-Cash Wkg. Capital 49.3 704 943 764 760 Net Cash/(Debt) 292 (327) (807) (962) (1,122) Debtors Turn (avg days) 72.0 64.1 63.7 66.2 61.7 Creditors Turn (avg days) 79.9 78.5 76.2 79.1 73.8 Inventory Turn (avg days) 88.2 84.6 69.8 69.5 67.6 Asset Turnover (x) 0.6 0.8 0.9 0.9 0.9 Current Ratio (x) 1.4 1.3 1.0 1.0 0.9 Quick Ratio (x) 0.8 0.5 0.4 0.4 0.3 Net Debt/Equity (X) CASH 0.1 0.3 0.3 0.3 Net Debt/Equity ex MI (X) CASH 0.1 0.3 0.3 0.3 Capex to Debt (%) 88.8 72.0 34.6 58.5 48.4 Z-Score (X) 2.1 2.4 1.7 1.7 1.9 Source: Company, AllianceDBS, DBSVI
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Company Guide Wijaya Karya Beton
Cash Flow Statement (Rpbn) FY Dec 2015A 2016A 2017A 2018F 2019F
Pre-Tax Profit 206 352 435 517 545 Dep. & Amort. 89.9 135 177 207 230 Tax Paid (34.3) (70.5) (94.7) (113) (119) Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0 Chg in Wkg.Cap. 94.4 (654) (239) 179 3.30 Other Operating CF 102 158 278 0.0 0.0 Net Operating CF 458 (79.2) 556 791 660 Capital Exp.(net) (472) (482) (501) (845) (700) Other Invts.(net) 0.0 0.0 0.0 0.0 0.0 Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0 Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 Other Investing CF 0.0 0.0 (31.0) 0.0 0.0 Net Investing CF (472) (482) (532) (845) (700) Div Paid (98.6) (52.2) (81.7) (101) (120) Chg in Gross Debt (103) 138 310 0.0 0.0 Capital Issues 0.0 0.0 0.0 0.0 0.0 Other Financing CF 0.80 (5.8) 43.0 0.0 0.0 Net Financing CF (201) 80.2 271 (101) (120) Currency Adjustments 0.0 0.0 0.0 0.0 0.0 Chg in Cash (215) (481) 296 (155) (160) Opg CFPS (Rp) 43.7 69.0 95.4 73.4 78.7 Free CFPS (Rp) (1.6) (67.4) 6.66 (6.5) (4.8) Source: Company, AllianceDBS, DBSVI
Target Price & Ratings History
Source: AllianceDBS, DBSVI Analyst: Victor STEFANO Tjen San CHONG
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AllianceDBS, DBSVI recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame) Share price appreciation + dividends
Completed Date: 3 Oct 2018 11:11:24 (WIB) Dissemination Date: 3 Oct 2018 14:55:21 (WIB)
Sources for all charts and tables are AllianceDBS, DBSVI unless otherwise specified.
GENERAL DISCLOSURE/DISCLAIMER This report is prepared by AllianceDBS Research Sdn Bhd (''AllianceDBS''), PT DBS Vickers Sekuritas Indonesia (''DBSVI''). This report is solely intended for the clients of DBS Bank Ltd, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of AllianceDBS Research Sdn Bhd (''AllianceDBS''), PT DBS Vickers Sekuritas Indonesia (''DBSVI'').
The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies.
Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to update the information in this report.
This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned schedule or frequency for updating research publication relating to any issuer.
The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:
(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and (b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein.
Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.
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Industry Focus
Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report.
DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making.
ANALYST CERTIFICATION The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the DBS Group.
COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS'') or their subsidiaries and/or other affiliates do not have a proprietary position in the securities recommended in this report as of 31 Aug 2018. 2. Neither DBS Bank Ltd nor DBS HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.
Compensation for investment banking services:
3. DBS Bank Ltd., DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 months for investment banking services from Waskita Karya as of 31 Aug 2018.
4. DBS Bank Ltd., DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering of securities for Waskita Karya, in the past 12 months, as of 31 Aug 2018.
5. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.
Disclosure of previous investment recommendation produced:
6. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.
1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.
2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.
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RESTRICTIONS ON DISTRIBUTION General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.
Australia This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”). DBS holds Australian Financial Services Licence no. 475946.
DBSVS is exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. DBSVS is regulated by the Monetary Authority of Singapore under the laws of Singapore, which differ from Australian laws.
Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.
Hong Kong This report has been prepared by an entity(ies) which is not licensed by the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). This report is being distributed in Hong Kong and is attributable to DBS Bank (Hong Kong) Limited, a registered institution registered with the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong).
For any query regarding the materials herein, please contact Paul Yong (CE. No. ASE988) at [email protected].
Indonesia This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia.
Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.
Wong Ming Tek, Executive Director, ADBSR
Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report.
Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd.
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United This report is produced by AllianceDBS Research Sdn Bhd which is regulated by the Securities Commission Malaysia. Kingdom This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd, ("DBSVUK"). DBSVUK is authorised and regulated by the Financial Conduct Authority in the United Kingdom.
In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVUK. This communication is directed at persons having professional experience in matters relating to investments. Any investment activity following from this communication will only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments should not rely on this communication.
Dubai This research report is being distributed by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3rd Floor, International Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Financial Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for Centre professional clients (as defined in the DFSA rulebook) and no other person may act upon it.
United Arab This report is provided by DBS Bank Ltd (Company Regn. No. 196800306E) which is an Exempt Financial Adviser as defined Emirates in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. This report is for information purposes only and should not be relied upon or acted on by the recipient or considered as a solicitation or inducement to buy or sell any financial product. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situation, or needs of individual clients. You should contact your relationship manager or investment adviser if you need advice on the merits of buying, selling or holding a particular investment. You should note that the information in this report may be out of date and it is not represented or warranted to be accurate, timely or complete. This report or any portion thereof may not be reprinted, sold or redistributed without our written consent.
United States This report was prepared by AllianceDBS Research Sdn Bhd (''AllianceDBS''), PT DBS Vickers Sekuritas Indonesia (''DBSVI''). DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.
Other In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, jurisdictions professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.
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DBS Regional Research Offices
HONG KONG MALAYSIA SINGAPORE DBS Vickers (Hong Kong) Ltd AllianceDBS Research Sdn Bhd DBS Bank Ltd Contact: Paul Yong Contact: Wong Ming Tek (128540 U) Contact: Janice Chua 18th Floor Man Yee Building 19th Floor, Menara Multi-Purpose, 12 Marina Boulevard, 68 Des Voeux Road Central Capital Square, Marina Bay Financial Centre Tower 3 Central, Hong Kong 8 Jalan Munshi Abdullah 50100 Singapore 018982 Tel: 65 6878 8888 Kuala Lumpur, Malaysia. Tel: 65 6878 8888 Fax: 65 65353 418 Tel.: 603 2604 3333 Fax: 65 65353 418 e-mail: [email protected] Fax: 603 2604 3921 e-mail: [email protected] Participant of the Stock Exchange of Hong Kong e-mail: [email protected] Company Regn. No. 196800306E
INDONESIA THAILAND PT DBS Vickers Sekuritas (Indonesia) DBS Vickers Securities (Thailand) Co Ltd Contact: Maynard Priajaya Arif Contact: Chanpen Sirithanarattanakul DBS Bank Tower 989 Siam Piwat Tower Building, Ciputra World 1, 32/F 9th, 14th-15th Floor Jl. Prof. Dr. Satrio Kav. 3-5 Rama 1 Road, Pathumwan, Jakarta 12940, Indonesia Bangkok Thailand 10330 Tel: 62 21 3003 4900 Tel. 66 2 857 7831 Fax: 6221 3003 4943 Fax: 66 2 658 1269 e-mail: [email protected] e-mail: [email protected] Company Regn. No 0105539127012 Securities and Exchange Commission, Thailand
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