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Indonesia Industry Focus

Indonesia Construction
Refer to important disclosures at the end of this report

DBS Group Research . Equity 1 Feb 2016

Delivering on delayed growth JCI : 4,615.16


Government is better prepared to award projects this
year; job flow improvement on the cards
Contractors raising capex to support growth; SOE
consolidation to follow
Valuation has now corrected to a more reasonable level Analyst
Tjen San Chong +603 2604 3972; tjensan@alliancedbs.com
Top picks are PTPP (BUY) and WSKT (Upgrade to BUY) Tiesha Putri +6221 30034931; tiesha.narandha@id.dbsvickers.com
A perfect time for an infrastructure push. The slowing
economy is increasing the urgency for the government to
pump prime the economy via higher infrastructure spending.
Unlike last year where transitional issues impeded project
awards and project execution, Joko Widodos administration is STOCKS
better prepared in its second year of office. Positive initiatives
Price Mkt Cap Target Price Performance (%)
of late have been early auction and 2016 budget prefunding. 3 mth 12 mth
Rp US$m Rp Rating
Expanding role of state-owned contractors. We have
observed a trend where state-run contractors expand their role Waskita Karya 1,735 1,723 2,150 6.4 8.5 BUY
by increasing equity investments on infrastructure assets. Pembangunan 3,900 1,382 4,650 2.4 2.6 BUY
Wijaya Karya 2,800 1,260 2,850 (4.8) (23.8) HOLD
While this route typically comes with start up losses, long
Wijaya Karya Beton 990 631 1,000 1.0 (26.7) HOLD
gestation period of investments and project risks, the
contractors will be able to secure a recurring income stream in
the future. Source: AllianceDBS Research, DBS Vickers
SOE consolidation the next big catalyst. More clarity on
Waskita Karya : PT Waskita Karya Tbk, is a stated owned construction
the SOE consolidation plan may be the next big catalyst for the company engaging in a wide variety of construction activities
sector. The first test will be the acquisition of ADHI by WSKT including highways, bridges, ports, airports, buildings, sewerage
which is slated to kick off this year. While it is too early to plants, cement plants, factoreis and other industrial facilities.
assess the potential earnings dilution/accretion due to lack of Pembangunan Perumahan : PT PP (Persero) is Indonesia's leading
details provided, the move should be positive in the longer construction company with business portfolio ranging from building
constructions and civil infrastructure constructions.
term given the current fragmented structure of the sector and
Wijaya Karya : Wijaya Karya is a construction company with interests
intensifying competition among state-run contractors of late.
in EPC, civil, building works, precast and realty.
Valuations off peak levels, potential re-rating. The sector is Wijaya Karya Beton : Wika beton (a subsidiary of Wikaya Karya) is a
now trading at 21x PE (+0.8SD above historical mean) vs. the leader in precast in Indonesia with c.40% market share.
peak of 27x in Feb 2015. In our view, part of the de-rating
from the peak reflects the choppy execution of the state
budget and disappointing earnings for some companies. We Construction companies PE valuation range since 2012 (x)
think there is room for the sector to trade higher both from
valuation expansion and earnings upgrades as the Jokowi-led 35
government irons out the hiccups. We note that consensus
30
earnings are 31% and 13% lower than guidance for PTPP and
25
WSKT, leaving room for upgrades should project flows surpass
expectations. 20

Top picks: PTPP and WSKT. PTPP remains our top pick for its 15
healthy cash flow trend and limited exposure to high-risk, 10
capital intensive infrastructure investments. We believe PTPP is 5
a safer bet to play Indonesias infrastructure theme. We also WSKT PTPP WIKA WTON
upgrade WSKT to BUY due to its strong revenue visibility and
earnings momentum. This comes from its more assured Source: AllianceDBS Research, DBS Vickers
pipeline of high-margin toll contract wins.

ed-JS / sa- MA
Industry Focus
Indonesia Construction

A good time for an infrastructure push progress should be seen in 2H16. In addition, private
sector participation in land compensation payment is
Slowing economy adds to the urgency for infrastructure push. now allowed. The project owner is now able to cover
The slowing economy has seen the following similar trend in the payments to speed up process and ask for
ASEAN countries including Indonesia: rising infrastructure reimbursement from state budget later. One major
spending. In Indonesia, the government has allocated Rp314tn progress made this year is the completion of land
budget for 2016 (+8% y-o-y), which is expected to stimulate jobs clearing for Batang power plant, a project which had
and provide a buffer to the slowing domestic economy. stalled for 4 years due to land issues.

Second year should be better than the first. Joko Widodos Ministry of Public Works & Housings budget absorption
administration announced its ambitious plans in Oct-14 when it 120%
took office, to narrow the infrastructure deficit. Nonetheless,
delivery had been slow in the first few months of his 100% 93%

administration due to transitional issues, particularly state budget 90%


80%
revisions and some structural changes made to ministries
involved. 60%

With a pre-approved budget and enhanced regulations in place, 40%

we believe the government will be better equipped in delivering


20%
on its promise in its second year of administration. We also note
that the government has taken some initiatives to accelerate the 0%
progress in 2016 such as: Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15

Target Realization
a) Early auction of road projects. In an attempt to expedite Source: TEPRA, AllianceDBS, DBS Vickers
budget absorption, Ministry of Public Housing and
Works (MoPWH) has tendered out 2016 road projects Ministry of Transportations budget absorption
worth Rp30tn (29% of ministrys budget in FY16) in
120%
4Q15. This was followed by signing of contracts for
100%
projects worth Rp8.8tn in the first week of Jan 2016. 100%
This initiative is expected to push the MoPWHs budget
80%
absorption to 5-6% by the end of January vs. a mere
0.1% recorded in Jan 2015. 60%
72%

b) 2016 budget pre-funding. In addition to the time- 40%


consuming contract tenders and awarding process, the
20%
low tax revenue collected at the beginning of the year is
also one of the main reasons for the low budget 0%
absorption trend in 1H. To prevent this, the government Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15
had secured Rp64tn cash from a bond auction to fund Target Realization
the 2016 state budget before the commencement of
Source: TEPRA, AllianceDBS, DBS Vickers
the new year.

c) Continuous land acquisition reform. Land disputes had Expanding role of state-owned contractors
been a persistent stumbling block in the past. In March
2015, Joko Widodos administration enforced the full We believe Indonesia is still in the early phase of the construction
implementation of land clearing act No. 2/2012. The boom as reflected in the low participation rate from the private
new act also provides more clarity on the time frame of sector. Nowadays, most of the infrastructure projects are still
the process by limiting it to 559 days at the longest. The handled by government agencies or assigned to SOEs. These
time frame was further shortened to 512 days through projects will be the first test of the governments ability to tackle
the issuance of Presidential Decree No. 148/2015. More red tape. Successful execution will help to galvanise the

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Industry Focus
Indonesia Construction

participation of private sector interests in the form of Public The chart below shows a surge in contractors FY16 capex
Private Partnerships (PPP) and lead to more job flows for both budget with WIKA showing the most prominent increase. The
state-run and private contractors in the subsequent stages. company has been building recurring income sources through
investments in power plants and recently the Jakarta-Bandung
Budget structure suggests increasing participation from SOEs. high-speed railway. WIKAs FY16 budget is expected to go up to
2016 state budget structure reflects the governments effort to Rp10.5tn if the rights issue plan goes through this year. This
decentralize the infrastructure budget. The budget at the represents 0.9x of its equity base post rights issue.
ministerial level was reduced by Rp29tn (-15% y-o-y), while
capital injection to SOEs was raised by Rp11tn (+40% y-o-y), State-run contractors capex budget
which shows the governments effort to increase participation Rp bn
from SOEs in narrowing the countrys infrastructure deficit. This 7,000 180%
6,000
is good news for state-own contractors since the additional 6,000
160%
140%
equity will create a multiplier effect on future construction job 5,000 4,500 120%
4,300
flows. 4,000 100%
80%
3,000 60%
Infrastructure budget 2,000 1,740 1,800 40%
APBNP RAPBN Growth 900 20%
1,000 550 528
2015 2016 y-o-y 0%
- -20%
Ministerial spending 196 168 -15% WIKA* PTPP* WSKT WTON
Public Works & Housing 111 101 -9%
Transportation 59 47 -20% Capex FY15 Capex FY16 Growth y-o-y (RHS)
Agriculture 9 6 -30%
Energy & Mineral Resources 8 4 -56% *assuming no rights issue in 2016
Source: Companies, AllianceDBS, DBS Vickers
Non-ministerial spending 7 5 -25%

Transfer to region & village fund 41 79 94% State-run contractors leverage and capex
Special allocation fund 30 57 93%
Village fund 8 19 127% 1.4
1.2
1.2 1.1
Capital expenditure 36 50 41%
Investment 5 9 80% 1.0
Capital injection to SOE 29 40 40% 0.8
0.6
Social infrastructure 7 7 0% 0.6 0.5 0.5
0.4
Infrastructure support 4 5 21% 0.2
0.2
Total 290 314 8% 0.0
- (0.2)
WIKA* PTPP* WSKT WTON
(0.2)
Source: Ministry of Finance, AllianceDBS, DBS Vickers
(0.4)
Net gearing as at 30 Sep 2015 (x) FY16 capex/equity (x)
Capex on the rise. With an estimated Rp4,000tn infrastructure
deficit, the build out tasks are too huge to be handled by the *assuming no rights issue in 2016
government alone. SOEs, including state-run contractors, are Source: Companies, AllianceDBS, DBS Vickers
expected to take part in the infrastructure push by initiating
projects as well as investing in the infrastructure assets. Taking
on this role means that the earnings generated from the related
construction work will be ploughed back into the
SPV/infrastructure assets. We note that infrastructure is a long
term investment, hence cash generation may deteriorate in the
early years of operations. Having said that, we believe a strong
balance sheet is needed to sustain growth. Contractors with
ample room for leverage will have a competitive edge to take up
more projects in the future.

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Industry Focus
Indonesia Construction

SOE consolidation the next big catalyst It remains to be seen whether the government can execute the
plan as scheduled. The first test will be the acquisition of ADHI by
Planned corporate actions in 2016-2018 WSKT, which is slated to kick off this year. While ADHI should
Year Plan stand to benefit the most from this acquisition plan due to the
high valuation discount relative to WSKT (30-60% discount in
2016 WSKT to acquire ADHI the last 12 months), this acquisition will in return provide WSKT
2017 Indah Karya, Yodya Karya and Bina Karya (not listed) to merge access to ADHIs property business and additional order book
under WIKA
from Jakarta LRT (Rp34tn). This income stream would help to
Assets owned by Brantas Adipraya, Amarta Karya and Rekayasa cover start-up losses from WSKTs toll road business.
Industri (not listed) to be injected to WIKA

WSKT to receive capital injection


We ran a quick calculation on the possible WSKT-ADHI share
2018 PTPP to acquire Nindya Karya and Virama Karya (not listed) swap scenario. Assuming that no cost savings are realised
Jasa Marga to acquire WSKT through the acquisition, our calculation suggests that a share
Jasa Marga to receive capital injection swap of 1.3 ADHI share for 1 WSKT will still be earnings
accretive.
Source: Various media sources, AllianceDBS, DBS Vickers
Also worth noting is that some of the plans involve non-listed,
As stipulated in the SOE Road Map 2015-2019, the government small scale contractors whose financial performances are
will work to consolidate state-run contractors and infrastructure unknown. We are cautious on this M&A plan since these small
companies starting this year. Looking at the current fragmented contractors are often associated with poor profitability and cash
structure of the Indonesian construction sector, the move should flow management, and hence may be potentially negative for
be longer term positive. There are not much details provided at PTPP and WIKA.
this moment, however given that most of the companies
involved are currently in an expansion mode and require high
capital investment, a share swap seems to be the most likely
scenario.

A quick calculation on WSKT-ADHI share swap scenario


Key assumptions ADHI WSKT
Net profit FY15F (Rp bn) * 405 821
Shares outstanding (bn) 3.56 13.57
EPS FY15F (Rp) 114 61
Share price (Rp/share) 1,735

ADHI transaction price (Rp/share) 2,300 2,400 2,500 2,600 2,700 2,800 2,900 3,000
Implied PE (x) for acquisition 20.2 21.1 22.0 22.9 23.8 24.6 25.5 26.4
Transaction value (Rp bn) 8,190 8,546 8,903 9,259 9,615 9,971 10,327 10,683

Share swap ratio 1.33 1.38 1.44 1.50 1.56 1.61 1.67 1.73

New shares issued via share price (bn) 6.26 6.81 7.39 8.00 8.62 9.27 9.95 10.65
Enlarged share base (bn shares) 19.83 20.39 20.97 21.57 22.20 22.85 23.52 24.22

WSKT's EPS (Rp) 41.4 40.3 39.2 38.1 37.0 36.0 34.9 33.9
% dilution from base -32% -33% -35% -37% -39% -41% -42% -44%

Merged EPS 61.8 60.1 58.5 56.8 55.2 53.7 52.1 50.6
% dilution/accretion from base 2% -1% -3% -6% -9% -11% -14% -16%
*Based on Bloomberg consensus
Source: Bloomberg Finance L.P, AllianceDBS, DBS Vickers

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Industry Focus
Indonesia Construction

Government projects & progress made on the Kuala Tanjung and New Makassar ports which
commenced construction in 2015. Overall, seaports
1,000 km new toll roads. Among the various government development was rather slow last year. The mega project,
programs, toll road projects have recorded the most notable Cilamaya deep sea port, was cancelled; however the
progress to date. There were152 km of new toll roads added replacement project will be announced later this year. One big
last year (13% of the 1,000 km target), bringing total port project that will possibly be tendered and awarded this
operational toll roads to 952 km. The government targets to year is Pelindo IIs New Priok port Phase 2 worth c. Rp4tn. PTPP
operate 136 km new toll roads this year, while the remainder is currently finishing the construction work for New Priok port
is expected to come onstream in 2017-2018. There are also Phase 1, worth Rp8.7tn. If it manages to deliver the project
several major toll road projects scheduled to break ground in successfully this year, there is a high chance of PTPP clinching
2016 as shown in the table below. the Phase 2 tender.

Major toll road projects in 2016 15 new airports and revitalisation of 10 airports. The Ministry
Invest- of Transportation is currently renovating 50 airports across
Length ment Potential
Project
(km) value
Progress
contractors Indonesia and building 15 new airports in remote areas.
(Rp tn)
Cikampek 2 64 17 Tender - 1 million houses. The realisation fell short of target with only
Balikpapan- 99 15 Prequalificati WIKA-PTPP, 745,144 houses built in 2015. This year, the government has
Samarinda on WSKT
maintained the target at 1,000,000 units.
Cileunyi- 62 12 - -
Sumedang-
Dawuan There are also 7 mega projects that broke ground in 2015, three
Bandung Intra 27 7 - - of which are projects that were delayed for years due to either
Urban
Serang- 84 7 - -
land acquisition or funding issues. Most of the projects are
Panimbang expected to complete within 2-3 years.
Legundi-Bunder 29 6 - WSKT
Manado-Bitung 40 5 Prequalificati WIKA-PTPP, Mega projects that broke ground in 2015
on WSKT
Invest-
Total 292 56 ment Main project Ground-
Project value Beneficiary
Source: Various media sources, AllianceDBS, DBS Vickers owner breaking
(Rp tn)
Kuala Tanjung 4.8 Pelindo I Jan-15 PTPP
35 GW power plants. As of 2015, PLN had entered into multipurpose
agreements with 46 independent power producers (IPP) for terminal (phase
1)
additional power capacity of 17 GW. These projects are
Trans Sumatera 30 Hutama Apr-15 Hutama
scheduled to break ground in 2016. Within our coverage, toll road, Karya & Jasa karya
WIKA has the highest exposure to power projects. The Palembang- Marga
Indralaya section
company is bidding for 9-40% stakes in 8 power plants with
Trans Java toll 9.5 Jasa Marga Apr-15 WSKT
total capacity of 6 GW. This year, PTPP intends to bid for more road, Solo- & WSKT
IPP projects. Kertosono
section
Makassar New 7 Pelindo IV May-15 PTPP
3,258 km of railways. A significant progress made on the Port (phase 1A)
railway development plan is the groundbreaking of Borneo Batang power 55 Bhimasena Aug-15 Possibly
plant Power WTON
Railway in November 2015 after a delay of 4 years. In the first Indonesia
phase, the Russian Railway will build 192 km railway from Jakarta LRT 34 Gov. of Sep-15 ADHI
Buluminung port to West Kutai in East Kalimantan. For now, Jakarta
WTON is the only state-run precast producer able to produce Borneo Railway 22 Russian Nov-15 Possibly
Railway WTON
railway sleepers. Excellent progress on railway build-out should
translate to larger new orders for WTON. Source: Various medias, AllianceDBS, DBS Vickers

24 new seaports. One out of three planned terminals in New


Priok port will be operational this year. Progress has also been

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Industry Focus
Indonesia Construction

Mega projects to be the main growth driver in 2016 Construction sector 12-month forward PE
30
Despite softer growth of the states infrastructure budget, state-
+2sd
run contractors are guiding for a higher new orders this year at 25

Rp148.9tn (vs. Rp96.3tn in FY15). The four listed state-run +1sd

contractors are looking at a 55% y-o-y growth vs. 38% y-o-y in 20


Avg.
FY15. Projects funded by SOE capital injections and rights issue
will contribute the most to this increase. These projects are: 15
1sd

2sd
10
1. Jakarta-Bandung HSR (Rp34tn). The contract will be split
into two phases with a value of Rp17tn each. Phase 1 will be
5
awarded to WIKA this year, contributing 32% to WIKAs Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16
new order target for this year.
Source: Bloomberg Finance L.P, AllianceDBS, DBS Vickers
2. Jakarta-Cibubur LRT (Rp34tn). ADHI will be the main
contractor.
Construction sector vs. JCI 12-month forward PE
3. Waskita Karyas toll roads (Rp20tn).
30 100%
4. Jawa V power plant (Rp10tn). WIKA has a high chance of
80%
getting this project. 25
60%

20 40%
New order growth 20%
120% 15 0%
107%
-20%
100% 10
83% -40%
80% 5 -60%
Jan-12

Nov-12
Jan-13

Nov-13
Jan-14

Nov-14
Jan-15

Nov-15
Sep-12

Sep-13

Sep-14

Sep-15
May-12

May-13

May-14

May-15
Mar-12

Mar-13

Mar-14

Mar-15
Jul-12

Jul-13

Jul-14

Jul-15
60% 52% 55%
43%
38%
40% 34% 33% 33% Construction PE premium to JCI Construction PE JCI PE

20% 15% Source: Bloomberg Finance L.P, AllianceDBS, DBS Vickers


0%
WIKA PTPP WSKT ADHI Total Stock picks. We recommend investors to stick with companies
FY15 y-o-y FY16 y-o-y with strong earnings visibility, as reflected in its order book size.
In addition, we believe balance sheet strength is important
Source: Companies, AllianceDBS, DBS Vickers
during this boom phase. One evident trend that we have
observed lately is contractors increasing investments in
Valuation and recommendation
infrastructure assets to support order book growth. Contractors
with strong balance sheets, or those who are expanding within
Valuation has corrected to a more reasonable level. Slower-than-
their balance sheet capacity, would have greater ability to sustain
expected project execution along with capital outflows led to a
growth in the future.
de-rating in the construction sectors valuation last year. The
sectors PE multiple has now reverted to 20x from a peak of 27x
PTPP: A safer bet. PTPP is our top pick in the sector. We believe
in Feb 2015. We believe there is room for re-rating if government
PTPP is a safer bet on the Indonesia construction up-cycle given
and contractors manage to improve on execution.
its very limited exposure to high-risk, capital intensive projects.
With expertise in port construction, PTPP is set to benefit from
Joko Widodos sea toll program and Pelindos higher capex. We
maintain our BUY call on PTPP with TP of Rp4,650 (25x FY16F
EPS).

WTON: The clear beneficiary of HSR. After a lackluster year in


2015 where most of the contract awards were late, 2016 looks
to be a more promising year for WTON. The company has been

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Industry Focus
Indonesia Construction

appointed as the main precast supplier for Jakarta-Bandung HSR. WSKTs consensus earnings trend vs. share price
It expects to clinch new orders of Rp6-9tn from projects in 2016- Rp bn
2018, nearly 3x WTONs revenue. The stock has significantly 1,100 2,000
outperformed JCI YTD and now trades at 25x FY16F EPSa level
1,000 1,800
that we believe is fair. There could be upside to our forecast if
900
WIKA, WTONs parent company, wins Jakarta Giant Sea Wall and 1,600
800
Bandung LRT projects. We maintain our HOLD call on WTON 1,400
700
with TP of Rp1,000.
600 1,200

WSKT: Expanding at full speed. We upgraded WSKT to a BUY 500 1,000

with an SOTP-based TP of Rp2,150 (implies 24x FY16E EPS). With


12 toll roads in its portfolio and enlarged equity base post rights
WSKT net profit FY15F WSKT net profit FY16F Price (RHS)
issue last year, WSKT undoubtedly leads the earnings race among
state-run contractors. We are confident that WSKT could achieve Source: Bloomberg Finance L.P, AllianceDBS, DBS Vickers
its Rp40tn new contract target this year with 50% of the target
coming from its toll road concessions. Moreover, we see a case PTPPs consensus earnings trend vs. share price
of margin expansion this year as revenue from its toll road Rp bn
construction increases. 1,200 4,500
1,100
4,000
WIKA: Unblocking the pipeline. WIKAs new order book is set to 1,000
3,500
surge this year after the Jakarta-Bandung HSR construction kicks 900

off. The company targets to bag Rp52tn new contracts in FY16, 800 3,000
700
double from FY15. Nonetheless, we doubt that WIKAs earnings 2,500
600
growth will be able to track its order book growth due to
500 2,000
potential margin dilution and high execution risk on some of its
mega projects. Meanwhile, the company may have to look for
alternative sources of funds to finance its projects until PTPP net profit FY15F PTPP net profit FY16F Price (RHS)
government capital injection is approved and disbursed. Maintain
Source: Bloomberg Finance L.P, AllianceDBS, DBS Vickers
HOLD with TP of Rp2,850 (22x FY16F EPS).

WIKAs consensus earnings trend vs. share price


DBSVI & consensus FY16F earnings vs. company Rp bn

guidance (Rp bn) 1,200 4,500


1,100
4,000
1,000
Com-
DBSVI's 3,500
Consensus panys DBSVI/ Consensus/ 900
net
net profit net company company 800
profit 3,000
profit 700
2,500
600
WSKT 1,191 1,042 1,500 0.79 0.69 500 2,000

PTPP 897 909 1,050 0.85 0.87


WIKA 797 790 820 0.97 0.96
WTON 348 292 212* 1.65 1.38 WIKA net profit FY15F WIKA net profit FY16F Price (RHS)

(*) ex-high speed railway. Source: Bloomberg Finance L.P, AllianceDBS, DBS Vickers
Source: Companies, Bloomberg Finance L.P, AllianceDBS, DBS Vickers

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Industry Focus
Indonesia Construction

WTONs consensus earnings trend vs. share price


Rp bn
Low budget absorption at regional level. There is a change in the
600 1,500
infrastructure budget structure this year with more funds shifted
from ministries to regional governments. This raises concerns on
500 1,300
regional governments ability to spend the budget given the low
400
1,100 expenditure track record in the past.
300
900
200
Political headwinds. Current administration has not secured a
100 700
majority of seats in the parliament. Conflicting interest between
- 500
government and opposing parties may impede reform
momentum. A case in point is the Rp40tn capital injection plan
to SOEs that is currently frozen by the parliament.
WTON net profit FY15F WTON net profit FY16F Price (RHS)

Source: Bloomberg Finance L.P, AllianceDBS, DBS Vickers Human resource constrains. The huge backlog and future job
flows require contractors to increase human resource capacity.
Key risks The lack of skilled project managers could result in a delay in
project execution.
Tax revenue shortfall. The government has set out an ambitious
tax revenue target of Rp1,360tn in the 2016 state budget, a
28% y-o-y increase from last year. Failure to meet this target
could lead to spending cuts and delays in project execution.

Sector comparison

Market Diluted EV/ Net Div


Cap Price Rec. TP PE (x) P/B(x) EBITDA (x) Yield ROE EPS CAGR

(IDR bn) (IDR) FY15 FY16 FY15 FY16 FY15 FY16 FY15 FY16 FY15 FY16 FY15F-17F

Wijaya Karya 17,218 2,800 Hold 2,850 29.0 21.6 3.9 3.3 13.5 13.3 0.7% 0.7% 14% 17% 31%

PT PP (Persero) 19,176 3,960 Buy 4,650 27.7 21.4 5.0 4.2 15.3 10.8 0.7% 0.9% 22% 21% 28%

Waskita Karya 23,684 1,745 Buy 2,150 28.5 19.6 2.6 2.4 19.6 16.7 0.7% 1.0% 14% 13% 10%

Adhi Karya 9,080 2,550 N/R N/A 17.9 16.2 1.8 1.6 7.0 5.7 1.2% 1.3% 13% 12% 22%

Wijaya Karya Beton 8,410 965 Hold 1,000 39.9 24.1 3.7 3.3 16.3 22.1 1.2% 0.8% 10% 15% 51%

Simple average 28.6 20.6 3.4 3.0 14.3 13.7

Weighted average 28.4 20.6 3.5 3.0 15.4 13.8

Source: Bloomberg Finance L.P, AllianceDBS, DBS Vickers

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Industry Focus
Indonesia Construction

Company Guides

Page 9
Indonesia Company Guide
Waskita Karya
Edition 2 | Bloomberg: WSKT IJ | Reuters: WSKT.JK Refer to important disclosures at the end of this report

DBS Group Research . Equity 1 Feb 2016

BUY (Upgrade from HOLD) Expanding at full speed


Last Traded Price: Rp1,735 (JCI : 4,615.16) Upgrade to BUY. We raise WSKTs FY16F/FY17F net profit by
Price Target : Rp2,150 (24% upside) (Prev Rp1,700) 18%/5% as we revise up our order book assumptions and
margins. Consequently, we raise our TP to Rp2,150 (from
Potential Catalyst: Award of a large-sized contract Rp1,700) and upgrade our call to BUY. We now assume new
Where we differ: Our FY16F earnings is 14% higher than consensus contracts of Rp40tn in FY16F, in line with managements
guidance. WSKTs toll roads are expected to contribute 50%
Analyst
Tjen San Chong +603 2604 3972 tjensan@alliancedbs.com to FY16 new contracts (Rp20tn vs. c. Rp10tn in FY15). This
Tiesha Putri +6221 30034931 tiesha.narandha@id.dbsvickers.com opens up a possibility of margin expansion as WSKT typically
charges a premium for its toll roads construction works (13%
vs. normal margin 10-11%).
Price Relative
Rp Relative Index
Most assured contract wins. We are confident that WSKT
1,933.4
489 could achieve its Rp40tn new contract wins target this year
with Rp20tn coming from its toll roads and Rp7tn from
439
1,733.4
1,533.4 389

1,333.4 339
Palembang LRT. The new wins will bring its total order book to
289
Rp78tn, making it one of the strongest contractors in terms of
1,133.4
933.4 239

733.4
533.4
189
139
revenue visibility with an order book of 5.4x FY15F revenue.
333.4 89 Further fund raising needed. The company is guiding for Rp5-
Dec-12 Jan-14 Jan-15 Jan-16
6tn capex in FY16 (vs. Rp4.3tn budgeted in FY15). Capex
Waskita Karya (LHS) Relative JCI INDEX (RHS)
should continue to trend upwards as the company expands its
Forecasts and Valuation toll road portfolio. We estimate that WSKT would need
FY Dec (Rpbn) 2014A 2015F 2016F 2017F
Rp16.9tn to fund its equity stakes in the existing portfolio in
Revenue 10,287 14,327 20,318 25,483
EBITDA 933 1,300 1,954 2,524 2015-2018, c.30% of which was already disbursed last year.
Pre-tax Profit 756 1,125 1,618 1,527 To fund FY16-17 capex, WSKT plans to issue Rp5tn bonds in
Net Profit 502 821 1,191 994 stages with the first Rp2tn being issued in 1H16. It also plans
Net Pft (Pre Ex.) 502 799 1,191 994
to divest 30% of its shares in Waskita Precast this year and
Net Pft Gth (Pre-ex) (%) 36.3 59.2 49.2 (16.6)
EPS (Rp) 51.9 61.3 89.0 74.2 proposes a Rp3.1tn capital injection to the government in
EPS Pre Ex. (Rp) 51.9 59.6 89.0 74.2 2017.
EPS Gth Pre Ex (%) 36 15 49 (17)
Diluted EPS (Rp) 51.9 61.3 89.0 74.2 Valuation:
Net DPS (Rp) 10.4 12.3 17.8 14.8 We value WSKTs construction business at 22x FY16 PE. As for
BV Per Share (Rp) 294 662 739 795
PE (X) 33.4 28.3 19.5 23.4 the toll roads, we value three toll roads that will be operational
PE Pre Ex. (X) 33.4 29.1 19.5 23.4 in 2017 using the DCF method. Our new TP of Rp2,150
P/Cash Flow (X) nm nm nm nm implies 24x FY16F PE.
EV/EBITDA (X) 19.5 16.6 14.2 11.5
Net Div Yield (%) 0.6 0.7 1.0 0.9 Key Risks to Our View:
P/Book Value (X) 5.9 2.6 2.3 2.2
Net Debt/Equity (X) 0.5 CASH 0.4 0.5 Delay in project execution. Delay in project execution could
ROAE (%) 19.2 14.0 12.7 9.7 lead to lower earnings and trigger negative sentiments
Earnings Rev (%): 9 18 5 towards Indonesia's construction sector.
Consensus EPS (Rp): 59.6 78.4 97.4
Other Broker Recs: B: 19 S: 1 H: 5 At A Glance
Issued Capital (m shrs) 13,572
Source of all data: Company, AllianceDBS Research, Bloomberg Finance Mkt. Cap (Rpbn/US$m) 23,548 / 1,723
L.P Major Shareholders
Republic of Indonesia (%) 68.0
Free Float (%) 32.0
3m Avg. Daily Val (US$m) 3.7
ICB Industry : Industrials / Construction & Materials

ASIAN INSIGHTS VICKERS SECURITIES


ed: TH / sa: MA
Company Guide
Waskita Karya

New Contract Wins (Rp bn)


CRITICAL DATA POINTS TO WATCH
40000

35,700
Earnings Drivers: 30575
30000
Rerouting business plan. The toll road acquisition spree done 30,600

25,500
last year marked a change in WSKTs business model. The 22625
20,400
company is now aiming to become one of the leading toll road
15,300 13318
operators in Indonesia by 2018. The company currently owns 12
10,200
toll road concessions with total length of 539 km. It recently 5,100
increased its effective ownership in three Trans Java toll roads 0
i.e. Pejagan-Pemalang, Kanci-Pejagan and Pasuruan- 2013A 2014A 2015F 2016F 2017F

Probolinggo by acquiring all of MNCs shares in the concessions.


Order Book (Rp bn)
Post acquisitions, MNCs buyback options on these toll roads
88,640.2
were legally terminated.
77,710.5
72,400
Margin expansion on the cards. We estimate that the
51,955.1
construction works for these 12 toll road concessions could be 54,300

worth over Rp40tn. Approximately Rp10tn has been included in 36,200 33,141.0
FY15's new order book. This year, the management expects to 22,133.0

book Rp20tn new contracts from its self-owned toll roads (50% 18,100

of its targeted new order book). Interestingly, WSKT will be able 0


to charge a premium for the construction work of its owned toll 2013A 2014A 2015F 2016F 2017F

roads. The average gross margin for these construction works is Construction Gross Margin (%)
13% vs. 10-11% for other infrastructure projects.
12.0 11.5 11.8

10.1 10.5
Another rights issue in 2017? The cyclical nature of construction 9.6 9.4

business and intensifying competition among contractors are


7.2
the main reasons of WSKTs expansion into the toll road
operating business. While this expansion should secure a 4.8

recurring income stream in the long term, this exposes WSKT to


2.4
financial and traffic risks particularly during the initial years of
toll road operations. Given the high capital requirement and 0.0

long gestation period of the business, the toll road acquisition 2013A 2014A 2015F 2016F 2017F

spree done last year have raised concerns on WSKTs ability to Revenue to order book ratio
fund its expansion plan. 70%
58%
60%

Assuming a capital structure of 70% debt and 30% equity for 50%

the 12 toll roads, WSKT needs to invest Rp16.9tn to fund its 40%
38%
33% 33%
equity stakes. The company will have to increase its gearing 30%
28%

given that the Rp5.3tn rights issue proceeds received last year 20%

can only cover 31% of the equity investment requirement. 10%


WSKT is considering divesting 30% of its shares in Waskita 0%
Precast through an IPO this year to raise Rp1-2tn cash. It will 2013 2014 2015F 2016F 2017F

also propose Rp3.1tn capital injection from the government in


2017. One more alternative funding that the company is Toll road equity investments funding structure (Rp tn)
considering is to partially divest its toll roads once the
construction completes.
4.9 5.0

2.0

5.0

2015 rights issue Bonds Waskita Precast IPO 2017 rights issue

Source: Company, AllianceDBS Research

ASIAN INSIGHTS VICKERS SECURITIES


Page 11
Company Guide
Waskita Karya

Leverage & Asset Turnover (x)


Balance Sheet: 1.2
1.20
Further fund raising needed. As at September 30, WSKT had a 1.2
1.00
net debt of only Rp62bn post the completion of the capital 1.1

injection and rights issue in July. However, we expect its debt to 0.80 1.1

rise in the future as the company extends its business model to 0.60 1.0

include the capital-intensive toll road operating business and 0.40


1.0

expansion of its precast business. Based on our calculation, 0.9


0.20
WSKT needs to leverage up the rights issue proceeds by 4.2x to 0.9

fund the toll road investments. Aside from the plan to divest its 0.00
2013A 2014A 2015F 2016F 2017F
0.8

stakes in Waskita Precast through IPO, the company also plans Gross Debt to Equity (LHS) Asset Turnover (RHS)

to raise funds by issuing bonds amounting to Rp35tn in 2016.


Capital Expenditure
Rp
Share Price Drivers: 6,000.0

Award of large-sized infrastructure contracts. The awards of 5,000.0

large-sized, multi-year projects will improve WSKTs revenue 4,000.0

and earnings visibility, and ultimately lead to an upward re- 3,000.0

rating of its share price. 2,000.0

1,000.0
Incremental value from toll roads. To better capture the toll
0.0
road operating business, we incorporate the NPV of WSKTs toll 2013A 2014A 2015F 2016F 2017F

roads that will be operational in 2017 into our TP, i.e. Pejagan- Capital Expenditure (-)

Pemalang, Depok-Antasari and Kanci-Pejagan. We assume that ROE (%)


each toll road will achieve WSKTs expected traffic volume by
18.0%
year 3. For the traffic volume, we assumed a CAGR of 12-20% 16.0%
in the first 10 years, 5-7% in the following 10 years and 2% up 14.0%

to year 40 when the concessions end. Based on our DCF 12.0%

calculation (WACC 9.6%), these toll roads add Rp2.7tn 10.0%


8.0%
incremental value to WSKT or a Rp200 increase to our TP. Note
6.0%
that our project IRR assumptions of 13-14% are lower than 4.0%
managements guidance of 17% and we have yet to include 2.0%

the remaining nine toll roads into our TP calculation. 0.0%


2013A 2014A 2015F 2016F 2017F

Key Risks: Forward PE Band (x)


Persistently weak operating cash flow. We have yet to see 31.0
(x)
positive operating cash flows at WSKT despite its strong
+2sd:27.1x
contract wins last year. Its venture into the toll road operating 26.0

business could also deteriorate WSKTs operating cash flow +1sd:22x


21.0
during the early years of operations. As such, its balance sheet
could remain stretched, forcing it to make another rights or 16.0
Avg:16.9x

bond issue in the future. 1sd:11.8x


11.0

Unsustainable precast margins. We are cautious on the 6.0 2sd:6.7x


Dec-12 Jan-14 Jan-15 Jan-16
sustainability of its precast margins. The company expects to
sustain the segment's gross margin at 15%. However, we PB Band (x)
think this will be challenging given that Wika Beton, the 6.0
(x)
market leader in precast business, only expects to sustain its 5.5

gross margin at 13%. We believe this can only be achieved 5.0


+2sd:4.66x
4.5
through continuous product innovation. 4.0
+1sd:3.79x
3.5

High amount of prepaid tax. Among its SOE peers, WSKT is 3.0 Avg:2.91x
2.5
the most leveraged to governments infrastructure 1sd:2.04x
2.0
development plan. Over the past three years, the government 1.5

and SOEs projects dominated WSKTs portfolio with a 1.0


2sd:1.16x
Dec-12 Jan-14 Jan-15 Jan-16

Source: Company, AllianceDBS Research

ASIAN INSIGHTS VICKERS SECURITIES


Page 12
Company Guide
Waskita Karya

combined share of 70%. The tax regulations require WSKT to Company Background
pay the VAT incurred to government or SOE clients which PT Waskita Karya Tbk (WSKT) is a state-owned construction
caused the company to record a high amount of prepaid VAT company engaged in a wide variety of construction activities
(Rp731bn as at Sep 30). It could take more than two years to including toll roads, bridges, ports and buildings. It is the most
disburse the tax refund, and hence further drag operating cash leveraged proxy to the Indonesian construction sector, deriving
flows. c. 80% of its revenues from construction and >50% of its
projects from the Government of Indonesia.

ASIAN INSIGHTS VICKERS SECURITIES


Page 13
Company Guide
Waskita Karya

Key Assumptions
FY Dec 2013A 2014A 2015F 2016F 2017F
New Contract Wins (Rp 13,318 22,625 30,000 40,000 30,575
Order Book (Rp bn) 22,133 33,141 51,955 77,711 88,640
Construction Gross 9.40 10.2 10.5 11.5 11.8

Segmental Breakdown
FY Dec 2013A 2014A 2015F 2016F 2017F
Revenues (Rpbn)
Construction 9,559 9,484 11,919 16,706 21,084
Building rentals/Property 0.26 0.32 0.26 0.26 0.0
Precast 127 803 2,408 3,612 4,153
Energy 0.0 0.0 0.0 0.0 0.0
Others 0.0 0.0 0.0 0.0 246 Precast revenue to
contribute 18% of
Total 9,687 10,287 14,327 20,318 25,483
WSKT's consolidated
Gross Profit (Rpbn) revenue.
Construction 899 963 1,252 1,921 2,488
Building rentals/Property 0.26 0.32 0.26 0.26 0.0
Precast 11.8 146 349 488 561
Energy 0.0 0.0 0.0 0.0 0.0
Others 0.0 0.0 0.0 0.0 246
Total 911 1,109 1,601 2,409 3,295
Gross Profit Margins (%)
Construction 9.4 10.1 10.5 11.5 11.8
Building rentals/Property 100.0 99.7 99.7 99.7 N/A
Precast 9.3 18.2 14.5 13.5 13.5
Energy N/A N/A N/A N/A N/A
Others N/A N/A N/A N/A 100.0 Construction gross
Total 9.4 10.8 11.2 11.9 12.9 margin is expected to
increase as WSKT
Income Statement (Rpbn) charges a premium for
FY Dec 2013A 2014A 2015F 2016F 2017F its self-owned toll roads
construction works.
Revenue 9,687 10,287 14,327 20,318 25,483
Cost of Goods Sold (8,776) (9,178) (12,727) (17,909) (22,189)
Gross Profit 911 1,109 1,601 2,409 3,295
Other Opng (Exp)/Inc (340) (431) (544) (772) (1,341)
Operating Profit 571 678 1,056 1,637 1,954
Other Non Opg (Exp)/Inc 7.56 20.5 0.0 0.0 0.0
Associates & JV Inc 103 197 186 235 259
Net Interest (Exp)/Inc (69.7) (140) (140) (255) (686) We expect interest
Exceptional Gain/(Loss) 0.0 0.0 22.8 0.0 0.0 expense to surge in
Pre-tax Profit 611 756 1,125 1,618 1,527 FY17F as WSKT will no
Tax (243) (254) (304) (426) (533) longer be able to
Minority Interest 0.09 0.32 0.20 0.29 0.24 capitalise the interest
Preference Dividend 0.0 0.0 0.0 0.0 0.0 costs.
Net Profit 368 502 821 1,191 994
Net Profit before Except. 368 502 799 1,191 994
EBITDA 734 933 1,300 1,954 2,524
Growth
Revenue Gth (%) 10.0 6.2 39.3 41.8 25.4
EBITDA Gth (%) 16.2 27.1 39.3 50.4 29.2
Opg Profit Gth (%) 27.5 18.9 55.7 54.9 19.3 Expect a lower net
Net Profit Gth (Pre-ex) (%) 44.9 36.3 59.2 49.2 (16.6) income y-o-y due to toll
roads start-up losses.
Margins & Ratio
Gross Margins (%) 9.4 10.8 11.2 11.9 12.9
Opg Profit Margin (%) 5.9 6.6 7.4 8.1 7.7
Net Profit Margin (%) 3.8 4.9 5.7 5.9 3.9
ROAE (%) 16.8 19.2 14.0 12.7 9.7
ROA (%) 4.3 4.7 5.1 5.0 3.4
ROCE (%) 8.1 8.2 7.9 7.9 6.8
Div Payout Ratio (%) 30.0 20.0 20.0 20.0 20.0
Net Interest Cover (x) 8.2 4.8 7.6 6.4 2.8
Source: Company, AllianceDBS Research

ASIAN INSIGHTS VICKERS SECURITIES


Page 14
Company Guide
Waskita Karya

Quarterly / Interim Income Statement (Rpbn)


FY Dec 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015

Revenue 2,099 5,006 1,403 2,581 3,438


Cost of Goods Sold (1,911) (4,397) (1,246) (2,258) (3,024)
Gross Profit 188 609 157 324 413
Other Oper. (Exp)/Inc (97.0) (158) (50.0) (90.6) (112)
Operating Profit 91.0 451 107 233 301
Other Non Opg (Exp)/Inc 2.44 (4.3) (18.0) 1.35 (4.3)
Associates & JV Inc 62.9 89.3 11.1 37.2 14.4
Net Interest (Exp)/Inc (31.1) (55.4) (50.2) (67.6) (27.6)
Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 22.8
Pre-tax Profit 125 480 50.1 204 307
Tax (57.1) (108) (38.2) (44.7) (77.7)
Minority Interest 0.09 0.08 0.0 0.08 (0.1)
Net Profit 68.3 372 11.9 160 229
Net profit bef Except. 68.3 372 11.9 160 206
EBITDA 156 536 100 272 311

Growth
Revenue Gth (%) (2.2) 138.5 (72.0) 84.0 33.2
EBITDA Gth (%) 9.9 242.5 (81.3) 171.1 14.5
Opg Profit Gth (%) 12.1 394.9 (76.2) 117.5 29.1
Net Profit Gth (Pre-ex) (%) 26.1 445.6 (96.8) 1,238.9 29.0
Margins
Gross Margins (%) 9.0 12.2 11.2 12.5 12.0
Opg Profit Margins (%) 4.3 9.0 7.6 9.0 8.8
Net Profit Margins (%) 3.3 7.4 0.8 6.2 6.7

Balance Sheet (Rpbn)


FY Dec 2013A 2014A 2015F 2016F 2017F

Net Fixed Assets 415 622 2,564 7,796 8,046


Invts in Associates & JVs 343 735 735 735 735
Other LT Assets 249 661 661 661 661
Cash & ST Invts 1,144 1,700 4,772 2,746 2,462
Inventory 281 327 422 593 728
Debtors 5,654 7,261 8,994 12,755 15,997
Other Current Assets 702 1,236 1,627 2,159 2,644
Total Assets 8,788 12,542 19,776 27,443 31,272

ST Debt 875 1,917 1,917 1,917 1,917


Creditor 4,086 5,272 6,485 9,126 11,199
Other Current Liab 466 539 539 539 539
LT Debt 748 1,246 1,246 5,246 6,246
Other LT Liabilities 230 719 719 719 719
Shareholders Equity 2,382 2,843 8,864 9,891 10,646
Minority Interests 1.04 5.86 5.66 5.37 5.13
Total Cap. & Liab. 8,788 12,542 19,776 27,443 31,272

Non-Cash Wkg. Capital 2,085 3,014 4,019 5,842 7,631


Net Cash/(Debt) (479) (1,463) 1,610 (4,417) (5,701)
Debtors Turn (avg days) 195.7 229.1 207.1 195.4 205.9
Creditors Turn (avg days) 160.1 186.8 169.4 159.8 169.6
Inventory Turn (avg days) 14.1 12.1 10.8 10.4 11.0
Asset Turnover (x) 1.1 1.0 0.9 0.9 0.9
Current Ratio (x) 1.4 1.4 1.8 1.6 1.6 Back to net debt
Quick Ratio (x) 1.3 1.2 1.5 1.3 1.4 position.
Net Debt/Equity (X) 0.2 0.5 CASH 0.4 0.5
Net Debt/Equity ex MI (X) 0.2 0.5 CASH 0.4 0.5
Capex to Debt (%) 14.1 10.4 63.2 74.2 6.9
Z-Score (X) NA NA NA NA NA
Source: Company, AllianceDBS Research

ASIAN INSIGHTS VICKERS SECURITIES


Page 15
Company Guide
Waskita Karya

Cash Flow Statement (Rpbn)


FY Dec 2013A 2014A 2015F 2016F 2017F

Pre-Tax Profit 611 756 1,125 1,617 1,526


Dep. & Amort. 52.9 37.2 57.3 81.3 311
Tax Paid (243) (254) (304) (426) (533)
Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0
Chg in Wkg.Cap. (623) (753) (1,005) (1,823) (1,789)
Other Operating CF (183) 126 0.0 0.0 0.0
Net Operating CF (385) (88.7) (127) (551) (485)
Capital Exp.(net) (229) (329) (2,000) (5,313) (561)
Other Invts.(net) (16.8) 0.0 0.0 0.0 0.0
Invts in Assoc. & JV (135) (755) 0.0 0.0 0.0 We estimate 77% of
Div from Assoc & JV 0.59 1.15 0.0 0.0 0.0 the capex budget will
Other Investing CF 1.64 0.0 0.0 0.0 0.0 be allocated for toll
Net Investing CF (379) (1,082) (2,000) (5,313) (561) road expansion.
Div Paid (20.3) (110) (100) (164) (238)
Chg in Gross Debt (297) 1,782 0.0 4,000 1,000
Capital Issues 0.0 59.2 5,300 0.0 0.0
Other Financing CF 0.0 (3.1) 0.0 0.0 0.0
Net Financing CF (317) 1,728 5,200 3,836 762
Currency Adjustments 17.1 (1.2) 0.0 0.0 0.0
Chg in Cash (1,064) 556 3,073 (2,028) (284)
Opg CFPS (Rp) 24.7 68.8 65.6 95.0 97.4
Free CFPS (Rp) (63.7) (43.2) (159) (438) (78.1)
Source: Company, AllianceDBS Research

Target Price & Ratings History

1944 Rp
Target
S.No. Date Closing Price Rating
Price
1844 4 1: 27 Feb 15 1769 1287 FULLY VALUED
2: 04 May 15 1608 1287 FULLY VALUED
3: 27 May 15 1691 1287 FULLY VALUED
1744 4: 10 Aug 15 1820 1305 FULLY VALUED
1 5: 11 Nov 15 1680 1700 HOLD

1644 2 3 5

1544

1444
Jan-15 May-15 Oct-15
Note : Share price and Target price are adjusted for corporate actions.

Source: AllianceDBS Research

ASIAN INSIGHTS VICKERS SECURITIES


Page 16
Indonesia Company Guide
PT PP (Persero)
Edition 1 Version 1 | Bloomberg: PTPP IJ | Reuters: PTPP.JK Refer to important disclosures at the end of this report

DBS Group Research . Equity 4 Dec 2015

BUY On a Solid Footing


Last Traded Price: Rp3,770 (JCI : 4,537.38)
Price Target : Rp4,650 (23% upside) A safer bet. We maintain our BUY call on PTPP with TP of
Rp4,650. We like PTPP due to its strong balance sheet and
Potential Catalyst: Award of a large-sized infrastructure contract healthy cash flow which should enable the company to take
Where we differ: Largely in line with consensus up more projects in the future. Unlike most of its SOE peers,
PTPP does not invest in high-risk, capital-intensive projects.
Analyst
Tjen San Chong +603 2604 3972 tjensan@alliancedbs.com Although the company is planning to invest in more power
Tiesha Putri +6221 30034931 tiesha.narandha@id.dbsvickers.com plants in the coming years, it intends to acquire only a minority
stake, hence limiting its exposure to the risk of start-up losses.
Revenue visibility remains the strongest among peers with
Price Relative
Rp Relative Index
backlog of Rp41tn. PTPP won Rp21tn new contracts in
4,292.5
1090 11M15, bringing the new contract realisation to 78% of
3,792.5 890 our/managements target for FY15. This makes PTPP the
3,292.5
2,792.5 690 runner-up after WSKT in terms of new contract achievement
2,292.5
1,792.5
490 YTD. As of Nov 30, PTPP had Rp41tn contract backlog (2.7x
1,292.5
290 FY15F revenue), which is one of the highest among peers.
792.5
292.5 90 Healthy cash flow trend. We like PTPP due to its excellent cash
flow management and earnings quality. Among its peers, PTPP
Dec-11 Jan-13 Jan-14 Jan-15

is the only company which managed to keep its operating cash


Pembangunan Perumahan (LHS) Relative JCI INDEX (RHS)

Forecasts and Valuation flow positive in the last four years. A key reason is its more
FY Dec (Rp bn) 2014A 2015F 2016F 2017F diversified customer base compared to other SOEs, with the
Revenue 12,427 15,398 19,936 24,243 private sector contributing 50-60% to PTPPs order book. This
EBITDA 1,272 1,735 2,185 2,692
Pre-tax Profit 919 1,272 1,632 2,064 leads to a lower prepaid tax.
Net Profit 532 693 898 1,154
Net Pft (Pre Ex.) 532 693 898 1,154 Valuation:
Net Pft (ex. BA gains) N/A N/A N/A N/A Our revised TP is pegged to 25x FY16 EPS, which is equal to
EPS (Rp) 110 143 185 238
+2SD of 5-year mean forward PE. We believe PTPP deserves to
EPS Pre Ex. (Rp) 110 143 185 238
EPS Gth (%) 26 30 30 29 trade at a high valuation due to its strong track record and
EPS Gth Pre Ex (%) 26 30 30 29 strong EPS growth potential (29% CAGR from FY15F-17F).
Diluted EPS (Rp) 110 143 185 238
Net DPS (Rp) 33 29 37 48
BV Per Share (Rp) 493 791 948 1,149
PE (X) 34.3 26.4 20.3 15.8 Key Risks to Our View:
PE Pre Ex. (X) 34.3 26.4 20.3 15.8 Prolonged slowdown in property sector. PTPP has both direct
P/Cash Flow (X) 64.7 52.5 391.6 46.6 and indirect exposure to property sector. A prolonged
EV/EBITDA (X) 14.6 10.3 9.2 8.1
Net Div Yield (%) 0.9 0.8 1.0 1.3 slowdown in the economy and demand for property can
P/Book Value (X) 7.6 4.8 4.0 3.3 negatively impact earnings and cash flows.
Net Debt/Equity (X) 0.1 CASH 0.3 0.5
ROAE (%) 24.3 22.3 21.3 22.7 At A Glance
Issued Capital (m shrs) 4,842
Earnings Rev (%): (7) (1) 1 Mkt. Cap (Rpbn/US$m) 18,256 / 1,322
Consensus EPS (Rp): 145 194 253
Major Shareholders
Other Broker Recs: B: 24 S: 0 H: 1
Republic of Indonesia (%) 51.0
Source of all data: Company, AllianceDBS, DBS Vickers, Bloomberg Koperasi Karyawan Pemegang 6.2
Finance L.P. Free Float (%) 42.8
3m Avg. Daily Val (US$m) 1.6
ICB Industry : Industrials / Construction & Materials

ASIAN INSIGHTS VICKERS SECURITIES


ed: TH / sa: MA
Company Guide
PT PP (Persero)

Earnings revision summary

We cut our net profit by 7%/1% for FY15F/FY16F after Our FY15 revenue and net profit are broadly in line with
imputing a lower order book burn rate. A weaker economic managements revised guidance. Despite the cut, we still
environment has negatively impacted some of PTPPs clients expect PTPPs net profit to grow strongly by 30% in FY15F
this year, causing them to delay their project construction. and FY16F, outpacing its peers.

Earnings revision summary

2015 2016

Old New Changes Old New Changes

Revenue (Rp bn) 16,830 15,398 -9% 20,662 19,936 -4%


Gross profit (Rp bn) 2,187 2,014 -8% 2,692 2,630 -2%
EBIT (Rp bn) 1,845 1,717 -7% 2,272 2,162 -5%
Net profit (Rp bn) 745 693 -7% 902 898 -1%

Gross margin (%) 13.0 13.1 13.0 13.2


EBIT margin (%) 11.0 11.2 11.0 10.8
Net margin (%) 4.4 4.5 4.4 4.5

New contract win 26,839 26,792 0% 32,078 29,956 -7%


Total order book 52,330 56,659 8% 63,043 71,217 13%

Source : Company, AllianceDBS, DBS Vickers

PTPPs major contract wins in 11M15


Project Location Contract value (Rp bn) Project owner
Reclamation of Mandala City Makassar, South Sulawesi 2,500
Gas engine power plant 120 MW Gorontalo, North Sulawesi 1,600 PLN
Kuala Tanjung port North Sumatera 898 Pelindo I
Gresik gas cogeneration plant East Java 625 Pupuk Indonesia
St. Moritz Makassar, South Sulawesi 524 Lippo Karawaci
New Priok port (additional work) Jakarta 497 Pelindo II
Kuala Namu-Tebing Tinggi toll road North Sumatera 448 Jasa Marga
Solo-Kertosono toll road Central Java 431 Jasa Marga
Source : Company, AllianceDBS, DBS Vickers

ASIAN INSIGHTS VICKERS SECURITIES


Page 18
Company Guide
PT PP (Persero)

New Contract Win (Rp bn)


CRITICAL DATA POINTS TO WATCH 33,600
33,660
29,956
29,400 26,792
Earnings Drivers: 25,200
More port project rollouts in the next two years. PTPP is well 21,000 19,584 20,240

positioned to benefit from Joko Widodos maritime axis 16,800

vision. According to Bapennas, Indonesia would need as 12,600

much as Rp59tn to develop and expand 24 ports from 8,400

2015-2019. Among the largest projects are the expansions 4,200

0
of Kuala Tanjung port (Rp18.4tn) and Tanjung Perak port 2013A 2014A 2015F 2016F 2017F
(Rp8.6tn). Both ports were initially built by PTPP, hence Total Order Book (Rp bn)
increasing the company's competitive edge to secure the
86,500 84,941
work contracts once the projects are tendered out. We also
71,217
note that next year, Pelindo I-IV, the SOEs that will carry out 69,200

a large part of the governments port development plan, 56,659


51,900
have allocated capex of Rp14.6tn,16% higher than this 42,518
35,454
years budget. 34,600

17,300
Potential contract win from New Priok port Phase 2. The
company won the construction work for the New Priok 0
2013A 2014A 2015F 2016F 2017F
(Kalibaru) port back in 2012. Combined with the additional
work won this year, New Priok port contributes Rp8.7tn to Blended gross margin (%)
PTPPs order book. PTPP had delivered 56% of the 13.6
12.3
13.1 13.2 13.3

construction work up to Jun 30, therefore we estimate this 10.9


10.9
project will still be able to contribute Rp3.8tn revenue in
2H15 up to its completion date in 2016. Pelindo II, the 8.2

concession owner of New Priok port, also plans to tender


5.4
out the Phase 2 expansion as early as next year. If PTPP
manages to deliver Phase 1 successfully next year, we see a 2.7

high chance for PTPP to win the Phase 2 tender. 0.0


2013A 2014A 2015F 2016F 2017F

Additional growth boost from property arm. Although the Revenue Trend and Forecast
execution of governments infrastructure projects stalled in Rp bn
30,000 50%
1H15, PTPP managed to deliver strong earnings growth
25,000 40%
supported by its subsidiary, PP Properti (PPRO). Looking
20,000
ahead, we expect the EBIT contribution of PPRO to stay at 30%
15,000
22-23% vs. 11% in FY14. As property commands a 20%
10,000
significantly higher EBIT margin (25-27%) compared to core 10%
5,000
business construction (6-8%), this should lift up PTPPs
- 0%
overall profitability. 2013A 2014A 2015F 2016F 2017F
Revenue (LHS) Growth y-o-y (RHS)
PPRO owns a 55-ha land bank with the Grand Kamala
Net Income Trend and Forecast
Lagoon (GKL) superblock in Bekasi, West Java being the Rp bn
largest. GKL is built on 28 ha of land and is strategically 1,400 40%
located near the planned LRT station as well as industrial 1,200
1,000 30%
estates. Recently, PPRO sealed a Rp3tn deal with Hyundai to
800
develop apartment towers in Grand Kamala Lagoon. The JV 20%
600
expects to capture apartment demand from Korean 400 10%
expatriates working in industrial estates in Bekasi. 200
- 0%
2013A 2014A 2015F 2016F 2017F
Net income (LHS) Growth y-o-y (RHS)

Source: Company, AllianceDBS, DBS Vickers

ASIAN INSIGHTS VICKERS SECURITIES


Page 19
Company Guide
PT PP (Persero)

Leverage & Asset Turnover (x)


Balance Sheet: 1.2

Strong balance sheet enables company to take up more 1.20


1.2
projects. As of June 30, PTPP had Rp1.3tn net debt, 1.00

bringing its net gearing ratio to 0.4x. The company has 0.80
1.1

proposed a capital injection amounting to Rp2.25tn to the 0.60


1.1

government next year which is expected to be disbursed 1.0


0.40
after the parliament approves the revised state budget in
0.20 1.0
2016. Through a rights issue, PTPP could raise as much as
Rp4.4tn cash from the government and minority 0.00
2013A 2014A 2015F 2016F 2017F
0.9

shareholders. All of the proceeds will be used to fund Gross Debt to Equity (LHS) Asset Turnover (RHS)

PTPPs equity investments in several infrastructure projects, Capital Expenditure


including the Kuala Tanjung industrial estate, Kuala Rp
2,500.0
Tanjung multipurpose terminal and six sections of Jakarta
inner city toll road. As most of the projects will only start in 2,000.0

2H16, the rights issue delay should not impact PTPPs work 1,500.0

plan. We also note that the company still has ample room 1,000.0
for new borrowings if the rights issue is delayed further.
500.0

Share Price Drivers: 0.0


2013A 2014A 2015F 2016F 2017F
Award of a large-sized, multi-year infrastructure contract.
Capital Expenditure (-)
PTPP needs to secure Rp6tn new contracts to achieve its ROE (%)
managements target for FY15. New contract wins will be
a positive catalyst to share price. Among the potential
20.0%
contract wins are construction works for subsidised, low-
cost apartments (Rusunami) in Kemayoran, Jakarta. 15.0%

Faster execution of governments infrastructure projects. 10.0%

Project execution had been slow in 1H15 with most parties 5.0%
pointing to the merger of Ministry of Public Works and
Ministry of Housing and late budget approval as the main 0.0%

causes. We have seen an improvement in the last four 2013A 2014A 2015F 2016F 2017F

months with Ministry of Public Works and Housings Forward PE Band (x)
(x)
budget absorption and physical progress reaching 58%
27.7
and 66% respectively in 10M15. If the improvement +2sd:26.8x

sustains, such encouraging news flow should affect PTPPs 22.7


+1sd:20.8x
share price positively. 17.7

Avg:14.9x
12.7
Key Risks:
Slowdown in property sector. PTPPs exposure to the 7.7
1sd:9x

property sector has increased notably with EBIT


2.7 2sd:3x
contribution from Property & Realty segment reaching Dec-11 Jan-13 Jan-14 Jan-15

39% in 1H15 vs. 8% in 1H14. In addition, building PB Band (x)


construction also dominates PTPPs project portfolio with a (x)
8.4
46% share in 10M15. A prolonged slowdown in the
7.4 +2sd:7.31x
property market may pose risks to PTPPs earnings and 6.4
cash flows. 5.4 +1sd:5.61x

4.4
Earnings dilution due to rights issue. PTPP has proposed to 3.4
Avg:3.91x

obtain a Rp2.25tn capital injection from the government 2.4


1sd:2.21x
next year. The company plans to hold rights issue 1.4

amounting to Rp4.4tn in 2016 which represents 24% of its 0.4 2sd:0.51x


Dec-11 Jan-13 Jan-14 Jan-15
market capitalisation.
Source: Company, AllianceDBS, DBS Vickers

ASIAN INSIGHTS VICKERS SECURITIES


Page 20
Company Guide
PT PP (Persero)

reputation in the construction of high-rise buildings, which


COMPANY BACKGROUND accounts for c.55% of its regular construction portfolio.
PT PP is Indonesia's leading construction company whose Additionally, PTPP enjoys a c.40% market share in the
portfolio ranges from building and civil engineering to seaport sector (company estimate).
infrastructure construction. It has established a solid

ASIAN INSIGHTS VICKERS SECURITIES


Page 21
Company Guide
PT PP (Persero)

Key Assumptions
FY Dec 2013A 2014A 2015F 2016F 2017F
New Contract Win (Rp bn) 19,584 20,240 26,792 29,956 33,660
Total Order Book (Rp bn) 35,454 42,518 56,659 71,217 84,941
Blended gross margin (%) 10.9 12.3 13.1 13.2 13.3

Segmental Breakdown
FY Dec 2013A 2014A 2015F 2016F 2017F
Revenues (Rp bn)
Construction 9,952 10,662 13,135 17,059 20,763
Real Estate 259 645 1,520 1,925 2,258
Property 1,445 1,091 655 851 1,106
EPC 0 29 88 101 116
Total 11,656 12,427 15,398 19,936 24,243
Gross Profit (Rp bn)
Construction 1,077 1,232 1,419 1,928 2,346
Real Estate 57 250 450 549 692
Property 139 143 75 98 127
EPC 0 (92) 70 56 64
Total 1,273 1,533 2,014 2,630 3,230
Gross Profit Margins (%)
Construction 10.8 11.6 10.8 11.3 11.3
Real Estate 22.0 38.7 29.6 28.5 30.7
Property 9.6 13.1 11.5 11.5 11.5
EPC N/A (313.1) 80.0 55.0 55.0
Total 10.9 12.3 13.1 13.2 13.3

Income Statement (Rp bn)


FY Dec 2013A 2014A 2015F 2016F 2017F
Revenue 11,656 12,427 15,398 19,936 24,243
Cost of Goods Sold (10,383) (10,894) (13,384) (17,306) (21,013)
Gross Profit 1,273 1,533 2,014 2,630 3,230
Other Opng (Exp)/Inc (200) (276) (297) (468) (566)
Operating Profit 1,073 1,257 1,717 2,162 2,664
Other Non Opg (Exp)/Inc (148) (95) (117) (152) (184)
Associates & JV Inc 96 72 54 62 72
Net Interest (Exp)/Inc (255) (315) (383) (441) (487)
Exceptional Gain/(Loss) 0 0 0 0 0
Pre-tax Profit 767 919 1,272 1,632 2,064
Tax (346) (387) (473) (608) (744)
Minority Interest 0 0 (106) (127) (166)
Preference Dividend 0 0 0 0 0
Net Profit 421 532 693 898 1,154
Net Profit before Except. 421 532 693 898 1,154
EBITDA 1,087 1,272 1,735 2,185 2,692
Growth
Revenue Gth (%) 45.6 6.6 23.9 29.5 21.6
EBITDA Gth (%) 52.2 17.0 36.5 25.9 23.2
Opg Profit Gth (%) 51.0 17.1 36.6 25.9 23.2
Net Profit Gth (%) 35.9 26.4 30.2 29.6 28.5
Margins & Ratio
Expect a strong growth in
Gross Margins (%) 10.9 12.3 13.1 13.2 13.3 FY15 as earnings
Opg Profit Margin (%) 9.2 10.1 11.2 10.8 11.0 contribution from PP
Net Profit Margin (%) 3.6 4.3 4.5 4.5 4.8 Properti increases.
ROAE (%) 23.1 24.3 22.3 21.3 22.7
ROA (%) 4.0 3.9 4.2 4.4 4.7
ROCE (%) 13.2 12.8 14.8 15.1 16.4
Div Payout Ratio (%) 40.8 37.9 26.0 25.9 25.7
Net Interest Cover (x) 4.2 4.0 4.5 4.9 5.5
Source: Company, AllianceDBS, DBS Vickers

ASIAN INSIGHTS VICKERS SECURITIES


Page 22
Company Guide
PT PP (Persero)

Quarterly / Interim Income Statement (Rpbn)


FY Dec 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015

Revenue 3,205 4,619 1,982 3,240 3,553


Cost of Goods Sold (2,820) (4,009) (1,704) (2,834) (3,058)
Gross Profit 385 611 278 405 495
Other Oper. (Exp)/Inc (47) (64) (86) (99) (101)
Operating Profit 338 547 192 306 394
Other Non Opg (Exp)/Inc (22) (20) (20) (35) (28)
Associates & JV Inc 27 30 3 7 12
Net Interest (Exp)/Inc (104) (167) (13) (57) (30)
Exceptional Gain/(Loss) 0 0 0 0 0
Pre-tax Profit 239 389 162 221 348
Tax (94) (148) (68) (104) (108)
Minority Interest 0 0 0 (50) (22)
Net Profit 144 241 94 67 217
Net profit bef Except. 144 241 94 67 217
EBITDA 343 556 175 278 378

Growth
Revenue Gth (%) 23.1 44.1 (57.1) 63.5 9.7
EBITDA Gth (%) 67.3 62.4 (68.5) 58.5 36.0
Opg Profit Gth (%) 44.5 61.9 (64.9) 59.5 28.9
Net Profit Gth (%) 69.5 66.7 (61.2) (28.1) 223.2
Margins
Gross Margins (%) 12.0 13.2 14.0 12.5 13.9
Opg Margins (%) 10.5 11.8 9.7 9.4 11.1
Net Profit Margins (%) 4.5 5.2 4.7 2.1 6.1

Balance Sheet (Rp bn)


FY Dec 2013A 2014A 2015F 2016F 2017F

Net Fixed Assets 142 494 706 2,677 4,588


Invts in Associates & JVs 70 147 147 147 147
Other LT Assets 407 426 426 426 426
Cash & ST Invts 2,573 2,611 3,977 2,391 914
Inventory 1,777 2,675 3,296 4,261 5,174
Debtors 6,389 7,244 8,859 11,470 13,948
Other Current Assets 1,058 1,015 1,015 1,015 1,015
Total Assets 12,416 14,612 18,426 22,388 26,212

ST Debt 1,475 1,475 1,475 1,475 1,475


Creditor 6,300 7,022 8,788 11,364 13,798
Other Current Liab 1,001 1,342 1,342 1,342 1,342
LT Debt 813 1,455 1,955 2,455 2,705
Other LT Liabilities 842 928 928 928 928
Shareholders Equity 1,984 2,389 3,831 4,590 5,565
Minority Interests 1 1 107 234 399
Total Cap. & Liab. 12,416 14,612 18,426 22,388 26,212

Non-Cash Wkg. Capital 1,923 2,571 3,039 4,040 4,997


Net Cash/(Debt) 286 (319) 547 (1,538) (3,266)
Debtors Turn (avg days) 167.7 200.2 190.9 186.1 191.3
Creditors Turn (avg days) 185.6 223.5 215.9 212.8 218.8
Inventory Turn (avg days) 58.8 74.7 81.5 79.8 82.1
Asset Turnover (x) 1.1 0.9 0.9 1.0 1.0
Current Ratio (x) 1.3 1.4 1.5 1.3 1.3
Quick Ratio (x) 1.0 1.0 1.1 1.0 0.9
Net Debt/Equity (X) CASH 0.1 CASH 0.3 0.5
Net Debt/Equity ex MI (X) CASH 0.1 CASH 0.3 0.6
Capex to Debt (%) 4.1 5.5 6.7 50.7 46.4
Z-Score (X) NA NA NA NA NA
Source: Company, AllianceDBS, DBS Vickers

ASIAN INSIGHTS VICKERS SECURITIES


Page 23
Company Guide
PT PP (Persero)

Cash Flow Statement (Rp bn)


FY Dec 2013A 2014A 2015F 2016F 2017F

Pre-Tax Profit 767 919 1,272 1,632 2,064


Dep. & Amort. 14 15 18 23 28
Tax Paid (346) (387) (473) (608) (744)
Assoc. & JV Inc/(loss) 0 0 0 0 0
Chg in Wkg.Cap. 55 (648) (469) (1,001) (957)
Other Operating CF 161 384 0 0 0
Net Operating CF 651 282 348 47 391
Capital Exp.(net) (93) (160) (231) (1,994) (1,939)
Other Invts.(net) (35) (192) 0 0 0 PTPP plans to acquire
Invts in Assoc. & JV (106) (78) 0 0 0 minority stakes in
Div from Assoc & JV 0 0 0 0 0 infrastructure assets,
Other Investing CF (129) (95) 0 0 0 mainly ports, power
Net Investing CF (363) (525) (231) (1,994) (1,939) plants and toll roads, to
Div Paid (93) (126) (160) (139) (180) clinch the construction
Chg in Gross Debt 529 369 500 500 250 contracts.
Capital Issues 0 0 909 0 0
Other Financing CF 223 0 0 0 0
Net Financing CF 659 243 1,249 361 70
Currency Adjustments 147 0 0 0 0
Chg in Cash 1,094 0 1,366 (1,585) (1,478)
Opg CFPS (Rp) 123 192 169 216 278
Free CFPS (Rp) 115 25 24 (402) (320)
Source: Company, AllianceDBS, DBS Vickers

Target Price & Ratings History

4340 Rp
Target
S.No. Date Closing Price Rating
Price
4140
5 1: 02 Jan 15 3590 3300 BUY
4 2: 26 Jan 15 3750 4650 BUY
3940
3 3: 03 Mar 15 3980 4650 BUY
2
4: 04 May 15 3890 4650 BUY
3740 5: 27 May 15 4010 4650 BUY

3540
1
3340

3140

2940
Dec-14 Apr-15 Aug-15 Dec-15
Note : Share price and Target price are adjusted for corporate actions.

Source: AllianceDBS, DBS Vickers

ASIAN INSIGHTS VICKERS SECURITIES


Page 24
Indonesia Company Guide
Wijaya Karya
Edition 1 Version 1 | Bloomberg: WIKA IJ | Reuters: WIKA.JK Refer to important disclosures at the end of this report

DBS Group Research . Equity 25 Nov 2015

HOLD Building For Future Growth


Last Traded Price: Rp2,850 (JCI : 4,585.55)
Price Target: Rp2,850 (0%) (Prev Rp3,000) Maintain HOLD. We cut our FY15F/FY16F earnings by 7%/2%
after imputing lower earnings estimates for WIKAs precast
Potential Catalyst: Award of large-sized contracts business. Post rights issue, WIKA will have a larger capacity to
Where we differ: Our FY15F net profit is 5% below consensus carry out the governments infrastructure mega projects.
However, we believe the current valuation at 22x FY16F PE is
Analyst
Tjen San Chong +603 2604 3972 tjensan@alliancedbs.com fair and we would like to see better earnings delivery and
Tiesha Putri +6221 30034931 tiesha.narandha@id.dbsvickers.com further order book replenishment before changing our view.
We maintain our HOLD call with a revised TP of Rp2,850.
Build now, reap cash later. WIKA expects to secure an
Price Relative additional order book of Rp30tn over 2016-2019 from the
Rp
high-speed railway construction work. However, the company
Relative Index

587
charges a modest margin with gross margin at only 6% (vs.
3,923.0

3,423.0 487
2,923.0 normal range of 8-10%) to minimize the investment needed.
387
2,423.0

1,923.0
We also note that the profit will be re-invested into the JV to
287
1,423.0 fund part of the equity investment requirement. While the
187
923.0
railway investment is expected to generate 9% pretax IRR over
423.0 87
Nov-11 Nov-12 Nov-13 Nov-14 Nov-15
40 years, the company may have to endure negative cash
Wijaya Karya (LHS) Relative JCI INDEX (RHS) flows in the initial years of operations before it can start to
Forecasts and Valuation enjoy recurring profit. The consortium is relying on the transit-
FY Dec (Rpbn) 2014A 2015F 2016F 2017F oriented development (TOD) to compensate for this but few
Revenue 12,463 13,799 19,138 27,063 details have been released as the TOD is still in the planning
EBITDA 1,399 1,487 2,050 2,634 phase.
Pre-tax Profit 1,146 1,133 1,536 1,916
Net Profit 615 602 796 977 Slow contract wins as expected. WIKA won Rp17.5tn of new
Net Pft (Pre Ex.) 615 602 796 977
EPS (Rp) 100 97.9 130 159
contracts in 10M15, representing 73% of our full-year
EPS Pre Ex. (Rp) 100 97.9 130 159 forecasts. This achievement is still far behind managements
EPS Gth (%) 8 (2) 32 23 target (55% of FY15 target). However, the company is still
EPS Gth Pre Ex (%) 8 (2) 32 23 maintaining its FY15 target at Rp31.6tn on hope of a faster
Diluted EPS (Rp) 100 97.9 130 159
Net DPS (Rp) 27.8 20.0 19.6 25.9 tender process leading to year-end.
BV Per Share (Rp) 649 727 837 970
PE (X) 28.5 29.1 22.0 17.9 Valuation:
PE Pre Ex. (X) 28.5 29.1 22.0 17.9 We lower our TP slightly to Rp2,850, still based on 22x FY16F
P/Cash Flow (X) nm 27.3 50.1 51.7
EPS (at +1SD of historical mean PE).
EV/EBITDA (X) 13.7 13.4 10.4 9.0
Net Div Yield (%) 1.0 0.7 0.7 0.9
P/Book Value (X) 4.4 3.9 3.4 2.9 Key Risks to Our View:
Net Debt/Equity (X) 0.1 0.2 0.4 0.6 Delay in project rollout. Delay in project rollout, especially the
ROAE (%) 17.7 14.2 16.6 17.6
mega high-speed railway project, should lead to lower-than-
Earnings Rev (%): (7) (2) 2 expected revenue and earnings.
Consensus EPS (Rp): 99.7 134 172
Other Broker Recs: B: 14 S: 2 H: 11 At A Glance
Source of all data: Company, AllianceDBS, DBS Vickers, Issued Capital (m shrs) 6,149
Bloomberg Finance L.P Mkt. Cap (Rpbn/US$m) 17,525 / 1,282
Major Shareholders
Republic of Indonesia (%) 65.2
Free Float (%) 33.8
3m Avg. Daily Val (US$m) 2.1
ICB Industry : Industrials / Construction & Materials

ASIAN INSIGHTS VICKERS SECURITIES


www.dbsvickers.com
ed: TH / sa: MA
Company Guide
Wijaya Karya

Earnings revision summary


2015 2016
Old New Changes Old New Changes
Revenue (Rp bn) 14,816 13,799 -7% 18,823 19,138 2%
Gross profit (Rp bn) 1,605 1,465 -9% 2,002 1,963 -2%
EBIT (Rp bn) 1,133 1,009 -11% 1,401 1,423 2%
Net profit (Rp bn) 649 602 -7% 809 796 -2%

Gross margin (%) 10.8 10.6 10.6 10.3


EBIT margin (%) 7.6 7.3 7.4 7.4
Net margin (%) 4.4 4.4 4.3 4.2

New contract win 23,939 23,939 0% 31,447 58,155 85%


Total order book 52,700 53,717 2% 65,323 95,234 46%
Source : Company, AllianceDBS, DBS Vickers

Infrastructure projects funded by rights issue


Investment Capital structure WIKAs portion
(Rp bn) Debt Equity Stake Equity investment
Projects funded by government
Kuala Tanjung industrial estate 8,000 70% 30% 20% 480
Jawa 5 power plant 37,500 72% 28% 15% 1,600
Aceh power plant 10,000 70% 30% 40% 1,200
Soreang-Pasir Koja toll road 1,500 70% 30% 25% 113
Manado-Bitung toll road 3,300 70% 30% 20% 198
Samarinda-Balikpapan toll road 8,300 70% 30% 10% 252
Jatiluhur water treatment 2,000 70% 30% 14% 84
Sub-total 70,600 3,927

Projects funded by public


Jakarta-Bandung high-speed railway 74,250 75% 25% 23% 4,232

Total 144,850 8,159


Source : Company, AllianceDBS, DBS Vickers

ASIAN INSIGHTS VICKERS SECURITIES


Page 26
Company Guide
Wijaya Karya

New contract wins (Rp bn)


CRITICAL DATA POINTS TO WATCH 58,400
58,155

51,100
Earnings Drivers:
Expect larger wins in 4Q15. The management remains 43,800

optimistic on achieving its new contract target of Rp31.6tn 36,500 33,796

this year. The progress had been slow up to October with 29,200
23,939
contract wins at only Rp17.5tn or 55% of managements 21,900 17,732 17,774

target. Nevertheless, this is in line with our forecast (73% of 14,600

FY15F) as we assumed 24% lower contract wins than 7,300

managements guidance for this year. Among the potential 0


2013A 2014A 2015F 2016F 2017F
wins are Sorong port project worth Rp2.3tn and oil & gas
project worth US$300m. Total order book (Rp bn)
Asset owner cum contractor. WIKA will venture into eight 97,000 95,234

infrastructure projects worth Rp145tn. Among the largest 81,967


projects are Jakarta-Bandung high-speed railway (Rp74tn), 77,600

Java 5 power plant (Rp37.5tn), Aceh power plant (Rp10tn) 58,200 53,717
and Samarinda-Balikpapan toll road (Rp8.3tn). In the high- 43,577
speed railway project, the company will have to inject 38,800
38,267

Rp4.2tn cash to fund its equity investment portion. This will


19,400
be funded by rights issue proceeds from the public (Rp1tn),
while the balance will be funded by debt, including the 0
issuance of Rp1tn global bond, and the profits from related 2013A 2014A 2015F 2016F 2017F

construction works.
Revenue trend and forecasts
WIKAs equity investment in the remaining seven projects will Rp bn
be fully funded by the government. WIKA has proposed to 25,000 40%
obtain a Rp4tn capital injection from the government next 20,000
30%
year. With the project capital structure of 30% equity and
15,000
70% debt and WIKAs minority ownership ranging from 10- 20%
40%, the government's capital injection will be more than 10,000
sufficient to fund WIKAs Rp3.9tn equity investment. 10%
5,000
Meanwhile, the debt will likely be issued on the associates & - 0%
JV level. 2013A 2014A 2015F 2016F 2017F
Being the owner of these assets, WIKA should have an Revenue (LHS) Growth y-o-y (RHS)
advantage in the construction tender process. Based on our
Net income trend and forecasts
estimates, if WIKA wins at least 50% of the construction Rp bn
contracts ex high-speed railway, the company should be able 1,200 40%
to secure Rp12.9tn for its order book over the next 3-4 years. 1,000 30%
If we include the construction work for high-speed railway, 800
the total order book should top Rp42.9tn which is equal to 20%
600
3.1x FY15F revenue. We have yet to factor in the earnings 10%
400
accretion from the seven infrastructure assets funded by the 0%
200
government as the capital injection is now being frozen by
- -10%
the parliament.
2013A 2014A 2015F 2016F 2017F
Measuring the potential earnings dilution. To calculate the Net income (LHS) Growth y-o-y (RHS)
dilution effect, we removed the potential revenue from the
Source: Company, AllianceDBS, DBS Vickers
high-speed railway project, which we had already
incorporated into our base-case earnings forecasts. Assuming areas, i.e. Halim Perdanakusuma (East Jakarta), Karawang
an Rp16.6tn addition to order book, 30% of which will be (West Java), Walini (West Java) and Gedebage (Bandung,
recognised as revenue in FY16F with 2% net margin, we West Java). There is also talk on offering the project to private
expect the rights issue proceeds to add a net profit of developers.
Rp100bn or 12% upside to our FY16F base case. If the
Building recurring revenue stream through IPP. WIKA has
exercise price is set at a 5-10% discount to current price
been actively looking to shift toward a more recurring
(Rp2,850), the potential dilution to EPS will be 17-19%. Note
revenue model. One of the strategies is to participate in
that we have yet to include the NPV generated by WIKAs
Independent Power Producer (IPP) projects. Currently, WIKA
investment in the related infrastructure assets.
has some stakes in Tampomas (West Java) and Rengat (Riau)
Relying on TOD to cover up medium-term earnings risk. For power plants. The company is also bidding for eight power
the high-speed railway project, the JV will rely on the TOD to plant projects in Java and Sumatera with a total capacity of
cover the negative cash flows in the early years of operations. 6,837 MW.
The TOD is currently still in the planning phase with the help
of experts from Singapore. The plan is to build TOD in four

ASIAN INSIGHTS VICKERS SECURITIES


Page 27
Company Guide
Wijaya Karya

Leverage & Asset Turnover (x)


Balance Sheet: 1.2
Stronger balance sheet post rights issue. WIKA is scheduled to 0.80
1.2
receive a Rp4tn capital injection from the government in 2016. 0.70
1.1
The company also plans to conduct a rights issue, enabling it to 0.60
1.1
receive additional capital of Rp2.1tn from public. The combined 0.50
1.0
0.40
Rp6.1tn proceeds will be allocated to several projects, among 1.0
0.30
which are power plants and high-speed railway. With the
0.20 0.9
additional equity base, WIKA should have a larger balance sheet
0.10 0.9
capacity to take up more mega projects in the future. We have
0.00 0.8
yet to incorporate the rights issue proceeds into our model as the 2013A 2014A 2015F 2016F 2017F

plan is now hanging in the balance after the parliament decided Gross Debt to Equity (LHS) Asset Turnover (RHS)

to freeze the government's capital injection. Both the


Capital Expenditure (Rp bn)
government and management remain optimistic that the capital Rp
injection would eventually be disbursed after the parliament 2,500.0

approves the revised state budget in 1H16. The company is now 2,000.0
looking for a bridging loan to carry on the planned projects while
waiting for the rights issue execution next year. 1,500.0

1,000.0
Listing of WIKA Gedung. WIKA also plans to divest up to 30%
500.0
stake in its subsidiary, WIKA Gedung, through an IPO in 2H16.
The IPO is expected to free up Rp1tn cash for future expansion. 0.0
2013A 2014A 2015F 2016F 2017F
Meanwhile, the IPO of WIKA Realty is further delayed as WIKA
Capital Expenditure (-)
plans to grow the subsidiary before the IPO..
ROE (%)
Share Price Drivers: 20.0%

Award of large-sized infrastructure contract. Award of a large-


sized, multi-year contract should increase WIKAs revenue 15.0%

visibility in the future. Among the mega projects eyed by WIKA


are steam power plants 5 and 7 in Java. 10.0%

Faster roll-out of governments infrastructure projects. If the 5.0%


government manages to eliminate red tape and speed up the
execution of infrastructure development plan, WIKAs share price 0.0%
may re-rate upward. 2013A 2014A 2015F 2016F 2017F

Key Risks: Forward PE Band (x)


(x)
Delay in infrastructure project execution. Delay in project 40.5
execution could lead to lower order book and earnings. Such 35.5
newsflow could also create negative sentiment towards +2sd:32.8x
30.5
Indonesia's construction sector and lead to valuation de-rating.
25.5 +1sd:26.3x

Lower free cash flow generation in the medium term. Aside from 20.5
Avg:19.8x
being the contractor, WIKA typically owns some stakes in the 15.5
1sd:13.3x
assets being built. This exposes WIKA to the risk of deteriorating 10.5
cash flow generation as such a business model requires high 5.5
2sd:6.8x
capital investment and normally generates negative cash flow in Nov-11 Nov-12 Nov-13 Nov-14 Nov-15

the early years of operations.


PB Band (x)
(x)
Earnings dilution due to rights issue. The company plans to hold
a rights issue to raise additional capital of Rp6.1tn in June 2016. 6.2
+2sd:6x
The targeted proceeds represent 35% of its current market
5.2
capitalisation. +1sd:4.96x
4.2
Avg:3.92x
Company background 3.2
Wijaya Karya is a construction company with interests in EPC, 1sd:2.89x

civil, building works, precast and realty. 2.2


2sd:1.85x
1.2
Nov-11 Nov-12 Nov-13 Nov-14 Nov-15

Source: Company, AllianceDBS, DBS Vickers

ASIAN INSIGHTS VICKERS SECURITIES


Page 28
Company Guide
Wijaya Karya

Key Assumptions
FY Dec 2013A 2014A 2015F 2016F 2017F

New contract wins (Rp bn) 17,732 17,774 23,939 58,155 33,796
Total order book (Rp bn) 38,267 43,577 53,717 95,234 81,967

Segmental Breakdown High-speed railway


construction work is
FY Dec 2013A 2014A 2015F 2016F 2017F
expected to add Rp30tn to
Revenues (Rpbn) WIKAs order book in
Construction 5,077 4,731 6,936 9,838 14,477 FY16F.
EPC 2,877 3,178 2,449 3,398 4,676
Industrial (Precast) 2,811 3,271 2,904 4,140 5,826
Property 1,119 1,283 1,510 1,762 2,084
Total 11,885 12,463 13,799 19,138 27,063
PBT (Rpbn)
Construction 420 371 569 752 967
EPC 247 273 245 340 468
Industrial (Precast) 466 544 380 554 680
Property 190 237 272 317 375
Total 1,322 1,425 1,465 1,963 2,490
PBT Margins (%)
Construction 8.3 7.8 8.2 7.6 6.7
EPC 8.6 8.6 10.0 10.0 10.0
Industrial (Precast) 16.6 16.6 13.1 13.4 11.7
Property 17.0 18.4 18.0 18.0 18.0
Total 11.1 11.4 10.6 10.3 9.2

Income Statement (Rpbn)


FY Dec 2013A 2014A 2015F 2016F 2017F

Revenue 11,885 12,463 13,799 19,138 27,063


Cost of Goods Sold (10,562) (11,039) (12,333) (17,176) (24,574)
Gross Profit 1,322 1,425 1,465 1,963 2,490
Other Opng (Exp)/Inc (367) (393) (456) (539) (679)
Operating Profit 955 1,031 1,009 1,423 1,810
Other Non Opg (Exp)/Inc (159) (124) (149) (179) (215)
Associates & JV Inc 261 363 417 521 651
Net Interest (Exp)/Inc (39.9) (124) (144) (229) (331)
Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0
Pre-tax Profit 1,017 1,146 1,133 1,536 1,916
Tax (392) (395) (438) (597) (766)
Minority Interest (54.4) (136) (93.6) (143) (173)
Preference Dividend 0.0 0.0 0.0 0.0 0.0
Net Profit 570 615 602 796 977
Net Profit before Except. 570 615 602 796 977
EBITDA 1,150 1,399 1,487 2,050 2,634
Growth
Revenue Gth (%) 20.0 4.9 10.7 38.7 41.4
EBITDA Gth (%) 24.3 21.7 6.3 37.8 28.5
Opg Profit Gth (%) 42.0 8.0 (2.1) 41.1 27.2
Net Profit Gth (Pre-ex) (%) 19.7 7.9 (2.2) 32.4 22.7
Margins & Ratio Revenue growth should
Gross Margins (%) 11.1 11.4 10.6 10.3 9.2 accelerate after the
Opg Profit Margin (%) 8.0 8.3 7.3 7.4 6.7 nomenclature issue within
Net Profit Margin (%) 4.8 4.9 4.4 4.2 3.6 the Ministry of Public Works
and Housing was resolved.
ROAE (%) 20.6 17.7 14.2 16.6 17.6
ROA (%) 4.8 4.3 3.5 4.0 4.0
ROCE (%) 11.2 9.1 6.3 7.7 8.2
Div Payout Ratio (%) 26.5 27.8 20.5 15.1 16.3
Net Interest Cover (x) 23.9 8.3 7.0 6.2 5.5

Source: Company, AllianceDBS, DBS Vickers

ASIAN INSIGHTS VICKERS SECURITIES


Page 29
Company Guide
Wijaya Karya

Quarterly / Interim Income Statement (Rpbn)


FY Dec 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015

Revenue 2,752 3,858 2,005 2,773 3,313


Cost of Goods Sold (2,482) (3,373) (1,821) (2,462) (2,830)
Gross Profit 271 485 185 311 483
Other Oper. (Exp)/Inc (104) (112) (82.3) (102) (104)
Operating Profit 167 373 103 209 379
Other Non Opg (Exp)/Inc (2.6) (91.5) 17.5 (17.3) (7.1)
Associates & JV Inc 72.2 202 47.6 50.3 73.1
Net Interest (Exp)/Inc (22.3) (82.8) (53.0) (10.2) (150)
Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0
Pre-tax Profit 214 401 115 232 295
Tax (77.6) (135) (48.0) (78.9) (93.6)
Minority Interest (18.3) (51.8) (5.1) (14.3) (11.1)
Net Profit 118 214 61.5 139 190
Net profit bef Except. 118 214 61.5 139 190
EBITDA 236 484 168 242 445

Growth
Revenue Gth (%) (10.1) 40.2 (48.0) 38.3 19.5
EBITDA Gth (%) (14.2) 104.7 (65.3) 44.6 83.5
Opg Profit Gth (%) (36.0) 124.0 (72.5) 104.3 80.9
Net Profit Gth (Pre-ex) (%) 2.5 81.7 (71.3) 125.9 36.7
Margins
Gross Margins (%) 9.8 12.6 9.2 11.2 14.6
Opg Profit Margins (%) 6.1 9.7 5.1 7.6 11.4
Net Profit Margins (%) 4.3 5.6 3.1 5.0 5.7

Balance Sheet (Rpbn)


FY Dec 2013A 2014A 2015F 2016F 2017F

Net Fixed Assets 1,640 2,676 3,611 4,915 6,774


Invts in Associates & JVs 1,548 1,908 2,325 2,846 3,497
Other LT Assets 1,412 1,816 1,816 1,816 1,816
Cash & ST Invts 1,421 2,334 2,508 1,943 999
Inventory 1,118 817 908 1,265 1,812
Debtors 3,509 4,416 4,915 6,816 9,639
Other Current Assets 1,945 1,947 2,045 2,147 2,254
Total Assets 12,595 15,915 18,127 21,749 26,791

ST Debt 402 1,691 1,691 1,691 1,691


Creditor 3,089 3,903 4,337 6,043 8,653
Other Current Liab 3,808 2,882 3,286 3,588 3,907
LT Debt 1,271 1,324 2,125 2,920 4,043
Other LT Liabilities 799 1,137 1,137 1,137 1,137
Shareholders Equity 2,949 3,990 4,468 5,144 5,962
Minority Interests 278 989 1,083 1,226 1,399
Total Cap. & Liab. 12,595 15,915 18,127 21,749 26,791

Non-Cash Wkg. Capital (324) 395 245 598 1,146


Net Cash/(Debt) (251) (681) (1,309) (2,668) (4,735)
Debtors Turn (avg days) 74.6 116.0 123.4 111.9 111.0
Creditors Turn (avg days) 98.4 117.0 124.0 112.1 110.9
Inventory Turn (avg days) 39.4 32.4 26.0 23.5 23.2
Asset Turnover (x) 1.0 0.9 0.8 1.0 1.1
Current Ratio (x) 1.1 1.1 1.1 1.1 1.0
Quick Ratio (x) 0.7 0.8 0.8 0.8 0.7
Net Debt/Equity (X) 0.1 0.1 0.2 0.4 0.6
Net Debt/Equity ex MI (X) 0.1 0.2 0.3 0.5 0.8
Capex to Debt (%) 36.1 34.4 30.0 34.5 39.2

Source: Company, AllianceDBS, DBS Vickers

ASIAN INSIGHTS VICKERS SECURITIES


Page 30
Company Guide
Wijaya Karya

Cash Flow Statement (Rpbn)


FY Dec 2013A 2014A 2015F 2016F 2017F

Pre-Tax Profit 1,017 1,146 1,133 1,536 1,916


Dep. & Amort. 93.2 129 211 284 387
Tax Paid (184) (370) (169) (438) (597)
Assoc. & JV Inc/(loss) (261) (363) (417) (521) (651)
Chg in Wkg.Cap. (180) (663) (118) (513) (717)
Other Operating CF (195) (56.7) 0.0 0.0 0.0
Net Operating CF 289 (178) 640 350 339
Capital Exp.(net) (605) (1,036) (1,145) (1,588) (2,246)
Other Invts.(net) (16.8) (316) 0.0 0.0 0.0
Invts in Assoc. & JV (93.2) (48.6) 0.0 0.0 0.0
Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0
Other Investing CF 94.7 132 0.0 0.0 0.0
Net Investing CF (620) (1,268) (1,145) (1,588) (2,246)
Div Paid (151) (171) (123) (120) (159)
Chg in Gross Debt 417 1,359 802 794 1,123
Capital Issues (22.6) 448 0.0 0.0 0.0
Other Financing CF (58.3) 724 0.0 0.0 0.0
Net Financing CF 185 2,360 679 674 964
Currency Adjustments 0.0 0.0 0.0 0.0 0.0
Chg in Cash (145) 914 174 (565) (944)
Opg CFPS (Rp) 76.5 79.0 123 140 172
Free CFPS (Rp) (51.4) (198) (82.2) (202) (311)

Source: Company, AllianceDBS. DBS Vickers

Target Price & Ratings History

3937 Rp
Closing T arget
S.No. Dat e Rat ing
3737 Pric e Pric e
2 1: 02 J an 15 3675 3200 HOLD
3537 1 2: 26 J an 15 3550 4050 BUY

3 3: 18 Mar 15 3530 4000 BUY


3337 4: 04 May 15 2975 3000 HOLD
5
5: 27 May 15 3175 3000 HOLD
3137 6: 10 Aug 15 2650 3000 HOLD
4
2937

2737 6

2537

2337
Nov-14 Mar-15 Jul-15 Nov-15
Not e : Share price and Target price are adjusted for corporate actions.

Source: AllianceDBS, DBS Vickers

ASIAN INSIGHTS VICKERS SECURITIES


Page 31
Indonesia Company Guide
Wijaya Karya Beton
Edition 1 Version 1 | Bloomberg: WTON IJ | Reuters: WTON.JK Refer to important disclosures at the end of this report

DBS Group Research . Equity 25 Nov 2015

HOLD (Downgrade from BUY) Riding On A Fast Train


Last Traded Price: Rp920 (JCI : 4,585.55)
Price Target: Rp1,000 (9% upside) (Prev Rp1,200) Downgrade to HOLD We cut FY15F/16F earnings by 31%/17%
after taking into account the lower-than-expected earnings in
Potential Catalyst: Additional contract win from high-speed railway 1H15. Consequently, we lower our TP to Rp1,000 and
project. downgrade our call to HOLD. While 9M15 contract wins of
Where we differ: We have factored in potential revenue from high- Rp2.2tn is on track to achieve the Rp3.4tn target, most of the
speed railway project into our FY16F and FY17F earnings.
orders were only received after July. Hence, WTON has limited
Analyst
time remaining to deliver them this year. We would turn more
Tjen San Chong +603 2604 3972 tjensan@alliancedbs.com positive on the stock once there is more significant progress on
Tiesha Putri +6221 30034931 tiesha.narandha@id.dbsvickers.com the high-speed railway construction. If the JV is able to execute
the project in a timely manner, WTONs revenue visibility
should improve, allowing its valuation to re-rate.
Price Relative
Utilisation rate picked up in 3Q15. WTON saw its factory
Rp Relative Index

1,531.0
229
utilisation rate improved to 80% of normal capacity in 3Q15
1,331.0 209

189 from only 70% in 2Q15. After a lacklustre semester in 1H15


1,131.0
169
where it suffered from operating deleverage, we believe
931.0 149
129 WTONs earnings will pick up along with the improving
731.0
109
execution of governments infrastructure development plan.
531.0 89
Apr-14 Sep-14 Feb-15 Jul-15
A clear beneficiary of high-speed railway. WIKA was recently
Wijaya Karya Beton (LHS) Relative JCI INDEX (RHS)
appointed to lead a consortium of state-run companies to
Forecasts and Valuation build the Jakarta-Bandung high-speed railway. To support its
FY Dec (Rp bn) 2014A 2015F 2016F 2017F
parent company, WTON will supply the precast needs for the
Revenue 3,277 2,904 4,148 5,836
EBITDA 490 374 552 762 elevated track which is estimated to reach 3.5m tons or Rp7
Pre-tax Profit 412 297 462 640 8tn over the next three years. The project should occupy 99%
Net Profit 329 227 349 479 of WTONs current installed capacity in West Java and 51% of
Net Pft (Pre Ex.) 329 227 349 479
its nationwide capacity. There could also be an upside to the
Net Pft (ex. BA gains) N/A N/A N/A N/A
EPS (Rp) 38 26 40 55 contract value if WTON is able to supply the precast for the
EPS Pre Ex. (Rp) 38 26 40 55 railway tunnel.
EPS Gth (%) 4 (31) 54 37
EPS Gth Pre Ex (%) 4 (31) 54 37 Valuation:
Diluted EPS (Rp) 38 26 40 55
We revised down our TP to Rp1,000, still based on 25x FY16F
Net DPS (Rp) 11 11 8 12
BV Per Share (Rp) 246 261 293 336 EPS (at historical mean PE multiple).
PE (X) 24.4 35.4 23.0 16.7
PE Pre Ex. (X) 24.4 35.4 23.0 16.7 Key Risks to Our View:
P/Cash Flow (X) 41.8 14.6 14.2 12.4 Delay in governments infrastructure project rollout. Demand
EV/EBITDA (X) 15.5 20.1 13.6 10.2
Net Div Yield (%) 1.2 1.2 0.8 1.3 for precast is heavily dependent on the execution of
P/Book Value (X) 3.7 3.5 3.1 2.7 governments infrastructure development plan.
Net Debt/Equity (X) CASH CASH CASH CASH
ROAE (%) 23.3 10.3 14.5 17.5 At A Glance
Issued Capital (m shrs) 8,715
Earnings Rev (%): (31) (17) (5) Mkt. Cap (Rpbn/US$m) 8,018 / 588
Consensus EPS (Rp): 29 39 48
Major Shareholders
Other Broker Recs: B: 5 S: 3 H: 5
Wijaya Karya (%) 60.0
Source of all data: Company, AllianceDBS, DBS Vickers, Bloomberg KKMS (%) 11.2
Finance L.P Free Float (%) 28.8
3m Avg. Daily Val (US$m) 1.3
ICB Industry : Industrials / Construction & Materials

ASIAN INSIGHTS VICKERS SECURITIES


www.dbsvickers.com
ed: TH / sa: MA
Company Guide
Wijaya Karya Beton

WHATS NEW We acknowledge that there could be upside to our FY16F


Earnings revision summary revenue and earnings if the Jakarta-Bandung high-speed
railway project starts earlier than our expectation. We
We cut our FY15F and FY16F earnings by 31% and 17%
assume that WTON will start to recognise revenue from
respectively to factor in the weak performance in 1H15 and
railway project in 4Q16, therefore the large chunk of the
lower-than-expected contract wins YTD. We now expect
revenue will only be booked in 2017-2018.
2H15 revenue to double on sequential basis as government
speeds up the infrastructure development execution.
On the EBIT margins, we lower our FY15F after taking into
account the margin decline in 1H15. For FY16F, we see a
Despite the cut, we believe demand for precast should
possibility of a slight margin expansion aided by better
recover next year as more mega projects are launched and
utilisation rate and economies of scale. Based on our
the existing ones, such as MRT and LRT, progress. Therefore,
sensitivity analysis, every 50-bp margin expansion from our
we assumed a sales growth of 43% y-o-y for WTON in
base assumption will lead to a 4.6% increase to our FY16F
FY16F after dropping 11% y-o-y in FY15F. These factors in
earnings.
lower utilisation rates of 60%/75% in FY15F/FY16F vs.
79%/89% previously.

Earnings revision summary


2015 2016

Old New Changes Old New Changes

Revenue (Rp bn) 3,921 2,904 -26% 5,175 4,148 -20%

Gross profit (Rp bn) 509 380 -25% 661 556 -16%

EBIT (Rp bn) 431 302 -30% 558 465 -17%

EBITDA (Rp bn) 552 374 -32% 695 551 -21%

Net profit (Rp bn) 328 227 -31% 418 349 -17%

Gross margin (%) 13.0 13.1 12.8 13.4


EBIT margin (%) 11.0 10.4 10.8 11.2
EBITDA margin (%) 14.1 12.9 13.4 13.3
Net margin (%) 8.4 7.8 8.1 8.4

Sales volume (000 tons) 1,811 1,386 -23% 2,174 1,868 -14%
Utilization rate (sales volume/installed
79 60 87 75
capacity) (%)

Source : Company, AllianceDBS, DBS Vickers

ASIAN INSIGHTS VICKERS SECURITIES


Page 33
Company Guide
Wijaya Karya Beton

Gross profit margin (%)


14.7 14.9
15.0
CRITICAL DATA POINTS TO WATCH 13.1
13.1 13.4 13

11.3
Earnings Drivers: 9.4
Demand recovery in sight. After the nomenclature issue in 7.5

Ministry of Public Works and Housing (MoPWH) was resolved, 5.6

we have seen an improvement in infrastructure development 3.8

progress with physical progress of projects under the MoPWH 1.9

jumping to 57.9% at the end of October vs. a mere 12.2% at 0.0


2013A 2014A 2015F 2016F 2017F
the end of June. Additionally, in an attempt to accelerate the
Sales volume ('000 tons)
progress, the ministry has conducted early tenders for projects
2,532
funded by 2016 budget. This should help to accelerate 2,500

budget absorption and physical progress next year and


2,000 1,868
translate into higher precast order for WTON.
1,457 1,464 1,386
1,500

Award of high-speed railway contract should improve order 1,000


book visibility. WTON has recently agreed to support its
parent company, Wijaya Karya, to supply precast to Jakarta- 500

Bandung high-speed railway project. The company estimated 0


2013A 2014A 2015F 2016F 2017F
that the 70-km elevated track requires 3.5m tons of precast in
2016-2018 or roughly 1.17m tons p.a. If the project Utilization rate (%)
execution runs smoothly and WTON could increase its 86.1 84.4

capacity on time to meet the demand, it should secure an 72.8 74.7


68.9 66.5
additional annual sales of Rp2.32.7tn over the next three 60.3

years. We expect this project to contribute 15%/46% of 51.6

consolidated revenue in FY16F/FY17F. Currently, WTON has


34.4
an installed capacity of 1.18m tons per annum in West Java.
The company claimed that it can boost this capacity up to 17.2

40% to 1.65m tons p.a. by adding one more shift per day
0.0
from two shifts currently. We note that there could be an 2013A 2014A 2015F 2016F 2017F

upside to the contract value if WTON is able to supply the Railways forecasted precast needs
precast needs for rail pads and the planned 20-km long vs. WTONs capacity
3,300
tunnel. 3,500
3,000
3,000
2,500
2,500
First-mover advantage in ex Java market. WTON has
2,000
continued to expand its coverage to markets outside Java
1,500
where competitors are scarce. In these areas, the company 1,167 1,167 1,167
1,000
often serves as the only large-scale precast producer, allowing
500
it to maintain higher pricing and margins compared to those
-
in Java. Based on our channel check, WTONs state-run 2016F 2017F 2018F
competitors will still be focusing on expanding in the Java
Medium-speed railway ('000 tons) Capacity ('000 tons)
market in the near future. Therefore, we are confident that
WTONs position outside Java markets will remain firm. The
Source: Company, AllianceDBS, DBS Vickers
rollout of toll roads and port projects outside Java should
benefit WTON as the most ready producer to fulfil the precast
needs.

ASIAN INSIGHTS VICKERS SECURITIES


Page 34
Company Guide
Wijaya Karya Beton

Leverage & Asset Turnover (x)


Balance Sheet: 1.0
0.80
Robust balance sheet to fund expansion plan. We expect WTON
0.70 1.0
to maintain its net cash position over the next two years. To fund 0.60
the increasing working capital needs, the company plans to sell 0.50
0.9

its treasury stocks to the public next year. The planned expansion 0.40
0.9

over the next two years will boost capacity to 3m tons but should 0.30 0.8
be adequately funded by internally generated funds. Assuming 0.20
0.8
the treasury stocks are sold at Rp1,000/share, the proceeds raised 0.10

would be Rp377bn. 0.00


2013A 2014A 2015F 2016F 2017F
0.7

Gross Debt to Equity (LHS) Asset Turnover (RHS)

Share Price Drivers: Capital Expenditure (Rp m)


Award of large-sized, multi-year contracts. WTON needs to Rp
900,000.0
secure Rp1.2tn of new contracts in 4Q15 order to meet this 800,000.0

years target of Rp3.4tn. One of the large-sized infrastructure 700,000.0


600,000.0
projects that WTON is bidding for is the LRT. LRTs main 500,000.0
contractor, Adhi Karya, does not have the capacity to supply the 400,000.0

entire precast needs, hence part of the order will be passed to 300,000.0
200,000.0
WTON. The total precast need of this project is estimated to be 100,000.0
around Rp3.6tn over the next three years. More certainty 0.0
2013A 2014A 2015F 2016F 2017F
regarding the Jakarta-Bandung high-speed railway construction
Capital Expenditure (-)
should also support valuation re-rating, in our view. ROE (%)

Faster rollout of governments infrastructure project. We have 35.0%

seen a pickup in infrastructure spending after the budget and 30.0%

nomenclature issue within the Ministry of Public Works and 25.0%

Housing was resolved. If this improvement sustains, we believe 20.0%

such encouraging newsflow will affect WTONs share price 15.0%

positively. 10.0%

5.0%

Key Risks: 0.0%


2013A 2014A 2015F 2016F 2017F
Delay in infrastructure project execution. Delay in infrastructure
project execution will cause WTONs revenue to fall short of Forward PE Band (x)
(x)
expectation. This may also lower WTONs profitability given its 54.9

high operating leverage. 49.9


+2sd:46.8x
44.9

39.9
Increasing competition in Java market. Major SOE contractors are 34.9
+1sd:37.8x

looking to increase their precast production capacities, 29.9


Avg:28.9x
particularly in the Java market. Intensifying competition may 24.9

weaken WTONs pricing power in Java and erode its margins. In 19.9 1sd:20x

1H15, Java contributed to 48% and 45% of WTONs 14.9


2sd:11.1x
9.9
consolidated revenue and earnings respectively. Apr-14 Sep-14 Feb-15 Jul-15

PB Band (x)
Bulk of COGS is in USD. Steel and cement make up 30% and 6.7
(x)
20% of WTONs COGS respectively. Additionally, some overhead 6.2
+2sd:6.04x
costs for its production facilities are also in USD, which exposes 5.7

WTONs profitability to currency fluctuations. Nevertheless, the 5.2


+1sd:5.37x

company has mitigated this risk by signing umbrella contracts for 4.7 Avg:4.71x
its key raw materials, enabling it to lock in prices for three 4.2
1sd:4.04x
months. 3.7
2sd:3.38x
3.2

Company Background 2.7


Apr-14 Sep-14 Feb-15 Jul-15
PT Wijaya Karya Beton Tbk (WTON) is the dominant market
Source: Company, AllianceDBS, DBS Vickers
leader in precast concrete with c.40% market share. It is a
subsidiary of PT Wijaya Karya Tbk (WIKA), an SOE construction
company. WTON was listed in April 2014, following which
WIKA's ownership fell to 60% (from 78.4% pre-IPO).

ASIAN INSIGHTS VICKERS SECURITIES


Page 35
Company Guide
Wijaya Karya Beton

Key Assumptions
FY Dec 2013A 2014A 2015F 2016F 2017F
Gross profit margin (%) 14.7 14.9 13.1 13.4 13.0
Sales volume ('000 tons) 1,457 1,464 1,386 1,868 2,532
Utilization rate (%) 72.8 66.5 60.3 74.7 84.4

Segmental Breakdown
FY Dec 2013A 2014A 2015F 2016F 2017F Better utilisation rate
Revenues (Rp bn) should translate into EBIT
Concrete 2,622 3,228 2,871 4,101 5,780 margin expansion due to
Service 22 50 33 47 55 WTONs high operating
Head office 0 0 0 0 0 leverage.
Total 2,644 3,277 2,904 4,148 5,836

Income Statement (Rp bn)


FY Dec 2013A 2014A 2015F 2016F 2017F
Revenue 2,644 3,277 2,904 4,148 5,836
Cost of Goods Sold (2,256) (2,790) (2,524) (3,592) (5,077)
Gross Profit 388 487 380 556 759
Other Opng (Exp)/Inc (52) (78) (78) (91) (105)
Operating Profit 336 409 302 465 654
Other Non Opg (Exp)/Inc (4) (3) 0 0 0
Associates & JV Inc 0 0 0 0 0
Net Interest (Exp)/Inc (4) 6 (5) (4) (15)
Exceptional Gain/(Loss) 0 0 0 0 0
Pre-tax Profit 329 412 297 462 640
Tax (87) (89) (74) (115) (160)
Minority Interest 2 6 4 3 0
Preference Dividend 0 0 0 0 0
Net Profit 243 329 227 349 479
Net Profit before Except. 243 329 227 350 480
EBITDA 393 490 374 552 762 We expect revenue to
Growth recover next year as
Revenue Gth (%) 30.2 24.0 (11.4) 42.8 40.7 nomenclature issue in
EBITDA Gth (%) 42.3 24.8 (23.7) 47.5 38.1 Ministry of Public Work and
Opg Profit Gth (%) 45.4 21.6 (26.3) 54.1 40.6 Housing was resolved.
Net Profit Gth (%) 35.7 35.3 (31.0) 53.9 37.4
Margins & Ratio
Gross Margins (%) 14.7 14.9 13.1 13.4 13.0
Opg Profit Margin (%) 12.7 12.5 10.4 11.2 11.2
Net Profit Margin (%) 9.2 10.0 7.8 8.4 8.2
ROAE (%) 39.2 23.3 10.3 14.5 17.5
ROA (%) 9.1 9.8 5.5 7.0 7.6
ROCE (%) 25.5 15.4 8.2 12.2 14.9
Div Payout Ratio (%) 8.2 30.0 43.5 19.5 21.8
Net Interest Cover (x) 92.9 NM 61.2 113.1 44.8
Source: Company, AllianceDBS, DBS Vickers

ASIAN INSIGHTS VICKERS SECURITIES


Page 36
Company Guide
Wijaya Karya Beton

Quarterly / Interim Income Statement (Rpbn)


FY Dec 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015

Revenue 644 955 428 464 657


Cost of Goods Sold (564) (805) (393) (383) (583)
Gross Profit 80 150 34 81 74
Other Oper. (Exp)/Inc (18) (24) (18) (22) (21)
Operating Profit 62 125 16 59 54
Other Non Opg (Exp)/Inc (5) 2 (2) (3) 0
Associates & JV Inc 0 0 0 0 0
Net Interest (Exp)/Inc 5 0 3 (9) (10)
Exceptional Gain/(Loss) 0 0 0 0 0
Pre-tax Profit 62 128 17 46 43
Tax (13) (25) (2) (10) (10)
Minority Interest 1 2 2 0 1
Net Profit 51 105 17 37 34
Net profit bef Except. 51 105 17 37 34
EBITDA 57 127 14 55 54

Growth
Revenue Gth (%) (25.5) 48.2 (55.2) 8.5 41.8
EBITDA Gth (%) (47.1) 123.4 (88.9) 291.2 (2.9)
Opg Profit Gth (%) (42.3) 102.1 (87.1) 262.6 (8.7)
Net Profit Gth (%) (44.7) 106.4 (83.8) 114.7 (6.3)
Margins
Gross Margins (%) 12.4 15.7 8.0 17.4 11.3
Opg Margins (%) 9.6 13.1 3.8 12.7 8.2
2Q15 margin was
Net Profit Margins (%) 7.9 11.0 4.0 7.9 5.2 exceptionally high as WTON
received many small-sized,
Balance Sheet (Rp bn) high-margin orders.
FY Dec 2013A 2014A 2015F 2016F 2017F

Net Fixed Assets 1,012 1,671 1,959 2,343 3,035


Invts in Associates & JVs 0 0 0 0 0
Other LT Assets 9 4 4 4 4
Cash & ST Invts 413 1,038 818 944 787
Inventory 846 458 940 1,345 1,906
Debtors 422 476 398 568 799
Other Current Assets 215 155 291 377 494
Total Assets 2,917 3,802 4,409 5,580 7,024

ST Debt 173 565 254 354 454


Creditor 325 420 338 483 684
Other Current Liab 1,297 524 1,401 2,049 2,817
LT Debt 369 1 1 1 1
Other LT Liabilities 24 89 89 89 89
Shareholders Equity 680 2,144 2,272 2,553 2,927
Minority Interests 50 59 55 52 52
Total Cap. & Liab. 2,917 3,802 4,409 5,580 7,024

Non-Cash Wkg. Capital (139) 144 (110) (241) (302)


Net Cash/(Debt) (128) 472 562 588 331
Debtors Turn (avg days) 50.5 50.0 54.9 42.5 42.8
Creditors Turn (avg days) 62.0 50.3 56.4 42.7 42.9
Inventory Turn (avg days) 143.6 87.9 104.1 118.9 119.4
Asset Turnover (x) 1.0 1.0 0.7 0.8 0.9
Current Ratio (x) 1.1 1.4 1.2 1.1 1.0 We expect WTON to
maintain a net cash
Quick Ratio (x) 0.5 1.0 0.6 0.5 0.4
position.
Net Debt/Equity (X) 0.2 CASH CASH CASH CASH
Net Debt/Equity ex MI (X) 0.2 CASH CASH CASH CASH
Capex to Debt (%) 84.0 139.6 141.1 132.3 175.8
Z-Score (X) 3.4 5.0 3.1 2.8 2.5
Source: Company, AllianceDBS, DBS Vickers

ASIAN INSIGHTS VICKERS SECURITIES


Page 37
Company Guide
Wijaya Karya Beton

Cash Flow Statement (Rp bn)


FY Dec 2013A 2014A 2015F 2016F 2017F

Pre-Tax Profit 329 412 297 461 639


Dep. & Amort. 61 85 73 86 108
Tax Paid (125) (125) (74) (115) (160)
Assoc. & JV Inc/(loss) 0 0 0 0 0
Chg in Wkg.Cap. (166) (283) 254 131 61
Other Operating CF 25 104 0 0 0
Net Operating CF 124 192 549 563 648
Capital Exp.(net) (454) (790) (360) (470) (800)
Other Invts.(net) 0 0 0 0 0
Invts in Assoc. & JV 0 0 0 0 0
Div from Assoc & JV 0 0 0 0 0
Other Investing CF 0 0 0 0 0
Net Investing CF (454) (790) (360) (470) (800)
Div Paid (63) (20) (99) (68) (105)
Chg in Gross Debt 519 13 (311) 100 100
Capital Issues (53) 1,193 0 0 0
Other Financing CF 0 37 0 0 0
Net Financing CF 403 1,224 (410) 32 (5)
Currency Adjustments 0 0 0 0 0
Chg in Cash 73 625 (221) 125 (157)
Opg CFPS (Rp) 43 54 34 50 67
Free CFPS (Rp) (49) (69) 22 11 (17)
Source: Company, AllianceDBS, DBS Vickers

Target Price & Ratings History

Rp
1441 Closing T arget
2 S.No. Dat e Rat ing
Pric e Pric e
1341 1: 26 J an 15 1330 1600 BUY
2: 10 Mar 15 1360 1600 BUY
1
1241 3: 04 May 15 975 1200 BUY
4
4: 27 May 15 1170 1200 BUY
1141 5: 10 Aug 15 1060 1200 BUY

1041
5
941
3
841

741
Nov-14 Mar-15 Jul-15 Nov-15
Not e : Share price and Target price are adjusted for corporate actions.

Source: AllianceDBS, DBS Vickers

ASIAN INSIGHTS VICKERS SECURITIES


Page 38
Industry Focus
Indonesia Construction

AllianceDBS 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

GENERAL DISCLOSURE/DISCLAIMER
This report is prepared by AllianceDBS Research Sdn Bhd (ADBSR). This report is solely intended for the clients of DBS Bank Ltd
and DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations and affiliates (collectively, the
DBS Vickers Group) only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means
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The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively
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employees and agents (collectively, the DBS Group)) do not make any representation or warranty as to its accuracy, completeness
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particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in
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and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates,
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The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of
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more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not
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(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,
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DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-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
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ANALYST CERTIFICATION
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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
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not hold interests in the securities recommended in this report (interest includes direct or indirect ownership of securities).

COMPANY-SPECIFIC / REGULATORY DISCLOSURES


1. DBS Bank Ltd., DBS Vickers Securities (Singapore) Pte Ltd (DBSVS), their subsidiaries and/or other affiliates do not have a
proprietary position in the securities recommended in this report as of 31 Dec 2015.

Page 39
Industry Focus
Indonesia Construction

2. Compensation for investment banking services:


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
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both of which are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act
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Wong Ming Tek, Executive Director, ADBSR

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th
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