INDONESIA CONSTRUCTION SECTOR OVERWEIGHT
Sector Reinitiation | Construction Sector 26 Aug 2016
Michael Ramba Rapid growth [email protected] +6221 23587222 ext 201 Growing rapidly with infrastructure development
We expect Indonesia construction sector to experience new contract growth of 28% CAGR 2015-2018F vs 19% CAGR 2011-2015, supported by more SECTOR PERFORMANCE government related project on infrastructure for the next three years. In the
Mid-Term Development Plan (RPMJN) 2015-2019, the government targets to 7,500 reach IDR5,519tn infrastructure projects, which creates plenty of opportunities for SOEs construction companies to pursue new contracts 6,000 growth. At the same time, we are more positive with the government’s decision to increase the 2017 infrastructure budget to IDR346.6tn (17% of 4,500 total 2017’s government spending) vs. IDR313.5tn in 2016 (15% of total 2016 government spending). The higher budget disbursement from The 3,000 Ministry of Public Works and Public Housing (26.7 % vs 15.5% in 1H15) also indicates that tendering process is being accelerated, which should benefit 1,500 SOE construction companies.
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Aug-15 Nov-15 Feb-16 May-16 Aug-16 Gaining momentum from tax amnesty program The infrastructure development in Indonesia has lost its momentum in the JCI CONSTR last two years due to limited availability of government fund, and slower economic growth. After becoming a president, Jokowi has showed its effort by extremely reducing energy subsidies, but unfortunately, was still insufficient. Another important move from Jokowi is the tax amnesty MARKET DATA program, which not only create more room to increase tax revenue, but will Absolute 23.1% 4.4% 13.8% 39.0% also generate liquidity from repatriated funds. From the IDR1,000tn JCI Return 18.5% 4.2% 14.0% 28.7% repatriated fund target, government plans to allocate at least IDR300tn to Relative 4.6% 0.2% -0.2% 10.3% SOEs (with priority to SOEs construction companies) through several instruments including bonds. This will create more liquidity for SOE construction companies in order to bid for larger infrastructure projects.
Increasing leverage through rights issue plans After the approval of state capital injection (PMN), WIKA and PTPP are planning to conduct rights issue this year, with total fund raising of IDR10.5tn, including PMN. Note that WSKT and ADHI have previously obtained IDR8tn from their rights issue in 2015. The rights issue fund will not only strengthen capital structure, but also elevate companies’ leverage. With the scheme of 1:2, WIKA and PTPP will able to raise additional loan for up to IDR21.8tn to fund their priority projects and pursue larger-scale projects.
Reinitiate with an Overweight, WIKA and ADHI as stock picks We reinitiate coverage on the construction sector with an OVERWEIGHT stance, as we believe that current valuation still has room for improvement. Despite the current valuation of 2017F’s 23x PE (slightly higher than +1 SD above mean), we believe there is still an upside potential from the strong new contract growth and solid earnings outlook (32.9% CAGR 2015-2018). We like WIKA and ADHI as our stock picks because both of them have: i) stronger new contract growth compared to peers, and ii) high exposure on the government’s strategic projects including and HSR and LRT.
Exhibit 1. Sector comparison
TP CP NP (IDR bn) EPSG (%) PER (x) PBV (x) ROE (%) Div Yield (%) Ticker Rating (IDR) (IDR) 2016F 2017F 2016F 2017F 2016F 2017F 2016F 2017F 2016F 2017F 2016F 2017F WSKT BUY 3,400 2,780 1,527 2,077 45.7 36.1 24.7 18.2 3.5 2.5 12.6 16.0 0.9 1.2 WIKA BUY 4,100 3,270 868 1,128 38.9 29.8 23.1 17.8 3.5 3.4 15.7 19.5 1.1 1.4 PTPP BUY 5,600 4,650 995 1,328 34.3 33.6 22.6 17.0 4.3 4.1 20.1 25.9 0.6 0.8 ADHI BUY 3,700 2,800 541 859 16.8 58.6 18.5 11.7 1.9 1.9 9.3 14.2 0.8 1.2 WTON HOLD 975 950 336 403 35.5 7.2 34.3 32.0 3.4 3.1 10.0 10.8 1.0 1.2 Source: Companies, BCA Sekuritas
Massive support from infrastructure development Infrastructure development has become the government limelight following increasing government budget for infrastructure projects over the past three years. President Jokowis’s program to boost infrastructure development has created a positive impact to overall construction sector, as well as its stock price performance. From 2013 to Jul-16, stock prices of four SOE construction companies grew by more than double. We think the infrastructure development will remain as the government’s priority, which is in line with government’s commitment to provide a better infrastructure in the next three years. We believe this will directly benefit SOE construction companies such as WIKA, WSKT PTPP and ADHI given their records of accomplishments. Exhibit. 2 shows that the construction sector has become the driving force of JCI movement within the last 3 years. With the government priority to push infrastructure development in the country, we think it may have some more to go.
Exhibit 2. JCI index vs construction sector 8,000
6,000
4,000 Construction sector has outperform JCI by 6.74% YTD
2,000
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JCI CONSTR
Source: Bloomberg
Exhibit 3. Jakprop index vs construction sector 700
600
500 Construction sector also grows 400 faster than property sector in the 300 last 2 years.
200
100
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JAKPROP CONSTR
Source: Bloomberg
Five SOE construction companies (WIKA, WSKT, ADHI, PTPP, and WTON) have also grown faster than JAKPROP index in the last three years. Total new contract achievement of four SOE companies grew by 19 % CAGR 2011-2015. The top line numbers of the five companies also grew by 16% CAGR 2011-2015, while net profit growth was reported at 29% CAGR during the same period. 2
Exhibit 4. Price performance of five construction companies 5,000
4,500
4,000
3,500 Construction companies’ prices 3,000 ADHI moved faster in the last three 2,500 PTPP years 2,000 WIKA WSKT 1,500 WTON 1,000
500
-
Source: Bloomberg
We forecast top line growth of 29% and net profit of 32% CAGR for 2015- 2018F. We believe the sector remains attractive for the next three years due to: i) President Jokowi’s program to push infrastructure projects such as toll roads, ports, bridges and power plants until 2019, which will directly benefit SOE construction companies, ii) SOE construction companies’ strong ability to win larger scale projects on the back of strong capital from additional state capital injection (PMN) and rights issues. Note that WSKT and ADHI have done their rights issue last year, while WIKA and PTPP plans for rights issue this year.
Exhibit 5. New contract growth (IDRbn)
215,786 183,026 2%
3% 151,153 38%
3% 38%
101,842 36% SOE construction companies to 75,276 3% 27% 64,344 28% book new contract growth of 61,057 32% 3% 28% 49,427 4% 4% 30% 28% CAGR 2015-2018F 20% 21% 25% 4% 21% 20% 28% 23% 20% 28% 21% 27% 27% 25% 32% 30% 27% 11% 24% 16% 17% 16% 14% 12% 11% 2011 2012 2013 2014 2015 2016F 2017F 2018F
ADHI PTPP WIKA WSKT WTON
Source: Companies, BCA Sekuritas
Exhibit 6. Revenue growth forecast (IDRbn)
117,198
95,693 4%
76,361 4% 31% 54,033 5% 32% Revenues are expected to grow 47,108 by 29% CAGR 2015-2018F 45,672 31% 25% 36,376 5% 24% 29,578 6% 7% 26% 24% 6% 21% 22% 25% 24% 6% 24% 26% 26% 24% 25% 27% 25% 26% 26% 26% 22% 26% 21% 16% 16% 23% 21% 21% 18% 17% 16% 2011 2012 2013 2014 2015 2016F 2017F 2018F ADHI PTPP WIKA WSKT WTON
Source: Companies, BCA Sekuritas
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Exhibit 7. Net profit forecast (IDRbn)
6,949 4% 5,397
4% 31% 4,175 We forecast net earnings to grow 5% 32% 3,051 by 32% CAGR 2015-2018F 31% 25% 2,008 2,301 5% 26% 24% 1,431 7% 1,092 6% 24% 21% 22% 24% 6% 25% 24% 24% 26% 26% 25% 25%6% 26% 26% 27% 26% 26% 21% 22% 16% 16% 23% 21% 21% 18% 17% 16% 2011 2012 2013 2014 2015 2016F 2017F 2018F ADHI PTPP WIKA WSKT WTON
Source: Companies BCA Sekuritas
On segment basis, we forecast construction revenue to grow by 31% CAGR 2015-2018F vs 15% CAGR 2011-2015, as we expect higher total order book from more participation in large infrastructure projects within the next three years. Secondly, we expect SOEs construction companies will be more aggressive in tendering participation in several EPC projects from both government and private sectors that translates to EPC segment’s growth of 28% CAGR 2015-2018F. Thirdly, we believe higher construction projects will elevate precast concrete demand. We expect WTON and Waskita Beton Precast (WBP) will dominate precast concrete business in the future. With the higher production capacities compared their peers, we estimate WTON and WBP to command around 74% of precast concrete industry, assuming overall production capacity to increase to 7mn tons/year in 2017. We see the aggressive expansion in the production capacity from both companies will generate higher precast revenue. We forecast precast revenue of the sector to grow by 22% CAGR 2015-2018F.
Exhibit 8. Construction segment forecast (IDRbn)
32,604 32,604
27,170 27,170 Higher new order book will lead to higher contribution of
22,514 22,514 construction segment. We expect 20,866 20,866 WSKT to contribute the highest 18,755 18,755 construction revenue from the
15,347 15,347 investment of toll road
14,758 14,758
5,984 5,984
12,439 12,439
12,833 12,833
12,052
10,363 10,363
9,559 9,559
11,611 11,611
9,484 9,484
9,517 9,517
10,662
7,994 7,994
8,808 8,808
3,271 3,271
9,952 9,952
7,203 7,203
6,767 6,767
7,266 7,266
7,389 7,389
6,340 6,340
6,529 6,529
5,727 5,727
5,565
5,094 5,094
4,731 4,731 3,898 3,898 2011 2012 2013 2014 2015 2016F 2017F 2018F
ADHI PTPP WIKA WSKT
Source: Companies BCA Sekuritas
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Exhibit 9. EPC segment forecast (IDRbn)
9,456
7,012 We expect WIKA to deliver higher 5,445 contribution in EPC segment vs peers from the company’s power plant projects. 3,370 3,009 2,931 3,178 2,211 1,891 2,009 1,692 1,579 776 1,351 1,445 863 928 1,701 1,219 1,444 548 806 645 636
2011 2012 2013 2014 2015 2016F 2017F 2018F ADHI PTPP WIKA
Source: Companies BCA Sekuritas
Exhibit 10. Precast segment forecast (IDRbn)
5,000
4,000 3,810 3,384 Precast business will likely to be dominated by WTON and Waskita 3,000 2,444 Beton Precast (WBP) from 2,069 aggressive expansion in the next 2,000 three years
1,000 803 292 226 127 149 198 151 165 165 98 - 33 2011 2012 2013 2014 2015 2016F 2017F 2018F
ADHI PTPP WSKT WTON
Source: Companies BCA Sekuritas
The government’s support is a key catalyst The government’s priority on infrastructure development becomes a key catalyst for the overall construction sector. We highlight several government projects, such as 35GW power plant project, Trans Sumatera and Trans Sulawesi and several ports projects, which should potentially become new contract drivers of SOEs construction companies. From 2010-2015, the government budget on infrastructure showed a significant improvement, growing by 24% CAGR 2010-2016. The Ministry of Finance revealed that the higher infrastructure budget was distributed to The Ministry of Public Works and Public Housing (PUPR). Total value of PUPR budget reached IDR338.8tn, which was equal to 48% of total infrastructure budget in the past five years. Most of PUPR’s infrastructure spending went to several projects such as roads and bridges, ports, damns and power plants in Java, Sumatera, Sulawesi and other areas across Indonesia.
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Exhibit 11. Government’s budget on infrastructure projects (IDRbn)
313,500
256,300 44% 33% Government budget on infrastructure projects grew 27% 177,900 155,900 24% CAGR 2010-2016 22% 114,200 14% 86,000 145,500 13%
7%
2010 2011 2012 2013 2014 2015 2016
Infrastructure budget Growth
Source: MoF, Bappenas
Exhibit 12. Infrastructure budget based on Ministry (IDRbn)
313,500
256,300 32% Ministry of Public Work and 149,400 42% Public Housing has the highest 135,000 15% 122,700 1% allocation of infrastructure 91,200 projects with an average of 45% 45% 17% 59,900 47% 48% 2% 52% 47% 18% 21% 19% 6% 39% 42% 18% 5% 6% 21% 7% 31% 33%5% 28% 27% 27% 2010 2011 2012 2013 2014 2015 2016
Ministry of Public Works and Public Housing Ministry of Transportation Ministry of Energy and Mineral Resource Other
Source: MoF
We believe that government will continue to enhance infrastructure development in the next few years, considering that the overall infrastructure quality in Indonesia is still below other ASEAN countries such as Malaysia, Singapore or Thailand. According to LPI Global Ranking, Indonesia ranked number 63, below Singapore (5), Malaysia (32), and Thailand (45). The lower infrastructure quality translates to higher logistic cost in several areas.
What are Jokowi’s priority infrastructure projects in the next three years? President Jokowi’s program to push infrastructure projects creates plenty of opportunities, especially for SOEs construction companies. Jokowi has prepared 225 national strategic projects, which contained in Presidential Decree No.3/2016, in order to accelerate overall infrastructure development across Indonesia. We think the 225 national strategic projects will play an important role to deliver guidance for all ministries, departments and investors.
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Exhibit 13. The government’s strategic project Project Segment Number of projects Toll road infrastructure development 47 Non- toll road 5 Intercity railway 12 Innercity railway 7 Airpots renewal 11 New airport 3 Other strategic airport 2 New port and capacity expansion 13 The government target to 1 million houses 3 complete 225 strategic projects Oil refinary 3 across Indonesia within 2015- Gas pipe /LPG terminal 3 2019. Waste power plant 1 Drinking water project 8 Communal waste-water system 1 Embankment 1 State transboundary project 7 Dam 60 Broadband enhancement 2 Science and technology development 1 Industrial estate and special economic zone 24 Tourism 1 Smelter 6 Agriculture and fishery project 4 Total 225
Source: Bappenas, BCA Sekuritas
As of Jun 2016, the construction progress of the 225 strategic projects is moving rather slowly. There are 137 projects in the planning phase, while only 88 projects are entering construction phase. The slowing construction progress is primarily due to incomplete feasibility study. Further, some of the projects are still struggling to find definite funding sources. In order to accelerate the projects development, President Jokowi instructs several Ministries, including Coordinating Ministry for Economic affairs and National Development Planning Board (Bappenas) to expedite the feasibility study. As for the funding source, the president also instructs The Investment Coordinating Board to make business plans for the projects that have yet to enter the construction phase.
Exhibit 14. The construction progress of strategic projects
The construction progress of the 225 strategic projects is moving Under rather slowly. As of June 2016, construction there are 137 projects in the 39% planning phase, while 88 projects Planning are in the construction phase 61%
Source: Bappenas, BCA Sekuritas
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At the same time, the government also sets several key projects, which have been selected as priority infrastructure projects in Indonesia within the period of 2016-2019. Based on Committee of Infrastructure Priorities Development Acceleration (KPPIP), there are 30 priority infrastructure projects with total estimated value of IDR876tn. Most of the projects will enter the early stage of tendering process, which we think could generate ample opportunities for SOEs construction companies.
Exhibit 15. 30 priority infrastructure projects
No Project name Investment value (IDR bn) Project owner 1 Balikpapan-Samarinda toll road 9,900 Indonesia Toll Road Authority (BPJT) 2 Manado-Bitung toll road 5,100 Indonesia Toll Road Authority (BPJT) 3 Serang-Panimban toll road 10,800 Indonesia Toll Road Authority (BPJT) 4 Trans Sumatera 81,000 Assigmnet PT Hutama Karya 5 Soekarno-Hatta railway 24,000 Ministry of Transportation 6 North-South line Jakarta MRT 25,000 Provincial Government of DKI Jakarta 7 Makassar-Parepare railway 6,400 Ministry of Transportation 8 Kuala Tanjung port 34,300 Ministry of Transportation 9 Bitung port 34,000 Ministry of Transportation 10 Karangkates hydroelectric power plant NA 11 Kesamben hydroelectric power plant NA The 30 priority projects are 12 Lodoyo hydroelectric power plant NA expected to boost economy 13 Inland waterways Cikarang-Bekasi sea 3,000 PT Pelabuhan Indonesia II 14 LRT South Sumatera 7,150 Ministry of Transportation across Indonesia 15 LRT Jakarta, Bogor, Depok, Bekasi 34,300 Ministry of Transportation 16 National capital integrated coastal development (Phase A) 26,000 Provincial Government of DKI Jakarta 17 Jakarta waste processing system 8,100 Provincial Government of DKI Jakarta 18 Development plan water supply system Semarang 1,170 Munipical Government of Semarang 19 High voltage direct current 33,400 PT PLN 20 Electricity transmission Sumatra 24,400 PT PLN 21 Central-West Java electricity transmission 7,640 PT PLN 22 Batang power plant 40,000 PT PLN 23 Electric steam power plant Indramayu 20,000 PT PLN 24 Electric steam power plant South Sumatra 18,000 PT PLN 25 Bontang oil refinery 75,000 PT Pertamina (awaiting assignment) 26 Revitalization refinary development masterplan 210,000 PT Pertamina 27 West Java port (northern coast) NA 28 Tuban oil refinary 108,000 PT Pertamina 29 Palapa ring broadband 3,600 30 East Kalimantan railway 25,000 PT Kereta Api Borneo / Russian Railways Source: KPPIP, BCA Sekuritas
According to Bappenas, the 30 priority projects are included in the infrastructure projects that should create multiple economic effects. There are several development schemes in these projects, including pure government projects, JV with private sector, and direct appointment to SOEs. Based on the projects list, the transportation sector is on the top list of the government’s priority projects with 13 projects, including LRT, MRT and ports. With total estimated value of IDR300tn, the transportation projects are the focus of Jokowi’s infrastructure development program. This is in line with the government’s target to reduce logistic costs across Indonesia. The projects list could also help foreign independent investors to have an understanding of infrastructure development guidance in order to make investments. In our opinion, five SOE’s construction companies will become the main beneficiaries of government priority projects given that their track record of handling large scale projects in recent years. All five may have the same opportunity to pursue higher new contracts since the 30 priority projects have a complete scope. In order to support the acceleration of the economic development, the focus of infrastructure development is divided into eight major sectors: agriculture, mining, energy, industrial, marine, tourism, telecommunication and the development of strategic areas. Numbers of infrastructure projects including toll, road and bridges, power plants, port and irrigation and public transportation will be tendered as government, private or public- private projects. Below are the key infrastructure projects, in which five SOEs construction companies will potentially participate.
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Exhibit 16. Infrastructure development in 2015-2019
The government indicates several priority projects, including toll road, port, railway and airport
Source:Bappenas
1. The development of 1,000km toll road In the medium-term development, the government targets to add around 1,000km new toll roads. In order to increase 1,000km toll road in a period of 2015-2019, the government is likely to add 200km each years. In 1Q16 the government has offered three major sections as a part of additional 1,000km, which are i) Cileunyi-Sumedang-Dawuan (Cisumdawu), ii) Serang-Panimbang and iii) Legundi-Bunder with total length of 172km. We see that the toll road projects will open plenty of opportunities for construction companies to participate in the projects bidding. Big players such as WSKT will likely to be the main beneficiary given its track record.
Exhibit 17. Number of toll road projects in several region
Toll Road Project Length (Km) Ownership Location Tanjung Priok Access 11 Government Jakarta Cisamadu toll road for Cileunyi-Sumedang section 29 Government West Java Cikampek-Palimanan 117 Private West Java Cisumdawu toll road, for Sumedang and Dawuan section 29 Private West Java Pasirkoja-Soreang 11 Private West Java Solo-Ngawi, part of trans Java 21 Government Central Java Pejagan -Pemalang 57 Private Central Java Pemalang-Batang 39 Private Central Java Batang-Semarang 75 Private Central Java Semarang-Solo 73 Private Central Java Solo-Ngawi toll road for Karanganyar-Ngawi section 69 Private Central Java Government prepares around Ngawi Kertosono toll road for Saradan-Kertosono section 38 Government Central Java 1,000km additional toll road Ngawi Kertosono toll road for Ngawi-Saradan section 50 Private Central Java within 2015-2019 Kertosono-Mojokerto 41 Private East Java Mojokerto-Surabaya 36 Private East Java Pandaan-Malang 38 Private East Java Balikpapan-Samarinda 99 Government East Kalimantan Batam Hangnadim Airport 25 Private Batam Bakauheni-Lampung (part of trans Sumatera) 150 Private Lampung Pekanbaru-Kandis-Dumai (part of trans Sumatera) 136 Private Riau Manado Bitung 39 Government and Private North Sulawesi Palembang-Indralaya (part of trans Sumatera) 22 Private South Sumatera Medan-Kualanamu-Pakam 18 Government North Sumatera Pakam-Tebing Tinggi 44 Government and Private North Sumatera
Medan-Binjai 16 Government and Private North Sumatera
Source: Bappenas
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Exhibit 18. Additional 1,000km toll road across Indonesia
Around 57% of additional toll road projects are located in Java area, while 32%, 8% and 3% are located in Sumatera, Kalimantan and Sulawesi, respectively. As of June 2016 58% of the project have entered tendering process, 11% in land clearing process, while 31% is under construction.
Source: Bappenas, PUPR
The main challenge in toll road projects is the land clearing process. In order to speed up the toll road development, the government prepares IDR16tn of reserve fund for land acquisition in 2016. The total investment needed for land procurement is expected to reach IDR41tn until 2018. At the same time, the government already requested investors to declare their interests and provide the necessary documents to the government in order to accelerate the land clearing process. For example, the land procurement for the Sumedang section of the Cisumdawu toll road has just begun, while only 10 percent of the land procurement for the Legundi- Bunder toll road (29.3 kilometers) has been completed. We think there may be additional toll road projects offered to investors and private sectors for bidding such as the Jakarta-Cikampek II toll road and the Jakarta Elevated project that are currently being proposed by The state-controlled toll road developer (BPTJ). Previously, the Ministry of Public Works and Housing has approved WSKT's proposal on the IDR5.9tn Legundi-Bunder toll road.
2. The power plant projects Based on The Ministry of Energy and Mineral Resources data, many regions in Indonesia do not have sufficient electricity. The State Electricity Company (PLN) reveals that Indonesia electricity consumption is expected to rise by 1.3x from 183.2GW in 2013 to 244.3GW in 2020. It means the government has to increase electricity capacity by around 7GW per year. To meet the electricity needs, the government has set a target of adding 35GW by 2019, which is included in The National Mid-Term Development Plan 2015-2019. The target will require a huge investment, expected at more than IDR1,100tn (USD87bn). PLN will build power plant to produce 10GW, while the remaining 25GW, in the form of 74 power plants projects will be offered to Independent Power Producer (IPP). Exhibit 19. PLN’s scheme on 35GW power plant project
On the 35GW power plant PLN, 10,000 projects scheme, PLN will 29% develop 10GW, while the remaining 25GW will be developed by IPP IPP, 25,000 71%
Source: PLN, BCA Sekuritas
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Exhibit 20. PLN’s estimate of Electricity demand (in TWh) 500
82.8 400 65.9 57.1 300 52.8 47.8 Indonesia’s electricity 42.7 40 consumption is expected to 34.7 33.1 reach 332GW in 2020 and 200 31.2 464GW in 2024. 27.9 22.6 25.8 20 324.4 278.6 239.5 100 207.1 153.6 165.4 178.3
0 2014 2015 2016 2018 2020 2022 2024
Java,Bali East Indonesia Sumatera
Source: PLN, BCA Sekuritas
The power plant projects for IPP are planned to take place in Java and Bali (18.6GW), Sumatera (10.1GW) Sulawesi (3.5GW) Kalimantan (2.6GW), Nusa Tenggara (0.7 GW), Maluku (0.3 GW) and Papua (0.2 GW). Based on PLN’s calculation, the projects require investment of USD92.9bn, of which USD50.5bn will be funded by PLN and the remaining USD42.4bn will be from IPP scheme.
Exhibit 21. The 35GW power plant project across Indonesia
Nusa Maluku Papua Tenggara 1% 0% 2% Kalimantan 7% Sulawesi Around 52% or 18.6 GW of the 10% 35GW power plant project is located in Java. Java 52%
Sumatera 28%
Source: PLN, BCA Sekuritas
Most of the power plant constructions are probably to be tendered trough IPP schemes, due to limited financial capability of PLN. As the main coordinator of 35GW power plant project, PLN will implement the tendering process in two ways: direct appointment and auction. Several power plant projects through direct appointment should be positive for SOEs. According to PLN, there are around 88 foreign investors, which have finished acquiring their permits, and are ready to invest in 35GW projects. Some countries that support these mega-projects are China, Japan, South Korea, USA, Italy and England. Recently, PLN has approved 2x1GW PLTU Tanjung Jati B, which won by Sumitomo Corporation, and 2x1GW coal-fired power plant Jawa VII (won by China Shenhua Energy).
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Exhibit 22. Financing scheme of 35GW project
PLN funding Power plant USD 16.2 bn Transmission USD 10.2 bn Total funding Substation USD 8.1 bn Power plant USD 53.7 bn Distribution USD 7.4 bn PLN is expected to build 10.8GW Transmission USD 10.9 bn IDC USD 5.3 bn power plant project, with total Substation USD 8.4 bn Land Acquisition USD 3.2 bn value of USD16.2bn, while IPP Distribution USD 7.4 bn Total USD 50.5 bn will develop 25GW with total IDC USD 5.4 bn value of USD37.5bn Land Acquisition USD 7.3 bn IPP funding Total USD 92.9 bn Power plant USD 37.5 bn Transmission USD 680 mn Substation USD 249 mn Land Acquisition USD 4.1 bn Total USD 42.4 bn
Source: PLN, BCA Sekuritas
PLN as the main coordinator of the 35GW power plant projects will also develop transmission and substation projects. It will be fully carried out by PLN, including determining the procurement procedures. In order to implement transmission and substation projects, PLN will: i) procure contractors which are responsible to conduct the construction and installation of transmission lines and substations, ii) appoint EPC contractors, including SOEs to conduct construction and installation of transmission lines and substation, iii) appoint some contractors in order to procure financing of transmission and substation installation.
As of Jun-16, there are 8GW (22%) in the planning phase, 10.4GW (29%) in the procurement process, 9.7GW (27%) in the financing process and 8.2GW (22%) are under construction. We see that the 35GW construction progress is moving rather slowly. To meet the 35GW by 2019, government has to build at least 7GW each year (from 2015-2019) from both of PLN and IPP. The major obstacles are the land acquisition issue, the postponement of several power purchase agreement (PPA) and the delay in environmental assessment.
Exhibit 23. Construction progress of 35GW power plant projects
Construction Planning 22% 22%
The construction progress of 35GW power plant project is moving a rather slowly. However, Financing Procurement we are more positive of Jokowi’s 27% 29% effort to speed up the project.
Source: PLN
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However, we are positive with Jokowi’s effort to speed up this mega- project. In the next three years, we expect more approval for power plant projects from both PLN and IPP. This will open plenty of opportunities for local construction companies, including SOEs. We see that WIKA, one of big player in power plant project, will get the highest benefit given its track record in handling large scale power plant projects.
3. Port, irrigation and dam In order to reduce the country’s logistic costs by 10%-15%, the government has committed to develop sea toll road, a maritime program initiated by president Jokowi. According to Bappenas, there are nine programs which are a part of sea toll road projects and requires huge investment fund: 1. Development of 24 strategic ports, including dredging and terminal container development, with investment value of IDR243tn fund. 2. Short sea shipping with estimated investment value of IDR7.5tn. 3. General cargo and bulk facility with total investment of IDR40.6tn 4. Other non-commercial port development, which consist of 1,481 ports, with investment value of IDR198.1tn. 5. Development of 83 commercial ports with total investment value of IDR41.5tn. 6. Multi transportation investment value expected to reach IDR 50tn. 7. Revitalization of 12 shipbuilding industry with investment fund of IDR10.8tn 8. Vessel procurement from 2015-2019 worth of IDR101.7tn 9. Procurement of patrol boats with investment value of IDR6tn.
Exhibit 24. Government target to develop 24 strategic ports
Government to develop 24 strategic ports including 5 hub ports and 19 feeder ports across Indonesia
Source: Bappenas, BCA Sekuritas
We believe that the government still relies on investment fund from both local and foreign investors to develop the 24th strategic ports across Indonesia. The total investment fund is expected to reach IDR243tn, while the government has allocated only IDR9.5tn, including IDR850bn of state capital injection (PMN). This will open many opportunities for local and foreign investors to participate in the projects. Among SOE construction companies, we think PTPP should be the main beneficiary from the project. PTPP has higher exposure on port projects compared to other SOEs.
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4. LRT and HSR projects The construction of LRT project has been delayed since 1Q16 due to different opinion of rail specification between local government and Ministry of Transportation (MoT). The DKI government previously sent a proposal letter to MoT regarding its plan to use a different standard of rolling stock. The problem, however, has been solved, in which MoT will cooperate with DKI government to speed up the construction of LRT project. In order to speed up the construction of LRT project, President Jokowi has revised presidential decree (Perpres) No 98/2015 with the new presidential decree No 65/2016. With the new Perpres, Jabodetabek LRT project will be conducted by ADHI, while a provincially owned company, PT Jakarta Propertindo (Jakpro), will build the city LRT project. The first phase of LRT project is expected to contribute around IDR17-20tn new contract depending on final negotiation on the projects, including the rail size and specification. The company expects to sign the LRT contract in 2H16 as it has completed the technical and budget plans. In terms of funding, ADHI has secured construction cost of LRT project through IPO fund in 2015 and syndicated loan from several SOE banks. Further, we think that the change of Minister of Transportation from Ignatius Jonan to Budi Karya has shown president’s persistence in order to accelerate the construction of LRT project.
Exhibit 25. Greater Jakarta LRT project
Total construction value of LRT project is around IDR34tn. ADHI will develop the project in 2 phases
Source: Wikipedia
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Exhibit 26. Palembang LRT project
The construction of Palembang LRT project has started since 2015, and is expected to finish in 2018. WSKT is the main contractor of the project.
Source: Wikipedia
Meanwhile, WSKT has recently obtained new contract from Palembang LRT, worth of IDR11tn. The company was previously urged MoT to sign contract value of the project since early 2016, because WSKT saw that contract postponement could hamper the overall funding process. With the contract value signed, WSKT should be able to develop Palembang LRT project according to the schedule. We see that the construction of Palembang LRT will not only benefit WSKT’s construction business, but also underpin its precast business. WSKT through its subsidiary Waskita Beton Precast (WBP), increases its production capacity aggressively in order to accommodate demand from Palembang LRT project.
Separately, PT Kereta Cepat Indonesia China (KCIC) is expected to obtain 100% of construction permit of Jakarta-Bandung HSR project shortly, following the change of the Minister of Transportation. The construction progress of the project was previously obstructed since the company has only managed to secure construction permit for only 5km. The issuance of the construction permit for the remaining 137km will open WIKA’s opportunity to obtain contract from the 1st phase of the project. According to the company, it will likely to occur by end of Aug 2016.
Exhibit 27. Jakarta-Bandung HSR
WIKA will develop HSR project in 3 phases. Construction value of the first phase project is IDR17tn, which is likely to be obtained in 3Q16
Source: Company
15
Exhibit 28. Potential beneficiary of the government’s projects Projects Estimated value Potential (IDR tn) beneficiaries 1000 km toll road 133 WSKT The overall government’s 35GW power plant 1,207 WIKA, PTPP strategic project should benefit 24 strategic ports 243 PTPP SOE construction companies.
HSR and LRT 109 WIKA,ADHI
Source: Companies, Bapppenas
Gaining momentum with tax amnesty We see that the infrastructure development has lost its momentum in the past few years due to limited availability of government funds, and uncertainty from legislative and presidential elections in 2014. After Jokowi became Indonesia's seventh president in October 2014, it was expected that infrastructure development would resurrect. Jokowi has made several policies to raise infrastructure budget. One important move was by seriously reducing energy subsidies. However, it was still insufficient to sustain funding requirement for the government infrastructure projects. Recently, Jokowi launched another move through tax amnesty program, which is expected to increase tax revenue. The implementation of tax amnesty program should bring multiplier effect, which is not only positive to increase tax revenue, but will also generate potential repatriated fund. The government expects a fund inflow of around IDR1,000tn from assets repatriated from overseas, with low penalty charges, or redemption rates. In accordance to Ministry of Finance regulation No 122/2016, repatriated funds can be invested in the real sector in the form of property, infrastructure developments, trade and manufacturing. The most important thing is the capital inflow can be used to construct outstanding infrastructure projects in order to elevate financial capability of government's priority projects. The government is also preparing several instruments, including government bond, to accommodate repatriated funds, and to prioritize infrastructure-related companies. With the specific instruments prepared by the government, we believe that funding source for several key projects will be easier. This will benefit priority infrastructure projects, which are conducted by SOE construction companies. In the meantime, The Ministry of Public Works and Public Housing (PUPR) is currently preparing a list of infrastructure projects that could be offered as destinations for such funds, including toll roads, drinking water systems and hydro-electric dams. However, the Ministry of PUPR has yet to disclose any technical rules regarding investment from the repatriated funds.
Rights issue plans to elevate financial capability The government’s effort to boost up infrastructure development has been showed from the implementation of state capital injection (PMN) since last year. We note that WSKT and ADHI have obtained PMN with total value of IDR4.9tn in 2015 and were able to raise a total of IDR8tn through rights issue. This year, the government has allocated IDR44.4tn PMN, consisting of IDR28.3tn cash and IDR16.1tn non-cash on 2016 government budget, with WIKA and PTPP to obtain IDR4tn and IDR2.3tn, respectively. Assuming the government shareholding to not be diluted, WIKA will able to do rights issue with total value of IDR6.1tn, including IDR4tn of PMN, while PTPP will be able to raise of IDR4.4tn fund from rights issue. In our opinion, PMN and rights issue will not only strengthen the capital structure, but also underpin company’s ability to reach large-scale projects. Increasing capital structure can elevate company’s leverage and reduce gearing position at the same time. Lower gearing position could help construction companies to grab more funding sources such as bank 16
loan and bond. In our calculation, WIKA’s equity could possibly increase to IDR11.5tn, vs IDR5.4tn and potentially elevate the company’s ability to raise additional loan for up to IDR9tn (assuming the leverage of 2:1). While the rights issue will also increase PTPP’s equity to IDR9.5tn and increase its ability to secure additional loan for as much as IDR12.8tn.
Exhibit 29. Rights issue scheme of SOE construction companies Equity Size IDR bn Right Issue PMN % of PMN before right issue after rights issue WIKA and PTPP will obtain IDR WSKT 5,300 3,500 66% 4,404 9,704 10.5tn from rights issue including ADHI 2,740 1,400 51% 2,422 5,162 state capital injection (PMN) WIKA 6,100* 4,000 66% 5,438 11,538*
PTPP 4,400* 2,250 51% 5,119 9,519*
Source: Companies, BCA Sekuritas
Current valuation still provides room for upside The construction sector is currently trading at 2017F average PE of 23.1x, which is slightly below its historical peak of 26x in early 2015. However, we believe there is still room for improvement given the solid new contract growth and strong earnings outlook (32% CAGR 2015-2018). We expect the construction sector to trade at 25x PE in 2017F, or slightly lower than +2 SD above its mean.
Exhibit 30. Construction sector forward PE band (x)
25 Std +2 = 25x 23 S 21 19 Std +1 = 21.2x 17 15 Mean = 17.4x 13 Std -1 = 13.7x We expect construction sector to 11 trade at 25x PE 2017, supported 9 Std -2 = 9.9x by strong new contract growth 7 and solid earnings outlook.
5
Jun-13 Jun-14 Jun-15 Jun-16
Mar-13 Mar-14 Mar-15 Mar-16
Dec-12 Dec-13 Dec-14 Dec-15
Sep-13 Sep-14 Sep-15
Source: Bloomberg, BCA Sekuritas
Exhibit 31. Construction sector’s PBV band
The construction sector is currently trading at 2.8x PBV
Source: Bloomberg, BCA Sekuritas
17
WASKITA KARYA BUY WSKT IJ / WSKT.JK Previous: -
Company Reinitiation | Construction Sector 26 Aug 2016
Michael Ramba Big player, big opportunity [email protected] +6221 23587222 ext 201 Toll road projects as growth driver
WSKT is currently the second largest toll road company in Indonesia, which owns 14 toll road concession, (8 sections are majority) with total length of Target Price: IDR3,400/share 729.2 km. Through its subsidiary, Waskita Toll Road, the company is more Current Price: IDR2,790/share aggressive in expanding the toll road business, which we think will benefit the Upside potential: 21.9% most from the government commitment to complete toll road projects across Indonesia, including trans Java, trans Sumatera and trans Sulawesi. We believe these toll road projects will remain as the company’s growth driver PRICE PERFORMANCE over the next few years.
Expect strong new contract growth We forecast WSKT’s new contract to grow by 36% CAGR 2015-2018 driven by the company’s toll road investment and the government’s infrastructure projects. We believe WSKT has a higher success rate in bidding for toll road projects in in Java and Sumatera compared to other SOE construction companies due to the company’s track record. We expect toll road to contribute 45% and 50% of new contract in 2016 and 2017 respectively. Additionally, the latest new contract from Palembang LRT project, amounting to IDR11tn, has brought the 7M16’s new contract to reach IDR45.6tn, already higher than company’s full year 2016 initial target.
Expanding precast business through IPO One of the most talked about in the market is the IPO plans of WSKT’s subsidiary, Waskita Beton Precast (WBP). WBP plans to raise around IDR4tn fund, through 10.5bn new shares (40% of enlarged capital) at the initial price of IDR400-500/share. Since founded in 2014, WBP has expanded its precast STOCK PERFORMANCE business aggressively, which can be seen from the rising annual capacity, 52-week price range (IDR) : 1,505 – 2,860 from 850k tons in 2014 to 1.8mn tons in 2015, and aiming for 3.8mn tons in Market cap (IDRtn)/(USDbn) : 37.87 / 2.86 2018. With the rapid expansion, we are positive with WBP’s readiness and Avg Daily Turnover (IDR/USD) 126.48 / 9.30 capability in capturing opportunities from the government infrastructure : Source: Bloomberg projects. Furthermore, we believe WBP will become the main beneficiary from WSKT’s toll road projects, considering that the company is currently providing precast concrete and ready-mixed concrete for WSKT’s toll road development. MARKET DATA Reinitiate with a Buy, TP of IDR3,400 Ytd 1M 3M 12M We reinitiate coverage on WSKT with a BUY and TP of IDR3,400, based on Absolute 66.5% 2.6% 13.5% 73.8% 22.2x PE 2017F. We are positive that company’s exposure on toll road and JCI Return 18.5% 4.2% 14.0% 28.7% other infrastructure projects will bring higher new contract in the years ahead. Relative 48.0% -1.6% -0.5% 45.1% Our downside risks are lower than expected new contract achievement and Source: Bloomberg delay of several toll road projects.
SHAREHOLDERS Exhibit 1. Financial Summary Government : 66.0% YE to Dec 31 IDR bn 2014A 2015A 2016F 2017F 2018F Revenue 10,287 14,153 23,433 30,706 36,848 Others : 0.4% EBIT 875 1,415 2,387 3,387 4,214 Public : 33.6% Net profit 502 1,048 1,527 2,077 2,585 Source: RTI EPS (IDR) 50 77 112 153 190 EPS Growth (%) 34.9 53.6 45.7 36.1 24.4 DPS (IDR) 10.1 - 24.7 33.7 41.9 PE (x) 28.5 21.6 24.7 18.2 14.6 PB (x) 5.0 2.3 3.5 2.9 2.5 EV/EBITDA (x) 14.4 23.6 14.6 10.4 8.2 Dividend yield (%) 0.7 - 0.9 1.2 1.5 ROE (%) 17.5 13.0 12.6 16.0 17.3
Net Gearing (x) 0.5 0.2 0.5 0.6 0.5 Source: Company, BCA Sekuritas
18
Exhibit 2. WSKT’s PE multiple
(x)
25 Std +2 = 21.5x 20
Std +1 = 18.2x We expect WSKT to trade at 15 21.5x PE 2017F (equal to 2 Mean = 14.8x standard deviation) from strong 10 Std -1 = 11.4x order book and earning outlook
5 Std -2 = 8.1x
0
Jun-13 Jun-14 Jun-15 Jun-16
Mar-13 Mar-14 Mar-15 Mar-16
Dec-12 Sep-13 Dec-13 Sep-14 Dec-14 Sep-15 Dec-15
Source: Bloomberg, BCA Sekuritas
Exhibit 3. WSKT new contract forecast (IDRbn)
68% 47,915 56% 50% 39,929 We expects WSKT to deliver new 31,943 contract growth of 36% CAGR 30% 2015-2018F 19,746 25% 82,500 68,750 18% 10,516 55,000 20% 6,567 8,814 32,084 22,610 12,264 13,318
New contract Carry over Growth
Source: Company, BCA Sekuritas
Exhibit 4. WSKT’s toll road investment
WSKT has 14 toll road section (8 sections are majority). The toll road investment is expected to generate higher new contract in the future
Source: Company
19
Exhibit 5. Financial Summary
Income Statement 2014A 2015A 2016F 2017F 2018F Year-end 31 Dec (IDRbn) Revenue 10,287 14,153 23,433 30,706 36,848 Cost of revenue (9,178) (12,232) (20,476) (26,692) (31,945) Gross profit 1,109 1,921 2,957 4,014 4,903 EBITDA 961 1,558 2,714 3,937 5,119 Operating Profit 875 1,415 2,387 3,387 4,214 Interest expense (184) (340) (670) (874) (967) Forex gain (loss) (3) 13 (3) (2) (1) Other incomes/ (expenses) 67 310 310 246 189 Income before Tax 756 1,398 2,036 2,770 3,446 Tax Expenses (254) (350) (509) (692) (862) Strong net profit growth on the Minority Interests 0 0 0 0 0 Net Income 502 1,048 1,527 2,077 2,585 back of solid order book EPS (Rp) 50 77 112 153 190 Balance Sheets 2014A 2015A 2016F 2017F 2018F Year-end 31 Dec (IDRbn) Cash and cash equivalents 1,675 5,511 4,829 4,353 4,002 Account receivables 2,307 4,654 6,099 7,992 9,591 Inventories 604 826 1,197 1,561 1,868 LT Investments & LT Receivables 635 800 800 800 800 Fixed assets 622 1,923 6,102 10,059 13,659 Other assets 6,699 16,595 16,596 16,597 16,598 Higher bank loan from toll road Total assets 12,542 30,309 35,623 41,362 46,518 investment Short term Liabilities 1,917 3,199 3,724 3,999 4,149 Other short term liabilities 5,811 10,466 12,070 14,404 16,431 Long term liabilities 1,246 4,547 6,671 7,671 8,171 Other long term libilities 719 2,394 2,394 2,474 2,474 Total liabilities 9,693 20,605 24,859 28,548 31,225 Equity 2,849 9,704 10,764 12,814 15,293 Total liabilities & equity 12,542 30,309 35,623 41,362 46,518 Cash Flows Statement 2014A 2015A 2016F 2017F 2018F Year-end 31 Dec (IDRbn) Net income 502 1,048 1,527 2,077 2,585 Depreciations and Amortization 86 143 327 549 905 Change in working capital (675) (273) (854) 77 74 Cash from operating (88) 918 1,000 2,704 3,564 Capex (329) (938) (4,000) (4,000) (4,000) Higher capex due to aggressive Others (755) (86) 3 3 4 expansion Cash flows from investing (1,084) (1,607) (3,997) (3,997) (3,996) Dividen Paid (110) (100) (336) (457) (569) Net change in debt 1,779 (1,056) 2,650 1,275 650 Others 58 5,675 - - - Cash flows from financing 1,727 4,519 2,314 818 81 Net increase/(decrease) in cash and cash equivalents 556 3,830 (683) (475) (352) Cash and cash at begin. of the year 1,120 1,675 5,511 4,829 4,353 Cash at the end of the year 1,675 5,511 4,829 4,353 4,002 Key Ratios 2014A 2015A 2016F 2017F 2018F Gross Margin (%) 10.8 13.6 12.6 13.1 13.3 EBITDA Margin (%) 9.3 11.0 11.6 12.8 13.9 EBIT Margin (%) 8.5 10.0 10.2 11.0 11.4 Pretax margin (%) 7.3 9.9 8.7 9.0 9.4 Net Margin (%) 4.9 7.4 6.5 6.8 7.0 ROAE (%) 19.2 16.7 14.9 17.6 18.4 We expect net profit margin to be ROAA (%) 4.7 4.9 4.6 5.4 5.9 maintained at around 7% in the Current ratio (x) 1.4 1.3 1.2 1.1 1.1 next three years Acid ratio (x) 0.5 0.7 0.7 0.7 0.7 Gearing (x) 1.1 0.8 1.0 0.9 0.8 Net Gearing (x) 0.5 0.2 0.5 0.6 0.5 AR turnover (days) 71 90 95 95 95 Inventory turnover (days) 20 17 17 17 17 AP turnover (days) 97 120 120 120 120
Source: Company, BCA Sekuritas
20
WIJAYA KARYA BUY WIKA IJ / WIKA.JK Previous: -
Company Reinitiation | Construction Sector 26 Aug 2016
Michael Ramba Positive trend to continue [email protected] +6221 23587222 ext 201 Expecting solid new contract growth
We expect WIKA’s new contract to grow by 70% in 2016, potentially a record high, supported by HSR and other infrastructure projects. The HSR project is Target Price: IDR4.100/share one of WIKA’s key projects until 2018, given its significant contribution to the Current Price: IDR3,300/share company’s order book. Moreover, we believe that WIKA is to win more power Upside potential: 24.3% plant projects, from both State Electricity Company (PLN) and Independent Power Producer (IPP), on the back of the company’s track record to handle large-scale power projects. The company is currently bidding tender PRICE PERFORMANCE participation on several power projects, which is a part of the government’s 35GW plan, and potentially should bring in around IDR10tn new contract, or 19% of 2016 target. As of 1st week of August, the new contract reached IDR23tn, double compared to last year. All in all, we forecast WIKA’s new contract growth to reach 25% CAGR 2015-2018F vs. 14% CAGR 2012-2015.
Awaiting new contract from HSR project The issuance of the construction permit for the 142 km HSR project is expected in the near term as the government has indicated its plan to speed up the project. Hence, WIKA is currently awaiting for IDR17tn new contract from the 1st phase of the project. We expect the new contract from HSR is to be booked in 3Q16, as we assume the company to obtain all government licenses of Jakarta-Bandung HSR project by early Sep 2016. Since the groundbreaking in Jan 2016, the project has been delayed due to some issues, such as sponsor guaranty by China Development Bank (CDB) and several permit issues. However, the issues have mostly been solved.
Right issue plans to capture larger scale projects STOCK PERFORMANCE After the approval of the state capital injection (PMN) worth of IDR4tn, WIKA is currently planning to conduct a right issue, scheduled for Oct 2016. With a 52-week price range (IDR) : 2,200 -3,390 total rights issue fund of IDR6.1tn (including PMN), WIKA’s equity will escalate Market cap (IDRtn)/(USDbn) : 20.29 / 1.53 to IDR11.5tn and will able to add as much as IDR9tn additional loan. We think Avg Daily Turnover (IDR/USD) : 42.73 / 3.14 this could support WIKA to fund its existing and new larger scale of Source: Bloomberg infrastructure projects. Separately, our calculation shows that the rights issue could potentially dilute 2017F EPS by 12% (assuming the rights issue is conducted at 15% discount to the current price of IDR3,300). MARKET DATA Reinitiate with a BUY, TP of IDR4,100 Ytd 1M 3M 12M We reinitiate coverage on WIKA with a BUY recommendation and TP of Absolute 25.0% 15.4% 36.4% 28.4% IDR4,100, based on 22.1x PE 2017F. We are positive in WIKA’s new contract JCI Return 18.5% 4.2% 14.0% 28.7% outlook, which are supported by HSR and several government infrastructure Relative 6.5% 1.2% 22.4% -0.3% projects. We expect WIKA to bid more large-scale projects after the rights Source: Bloomberg issues. Downside risk to our call includes delay in several government’s priority projects, and lower than expected infrastructure budget disbursement.
SHAREHOLDERS Exhibit 1. Financial Summary Government : 65.1%
YE to Dec 31 IDR bn 2014A 2015A 2016F 2017F 2018F Public : 34.9% Revenue 12,463 13,620 18,121 22,894 29,811 Source: RTI EBIT 1,223 1,498 2,014 2,804 3,717 Net profit 608 625 868 1,128 1,534 EPS (IDR) 99 102 141 184 250 EPS Growth (%) 6.6 2.8 38.9 29.8 36.1 DPS (IDR) 20.0 20.4 35.4 45.2 58.5 PE (x) 37.2 25.9 23.1 17.8 13.1 PB (x) 4.6 3.0 3.5 3.4 3.2 EV/EBITDA (x) 17.7 12.8 10.3 7.7 6.0 Dividend yield (%) 0.5 0.8 1.1 1.4 1.8 ROAE (%) 15.0 12.1 15.7 19.5 25.1
Net Gearing (x) 0.1 0.2 Net cash 0.7 0.9 Source: Company, BCA Sekuritas 21
Exhibit 2. WIKA’s PE multiple band
WIKA is currently trading at 17.5x PE 2017F. We expects the company to trade at 22x PE 2017F, supported by strong new contract growth
Source: Bloomberg, BCA Sekuritas
Exhibit 3. WIKA’s new contract trend (IDR bn)
90,362
59,660 We expect WIKA to experience 34,904 new contract growth of 25% CAGR 2015-2018F. 23,302 20,978 23,208 53,596 61,636 15,755 42,877 17,125 17,731 17,632 25,222
2012 2013 2014 2015 2016F 2017F 2018F
New contract Carry over Growth
Source: Company, BCA Sekuritas
Exhibit 4. WIKA’s net profit trend (IDR bn)
1,534 39% 36% 34% 1,12830% Solid order book growth to 868 underpin WIKA’s bottom line 20% 625 570 608 476
7% 3%
2012 2013 2014 2015 2016F 2017F 2018F
Source: Company, BCA Sekuritas
22
Exhibit 5. WIKA’s Financial Summary Income Statement 2014A 2015A 2016F 2017F 2018F Year-end 31 Dec (IDRbn) Revenue 12,463 13,620 18,121 22,894 29,811 Revenue and net profit growth Cost of revenue (11,039) (11,965) (15,958) (20,099) (26,236) Gross profit 1,425 1,655 2,162 2,795 3,575 are supported by higher new Operating Profit 1,032 1,226 1,690 2,276 3,004 contract Interest income (198) (431) (398) (480) (550) Forex gain (loss) (2) 28 (22) (15) (4) Other incomes/ (expenses) (63) (13) (16) (20) (25) EBITDA 1,223 1,498 2,014 2,804 3,717 Income before Tax 1,139 1,098 1,564 2,062 2,761 Tax Expenses (395) (395) (570) (751) (1,006) Minority Interests (136) (78) (126) (184) (221) Net Income 608 625 868 1,128 1,534 EPS (Rp) 99 102 141 184 250 Balance Sheets 2014A 2015A 2016F 2017F 2018F Year-end 31 Dec (IDRbn) Cash and cash equivalents 2,301 2,560 1,335 1,086 774 Account receivables 1,963 2,782 4,716 5,959 7,759 Inventories 817 1,031 1,233 1,553 2,027 LT Investments & LT Receivables 1,908 1,898 1,898 1,898 1,898 Fixed assets 2,676 3,184 5,203 7,016 8,645 Other assets 6,244 8,147 8,147 8,147 8,147 We expect higher long-term loan Total assets 15,909 19,602 22,531 25,658 29,249 in the next three years, in Short term Liabilities 1,708 1,818 2,745 2,721 3,090 Other short term liabilities 6,768 8,780 10,241 11,918 14,303 conjunction with more projects in Long term liabilities 1,324 1,692 2,015 2,612 3,090 the pipeline Other long term libilities 1,233 1,874 1,874 2,474 2,474 Total liabilities 11,032 14,164 16,876 19,725 22,956 Equity 4,877 5,438 5,656 5,933 6,292 Total liabilities & equity 15,909 19,602 22,531 25,658 29,249 Cash Flows Statement 2014A 2015A 2016F 2017F 2018F Year-end 31 Dec (IDRbn) Net income 608 625 868 1,128 1,534 Depreciations and Amortization 191 272 324 529 713 Change in working capital (977) (659) (950) (467) (548) Cash from operating activities (178) 238 242 1,189 1,700 Capex (1,352) (713) (2,500) (2,500) (2,500) Others 83 - - - - Higher capex from aggressive Cash from investing activities (1,268) (325) (2,500) (2,500) (2,500) expansion Dividen Paid (171) (129) (218) (277) (359) Net change in debt 1,359 479 1,250 573 847 Others 1,172 (4) - 767 - Cash from financing activities 2,360 346 1,032 1,062 488 Net increase/(decrease) in cash 914 259 (1,225) (249) (313) Cash at the begin. of the year 1,387 2,301 2,560 1,335 1,086 Cash at the end of the year 2,301 2,560 1,335 1,086 774 Key Ratios 2014A 2015A 2016F 2017F 2018F
Gross Margin (%) 11.4 12.1 11.9 12.2 12.0 EBITDA Margin (%) 9.8 11.0 11.1 12.2 12.5 EBIT Margin (%) 8.3 9.0 9.3 9.9 10.1 Pretax margin (%) 8.3 6.3 - 8.1 8.4 Net Margin (%) 4.9 4.6 4.8 4.9 5.1 ROAE (%) 15.0 12.1 15.7 19.5 25.1 ROAA (%) 4.3 3.5 4.1 4.7 5.6 Net margin remains steady at 5% Current ratio (x) 1.1 1.2 1.0 1.0 1.0 Acid ratio (x) 0.5 0.5 0.5 0.5 0.5 Gearing (x) 0.6 0.6 0.8 0.9 1.0 Net Gearing (x) 0.1 0.2 0.6 0.7 0.9 AR turnover (days) 50 64 95 95 95 Inventory turnover 11 13 13 13 13 AP turnover (days) 116 125 125 125 125
Source: Company, BCA Sekuritas
23
BUY PEMBANGUNAN PERUMAHAN Previous: - PTPP IJ / PTPP.JK
26 Aug 2016 Company Reinitiation | Construction Sector
Michael Ramba Growing consistently [email protected] +6221 23587222 ext 201 Expanding to energy sector
We expect PTPP’s order book to grow by 20% CAGR 2015-2018F. The company’s strategy to shift focus to bid more projects from SOEs and Target Price: IDR5,600/share government related projects will possibly supports PTPP’s new contract Current Price: IDR4,630/share achievement in the future. We are also positive of the company’s strategy to Upside potential: 21.0% expand in energy business in order to capture opportunities from government program of 35GW power project. Through its subsidiary PP Energy, the company aims to participate in several power plant projects such as steam PRICE PERFORMANCE power plant project in Batam and Komajang, and gas power plant in Gorontalo, with total capacity of 270MW. The company targets to obtain 1.2GW by next year and 4GW for the next three to four years.
Supported by strong property business The property segment is the second largest contributor to revenue since last year and is expected to prop PTPP’s overall performance. We like property segment due to better margin compared to other segments. The expansion in PPRO could lead to better overall PTPP’s margin. We expect PTPP’s net margin to achieve 5.2% and 5.6% for 2016-2017F, above historical average of 4.2%. Further, we are more positive on PPRO outlook from its plan to form JO with Perum Perumnas to develop mid-low houses to boost its revenue. Further, we think this JO should be benefit from the government program to develop 1mn subsidized houses in the next three years. As such, we expect property segment to contribute 12% to total revenue for 2016-2017F.
Rights issue plan to finance priority projects
PTPP is currently awaiting for IDR4.4tn rights issue, after approval of IDR2.3tn state capital injection (PMN). With the additional fund from the rights issue, STOCK PERFORMANCE the company’s’ equity will increase to IDR9.5tn. The stronger equity could 52-week price range (IDR) 2,960 – 4,850 elevate PTPP’s ability to increase its leverage. Assuming that PTPP to leverage : 1:2, the company could raise as much as IDR12.8tn loan to finance its priority Market cap (IDRtn)/(USDbn) : 22.42 / 1.69 projects, such as power plant in Meulaboh, and several toll road consortium in Avg Daily Turnover (IDR/USD) : 43.22 / 3.18 Java, Sulawesi and Kalimantan. Separately, our calculation shows that the Source: Bloomberg rights issue could potentially dilute 2017F EPS by 19% (assuming 4:11 rights issue at 15% discount to the current price of IDR4,630, resulting in a theoretical ex-rights price of IDR4,370). MARKET DATA Reinitiate with a BUY, TP of IDR5,600 Ytd 1M 3M 12M Reinitiate with a BUY rate and target price of IDR5,600/share, implying 19.6x Absolute 19.5% 16.9% 35.0% 47.2% PE 2017, which equal to +1 SD above mean. We like company’s capability to JCI Return 18.5% 4.2% 14.0% 28.7% penetrate in both government projects (power plant, port, toll road) and Relative 1.0% 12.7% 21.0% 18.5% private projects (building) to generate new contracts. The main risks to our Source: Bloomberg call are lower than expected budget implementation and delay in government’s priority projects.
SHAREHOLDERS Exhibit 1. Financial Summary Government : 51.0% YE to Dec 31 IDR bn 2014A 2015A 2016F 2017F 2018F Public 49.0% Revenue 12,427 14,217 18,787 23,425 28,200 : EBIT 1,268 1,597 2,097 2,694 3,297 Source: RTI Net profit 533 740 995 1,328 1,667 EPS (IDR) 110 153 205 274 344 EPS Growth (%) 26.8 38.8 34.3 33.6 25.5 DPS (IDR) - - 29.5 39.4 49.5 PE (x) 32.5 25.3 22.6 17.0 13.5 PB (x) 7.4 3.7 4.3 4.1 4.0 EV/EBITDA (x) 12.4 12.8 9.4 6.6 5.4 Dividend yield (%) - - 0.6 0.8 1.1 ROE (%) 22.6 20.4 20.1 25.9 31.1 Net Gearing (x) Net cash 0.0 Net cash 0.3 0.3 Source: Company, BCA Sekuritas 24
Exhibit 2. PTPP’s PE multiple band
PTPP is trading at 17.8x PE 2017F, slightly above average historical PE.
Source: Bloomberg
Exhibit 3. PTPP’s new contract trend (IDRbn)
51%
57,502 34% 47,887 Expanding to energy sector could 28% 39,140 23% elevate PTPP’s new contact 20% 29,867 21% 20% growth 22,278 15,871 8,200 44,835 37,362 27,074 31,135 19,475 19,584 20,240
2012 2013 2014 2015 2016F 2017F 2018F
New contract Carry over Growth
Source: Bloomberg
Exhibit 4. PTPP’s revenue breakdown
Property segment could underpin PTPP’s performance. We expect the segment to contribute 12% of total revenue in 2016-2017F
Source: Bloomberg
25
Exhibit 5. PTPP’s Financial Summary Income Statement 2014A 2015A 2016F 2017F 2018F Year-end 31 Dec (IDRbn) Revenue 12,427 14,217 18,787 23,425 28,200 Cost of revenue (10,878) (12,210) (16,196) (20,138) (24,189) Gross profit 1,550 2,007 2,591 3,287 4,011 Operating Profit 1,268 1,597 2,097 2,694 3,297 EBITDA 1,325 1,677 2,433 3,400 4,138 Interest expense (344) (373) (329) (346) (377) Fores gain (loss) (81) (64) (13) (13) (5) Other incomes (expenses) 7 60 26 7 (3) Income before Tax 921 1,288 1,849 2,410 2,979 Tax Expenses (387) (442) (749) (976) (1,207) Strong net profit from the Minority Interests (0) (105) (105) (105) (105) Net Income 533 740 995 1,328 1,667 increasing of order book EPS (IDR) 110 153 205 274 344 Balance Sheets 2014A 2015A 2016F 2017F 2018F Year-end 31 Dec (IDRbn) Cash and cash equivalents 2,408 3,025 2,068 2,274 2,792 Account receivables 2,300 2,927 4,890 6,097 7,340 Inventories 2,502 2,499 3,317 4,124 4,954 LT Investments & LT Receivables 243 435 435 435 435 Fixed assets 710 2,989 4,154 4,948 5,606 Other assets 6,416 7,253 7,281 7,311 7,345 Total assets 14,579 19,129 22,144 25,189 28,472 Increase in long term bank Short term Liabilities 891 1,256 1,492 1,685 1,839 loan…….. Other short term liabilities 8,970 9,858 12,094 14,637 17,254 Long term liabilities 1,505 1,939 2,340 2,362 2,529 Other long term libilities 878 956 956 1,052 1,157 Total liabilities 12,244 14,010 16,882 19,736 22,779 Equity 2,335 5,119 5,262 5,453 5,692 Total liabilities & equity 14,579 19,129 22,144 25,189 28,472 Cash Flows Statement 2014A 2015A 2016F 2017F 2018F Year-end 31 Dec (IDRbn) Net income 533 740 995 1,328 1,667 Depreciations and Amortization 57 80 335 706 841 Change in working capital (308) (317) (850) (413) (639) Cash from operating activities 282 503 480 1,621 1,869 Capex (160) (156) (1,500) (1,500) (1,500) ……..as a result of higher capex Others (366) - 55 61 67 Cash investing activities (525) (662) (1,445) (1,439) (1,433) Dividen Paid (126) (106) (143) (191) (240) Net change in debt 599 555 1,150 215 322 Others (230) 256 (1,000) - - Cash from financing activities 243 704 7 24 82 Net increase/(decrease) in cash (0) 545 (957) 206 518 Cash at the begin. of the year 2,406 2,409 3,025 2,068 2,274 Cash and at the end of the year 2,408 3,025 2,068 2,274 2,792 Key Ratios 2014A 2015A 2016F 2017F 2018F
Gross Margin (%) 12.5 14.1 13.8 14.0 14.2 EBITDA Margin (%) 10.7 11.8 13.0 14.5 14.7 EBIT Margin (%) 10.2 11.2 11.2 11.5 11.7 Pretax margin (%) 7.4 9.1 9.8 10.3 10.6 Net Margin (%) 4.3 5.2 5.3 5.7 5.9 Improvement in net margin in the ROAE (%) 24.7 19.9 19.2 24.8 29.9 ROAA (%) 4.0 4.4 4.8 5.6 6.2 next three years Current ratio (x) 5.7 5.3 5.2 5.7 6.0 Acid ratio (x) 0.5 0.6 0.5 0.5 0.5 Gearing (x) 1.0 0.6 0.7 0.7 0.8 Net Gearing (x) Net cash 0.0 0.3 0.3 0.3 AR turnover (days) 58.9 67.1 95.0 95.0 95.0 Inventory turnover (days) 5.2 4.9 4.9 4.9 4.9 AP turnover (days) 223.5 222.8 222.8 222.8 222.8
Source: Bloomberg
26
ADHI KARYA BUY ADHI IJ / ADHI.JK Previous: -
26 Aug 2016 Company Reinitiation | Construction Sector
Michael Ramba Relying on greater Jakarta LRT [email protected] +6221 23587222 ext 201 Upside from the greater Jakarta LRT project
ADHI expects a boost from ~IDR34tn new contract from LRT projects, of which around IDR17tn is possibly to be booked in 2016. Since the Target Price: IDR3,700/share groundbreaking in 2015, LRT project has yet to be signed. Nevertheless, the Current Price: IDR2,790/share government’s initiative to speed up strategic projects including LRT, could be a Upside potential: 32.7% positive catalyst. Based on our conversation with the management, ADHI will not only build LRT lane, but also develop support facilities including stations, power supply, and signaling and control system on surrounding area. We think PRICE PERFORMANCE the benefit should not only for the construction segment, but also for other segments. Currently, the construction progress of the project already reached 10%-15%. We expect around IDR17tn from the first phase of LRT project (Cibubur-Bekasi Timur-Cawang-Dukuh Atas) to be obtained no longer than 1Q17, while another IDR17tn from the second phase (Cibubur-Bogor, Dukuh Atas-Palmerah-Senayan) by end of 2017.
Higher new contact from government related projects In line with the recent trend of higher government spending on infrastructure budget, we expect more contribution to come from government related projects (both from central and regional governments). Excluding LRT project, we expect ADHI to achieve IDR18.2tn new contract in 2016 vs IDR13.9tn in 2015. Our target is still conservative to the management’s initial target of IDR25tn, as we see that the company may revise down its target due to slow new contract achievement in 1H16. Even with a conservative target, however, we believe ADHI is to still experience new contract growth of 20% CAGR 2015-2018 vs 13% CAGR 2012-2015.
Enough space to increase leverage STOCK PERFORMANCE After the rights issue in 2015, ADHI was in a net cash position. Thus, it has 52-week price range (IDR) 1,410 – 2,910 enough space to increase its leverage in order to fund several huge projects in : its pipeline, including the LRT. Going forward, we expect the company’s net Market cap (IDRtn)/(USDbn) : 9.93 / 0.75 gearing in 2017F to slightly increase to 0.2x as we see that construction of Avg Daily Turnover (IDR/USD) : 63.04 / 4.64 LRT project is progressing. Source: Bloomberg
Reinitiate with BUY, TP of IDR3,700 We reinitiate with a BUY, and target price of IDR3,700/share, based on 15.3x PE 2017F. With the potential new contract from LRT project, we believe ADHI’s MARKET DATA share price to trade at +2SD above mean in 2017F. We are positive with the Ytd 1M 3M 12M company’s new contract growth in the next few years, which could create Absolute 30.4% 2.2% 10.3% 89.5% potential upside from current share price. Additionally, ADHI’s valuation is JCI Return 18.5% 4.2% 14.0% 28.7% attractive which currently trading at 11.7x PE 2017F, compared to sector Relative 11.9% -2.0% -3.7% 60.8% average of 23.1x. Source: Bloomberg
Exhibit 1. Financial Summary YE to Dec 31 IDR bn 2014A 2015A 2016F 2017F 2018F SHAREHOLDERS Revenue 8,654 9,390 12,483 18,953 25,397 Government : 51.0% EBIT 642 579 1,010 1,559 2,223 Net profit 329 464 541 859 1,285 Public : 49.0% EPS (IDR) 183 130 152 241 361 Source: RTI EPS Growth (%) (18.9) (28.7) 16.8 58.6 49.6 DPS (IDR) 30.5 26.2 21.3 33.7 50.4 PE (x) 16.2 16.4 18.5 11.7 7.8 PB (x) 3.2 1.5 1.9 1.9 1.8 EV/EBITDA (x) 9.0 11.6 8.6 5.7 4.0 Dividend yield (%) 1.0 1.2 0.8 1.2 1.8 ROE (%) 21.0 11.1 9.3 14.2 20.8
Net Gearing (x) 0.9 Net cash 0.1 0.2 0.3
Source: Company, BCA Sekuritas 27
Exhibit 2. ADHI’s PE multiple band
ADHI’s valuation is typically cheap compared to other construction stocks. Currently, ADHI is trading at 11.7X PE 2017F vs 23x average sector
Source: Bloomberg
Exhibit 3. ADHI’s new contract trend
34,196
17,998 New contract growth is expected to reach 20% CAGR 2015-2018F 12,330 from the contribution of LRT 37,873 8,269 7,758 35,151 project 8,036 8,561 18,151 9,605 11,033 12,188 13,962
2012 2013 2014 2015 2016F 2017F 2018F
New contract Carry over Growth
Source: Bloomberg
Exhibit 4. Revenue breakdown (2015)
Construction segment will still dominate ADHI’s revenue
Source: Bloomberg
28
Exhibit 5. ADHI’s Financial Summary Income Statement 2014A 2015A 2016F 2017F 2018F Year-end 31 Dec (IDRbn) Revenue 8,654 9,390 12,483 18,953 25,397 Cost of revenue (7,655) (8,415) (11,034) (16,907) (22,633) Improving top line number by Gross profit 998 975 1,448 2,046 2,765 stronger order book EBITDA 679 643 1,081 1,670 2,437 Opex (356) (395) (439) (487) (541) Operating Profit 642 579 1,010 1,559 2,223 Interest expense (137) (137) (230) (263) (281) Foreign Exchange gains (losses) 100 165 (3) (2) (1) Other incomes/ (expenses) (17) 107 (36) (92) (117) Income before Tax 600 746 871 1,478 2,211 Tax Expenses (268) (281) (328) (617) (923) Minority Interests (3) (1) (2) (3) (4) Net Income 329 464 541 859 1,285 EPS (IDR) 183 130 152 241 361 Balance Sheets 2014A 2015A 2016F 2017F 2018F Year-end 31 Dec (IDRbn) Cash and cash equivalents 811 4,317 2,886 2,751 2,613 Account receivables 1,954 2,232 3,249 4,933 6,610 Inventories 132 163 193 296 396 LT Investments & LT Receivables 364 330 803 1,239 1,640 Fixed assets 496 1,099 1,726 3,311 4,795 Other assets 6,702 8,620 9,817 10,735 11,744 Total assets 10,459 16,761 18,674 23,265 27,798 Higher debt level in line Short term Liabilities 692 1,115 1,392 1,573 1,746 with……… Other short term liabilities 6,349 8,299 9,487 13,619 17,655 Long term liabilities 1,577 1,753 2,126 2,219 2,289 Other long term libilities 200 431 431 496 571 Total liabilities 8,818 11,599 13,436 17,907 22,261 Equity 1,641 5,162 5,238 5,358 5,537 Total liabilities & equity 10,459 16,761 18,674 23,265 27,798 Cash Flows Statement 2014A 2015A 2016F 2017F 2018F Year-end 31 Dec (IDRbn) Net income 329 464 541 859 1,285 Depreciations and Amortization 25 32 71 111 214 Change in working capital (1,333) (255) (366) (23) 201 Cash from operating activities (978) 241 247 947 1,700 Capex (245) (200) (1,500) (2,500) (2,500) …….higher capex in 2016-2018F Others (343) (24) 1,197 (435) (401) Cash from investing activities (588) (224) (303) (2,935) (2,901) Dividen Paid (122) (65) (76) (120) (180) Net change in debt 560 849 400 274 243 Others (0) 2,705 (1,700) 1,700 1,000 Cash from financing activities 438 3,490 (1,376) 1,854 1,063 Net increase/(decrease) in cash (1,129) 3,507 (1,432) (135) (138) Cash at the begin. of the year 1,940 811 4,317 2,886 2,751 Cash at the end of the year 811 4,317 2,886 2,751 2,613 Key Ratios 2014A 2015A 2016F 2017F 2018F
Gross Margin (%) 11.5 10.4 11.6 10.8 10.9 EBITDA Margin (%) 7.8 6.9 8.7 8.8 9.6 EBIT Margin (%) 7.4 6.2 8.1 8.2 8.8 Pretax margin (%) 6.9 7.9 7.0 7.8 8.7 Net Margin (%) 3.8 4.9 4.3 4.5 5.1 EBITDA Margin (%) 7.8 6.9 8.7 8.8 9.6 Net margin to increase slightly ROAE (%) 20.6 13.6 10.4 16.2 23.6 ROAA (%) 3.3 3.4 3.1 4.1 5.0 Current ratio (x) 1.3 1.6 1.4 1.2 1.1 Acid ratio (x) 0.4 0.7 0.6 0.5 0.5 Gearing (x) 1.4 0.5 0.7 0.7 0.7 Net Gearing (x) 0.9 Net cash 0.1 0.2 0.3 AR turnover (days) 72.9 81.4 95.0 95.0 95.0 AP turnover (days) 231.0 247.5 247.5 247.5 247.5
Source: Company, BCA Sekuritas
29
WIJAYA KARYA BETON HOLD Previous: - WTON IJ / WTON.JK
26 Aug 2016 Company Initiation | Construction Sector
Michael Ramba Potential risk from rising competition [email protected] +6221 23587222 ext 201 Largest market share with competition risk attached
WTON currently has the biggest installed production capacity of 2.5mn tons/year, with average utilization rate of 80%. WTON’s production capacity Target Price: IDR975/share accounts for 35.6% of total industry capacity. By maximizing production line Current Price: IDR950/share of each plant, WTON targets to achieve 3.3mn tons in 2018. Note that the Upside potential: 2.7% company has 17 production facilities and 51 production lines across Indonesia. At the same time, other SOE constructions are also more aggressive in expansion since the last two years. These could create competition, in which PRICE PERFORMANCE WTON and other SOE precast companies have same exposure on government related projects. In our opinion, a rising competition could be a threat for WTON’s market share and a downside risk for the company’s performance in the near future.
Increasing government related projects WTON targets to achieve IDR4.3tn new contract for 2016, in which most of the contact are expected to come from the government infrastructure projects (60%). In order to accommodate potential demand from the recent trend of higher government spending, the company is planning to bid several selective projects such as toll road, bridges and power plants. The company is optimistic to achieve around IDR2.5tn (56% of company’s 2016 target) in 2H16, in line with historical higher budget disbursement.
Putting low expectation on HSR project The construction of Jakarta-Bandung high-speed railway (HSR) is expected to benefit WTON given the company plans to supply precast demand on the project. The total construction value of the project is IDR74tn, of which around STOCK PERFORMANCE IDR3.8tn will be allocated to precast concrete (assuming 25% of total 52-week price range (IDR) 765 - 1,090 construction value is civil work, and 20% of civil work is precast concrete). : The company targets to achieve at least IDR1tn from the project. However, Market cap (IDRtn)/(USDbn) : 8.28 / 0.63 based on our recent conversation with the company, China Railway also aims Avg Daily Turnover (IDR/USD) : 28.67 / 2.11 to participate as a precast concrete supplier in bulk size. Assuming a worse Source: Bloomberg case, the company guides to achieve only IDR100bn from the project.
Initiate with HOLD Initiate with a HOLD, and TP of IDR975/share, implying 24.3x PE 2017F. MARKET DATA WTON’s valuation is typically heavier than other construction companies’ Ytd 1M 3M 12M multiple, which put the stock at premium vs. average construction sector of. Absolute 15.2% -4.0% 5.6% 11.1% Nevertheless, with the soon to be listed Waskita Beton Precast entrance to the JCI Return 18.5% 4.2% 14.0% 28.7% market, the premium might be unjustifiable. Relative -3.3% -8.2% -8.4% -17.6% Source: Bloomberg
Exhibit 1. Financial Summary SHAREHOLDERS YE to Dec 31 IDR bn 2014A 2015A 2016F 2017F 2018F Wijaya Karya : 60.0% Revenue 3,277 2,653 3,538 4,030 4,699 EBIT 176 328 446 535 680 Koperasi Karya Mitra Satya : 8.1% Net profit 409 238 336 403 526 Yayasan Wijaya Karya : 1.0% EPS (IDR) 39 21 28 30 39 Treasury Stock : 4.3% EPS Growth (%) 35.8 (47.1) 35.5 7.2 27.7 DPS (IDR) 2.0 7.4 10.0 11.6 15.4 Public : 26.6% PE (x) 25.9 48.9 34.3 32.0 25.1 Source: RTI PB (x) 3.9 3.8 3.4 3.1 2.7 EV/EBITDA (x) 15.1 24.4 17.4 14.5 11.5 Dividend yield (%) 0.2 0.7 1.0 1.2 1.6 ROE (%) 19.0 6.3 10.0 10.8 12.8
Net Gearing (x) Net cash Net cash 0.0 0.1 0.1 Source: Company, BCA Sekuritas
30
Exhibit 2. WTON’s PE multiple band
WTON has premium valuation, which currently trades at 32x PE 2017F
Source: Bloomberg
Exhibit 3. WTON’s new contract trend
131%
2,671 2,112 1,660 Expecting slower new contract 813 31% due to rising competition from 1,626 1,630 1,106 17% 19% 19% other SOEs 5,277 -2% 2% 4,589 3,500 3,990 2,588 2,678 2,606
2012 2013 2014 2015 2016F 2017F 2018F
New contract Carry over Growth
Source: Bloomberg
Exhibit 4. WTON’s customers profile (2015)
High exposure on infrastructure projects.
Source: Bloomberg
31
Exhibit 5. WTON’s Financial Summary Income Statement 2014A 2015A 2016F 2017F 2018F Year-end 31 Dec (IDRbn) Revenue 3,277 2,653 3,538 4,030 4,699 Cost of revenue (2,790) (2,324) (3,082) (3,490) (4,013) Gross profit 487 329 456 540 686 EBITDA 495 328 446 535 680 Operating Profit 409 238 336 403 526 Interest expense (48) (63) (41) (66) (79) Forex gain (loss) (5) (8) 0 0 0 Other incomes/ (expenses) 2 1 (26) (52) (78) Income before Tax 412 206 297 311 395 Tax Expenses (89) (34) (64) (62) (77) Minority Interests 6 2 3 4 4 Higher 2016 net profit from low Net Income 329 174 236 253 323 base in 2015 EPS (IDR) 39 21 28 30 39 Balance Sheets 2014A 2015A 2016F 2017F 2018F Year-end 31 Dec (IDRbn) Cash and cash equivalents 1,038 824 715 789 733 Account receivables 476 570 630 718 837 Inventories 458 622 826 850 992 LT Investments & LT Receivables 3 3 3 3 3 Fixed assets 1,671 1,998 2,387 2,805 3,255 Fixed asset to improve..... Other assets 1 0 1 1 1 Total assets 3,803 4,456 5,000 5,605 6,259 Short term Liabilities 566 133 361 489 607 Other short term liabilities 523 1,103 1,158 1,216 1,277 Long term liabilities 1 320 392 435 461 Other long term libilities 89 79 79 79 79 Total liabilities 1,600 2,193 2,647 2,964 3,280 Equity 2,203 2,263 2,353 2,640 2,979 Total liabilities & equity 3,803 4,456 5,000 5,605 6,259 Cash Flows Statement 2014A 2015A 2016F 2017F 2018F Year-end 31 Dec (IDRbn) Net income 330 174 236 253 323 Depreciations and Amortization 85 90 110 131 154 Change in working capital (223) 195 165 159 50 Cash from operating activities 192 458 511 543 527 …….from higher capex Capex (644) (443) (500) (550) (605) Others (147) - - - - Cash from investing activities (790) (472) (500) (550) (605) Dividen Paid (17) (62) (83) (97) (129) Net change in debt 25 331 300 172 143 Others 1,178 (470) (337) 6 7 Cash from financing activities 1,186 (201) (120) 81 22 Net increase/(decrease) in cash 588 (215) (109) 75 (57) Cash at the begin. of the year 450 1,038 824 715 789 Cash at the end of the year 1,038 824 715 789 733 Key Ratios 2014A 2015A 2016F 2017F 2018F
Gross Margin (%) 14.9 12.4 12.9 13.4 14.6 EBITDA Margin (%) 15.1 12.4 12.6 13.3 14.5 EBIT Margin (%) 12.5 9.0 9.5 10.0 11.2 Pretax margin (%) 12.6 7.8 8.4 7.7 8.4 Net Margin (%) 10.0 6.6 6.7 6.3 6.9 ROAE (%) 22.4 7.8 10.2 10.1 11.5 ROAA (%) 9.8 4.2 5.0 4.8 5.4 Net margin to stay at 7% Current ratio (x) 1.4 1.4 1.2 1.1 1.1 Acid ratio (x) 1.0 0.8 0.6 0.6 0.6 Gearing (x) 0.5 0.5 0.6 0.7 0.7 Net Gearing (x) Net cash Net cash 0.0 0.1 0.1 AR turnover (days) 50.0 72.0 65.0 65.0 65.0 Inventory turnover (days) 4.3 4.3 3.7 4.1 4.0 AP turnover (days) 48.7 76.8 76.8 76.8 76.8 Source: Company, BCA Sekuritas
32
Teguh Hartanto
Director of Equity, ext: 129 [email protected]
RESEARCH DIVISION [email protected]
Darmawan Halim Arga Samudro Igor Nyoman Putra Head of Research, ext: 168 FI Analyst, ext: 181 Equity Analyst, ext: 178 Strategy, Automotive, Heavy Equipment FI Strategies & Macroeconomist Banking, Telco [email protected] [email protected] [email protected]
Jennifer Frederika Yapply Johanes Prasetia Andre Susanto Equity Analyst, ext: 179 Equity Analyst, ext: 201 Equity Analyst, ext: 182 Consumer Staples, Media Consumer Retail, Small cap Plantation, Industrial Estate [email protected] [email protected] [email protected]
Michael Ramba Nyoman Widita Prabawa Achmad Yaki Yamani Equity Analyst, ext: 201 Equity Analyst, ext: 180 Technical Analyst, ext: 201 Construction, Property Residential, Poultry Cement, Coal, Metal Mining, Misc. Industry Technical Analyst [email protected] [email protected] [email protected]
EQUITY CAPITAL MARKET DIVISION ecm@b casekuritas.co.id
Haslienda Santoso Jodikin Arief Iskandar Equity Capital Market, ext: 137 Sales Trader, ext: 164 Equity Dealer, ext: 136 [email protected] [email protected] [email protected]
Menara BCA - Grand Indonesia, 41st Floor Jl. MH THamrin 1, Jakarta 10310 - Indonesia Tel. +6221 23587222 Fax. +6221 23587300 www.bcasekuritas.co.id/research
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