Indonesian Construction Sector

Indonesia Industry Focus
Indonesia Construction Sector

Refer to important disclosures at the end of this report
DBS Group Research . Equity 3 Oct 2018
Time to start constructing

 Risk-reward turning positive – upgrade to Overweight
JCI : 5,875.60
 Upside potential from 2019 presidential election
Analyst
 Undemanding valuation and lower risk to our TP in Victor STEFANO +6221 3003 4934
view of our sensitivity analysis Tjen San CHONG tjensan@alliancedbs.com
 Upgrade WSKT to BUY, maintain BUY on PTPP and victor.stefano@id.dbsvickers.com
Tjen-San CHONG +603 26043972
WTON
tjensan@alliancedbs.com
Sector has bottomed – Overweight. We believe sector
valuations have bottomed at -2SD below mean and investors STOCKS
should start positioning for a recovery moving into 4Q18 and 12-mth Performance
2019. Our renewed optimism is based on three factors: 1) still Price Mkt Cap Target (%)
solid orderbook backlog that provides an average visibility of 2- Rp US$m Price Rp 3 mth 12 mth Rating
4 years, 2) continued infrastructure spending where the
upcoming presidential elections may serve as a catalyst, and 3) Pembangunan Perumahan 1,645 678 3,030 (17.5) (28.8) BUY
Waskita Karya 1,735 1,565 2,310 (7.0) (2.3) BUY
bargain valuation of 4.9x EV/EBITDA that is near its 5-year Wijaya Karya Beton 364 211 600 (8.1) (32.0) BUY
lows, which provides an ideal entry point.
Presidential election a share price catalyst? Although there Source: AllianceDBS, DBSVI, Bloomberg Finance L.P.
may be a lull in infrastructure spending of up to six months Closing price as of 2 Oct 2018
from the upcoming presidential elections, we believe this event
may still serve as a share price catalyst if the incumbent, Joko
Widodo (Jokowi), wins. In spite of a mere 2.5% y-o-y increase Two-variable sensitivity analysis
in infrastructure spending in the 2019 State Budget, this still
TP sensitivity Upside
implies a CAGR of 21% during Jokowi’s 5-year administration. Base- Contract to
We believe Jokowi enjoys an upperhand in the election, as he Stock case Price Burn rate Lowest
growth lowest
has a bigger coalition compared to the previous election and TP assumption TP
assumption TP
(-20%) (both)
appears to be leading based on recent surveys. Our view is that (-20%)
the current trend of favouring subsidies over infrastructure PTPP 3,030 1,645 2,360 2,510 1,950 19%
spending will not persist in the 2020 State Budget. WSKT 2,310 1,735 1,860 1,900 1,530 -12%
Undemanding valuations. The sector is trading at c.4.9x WTON 600 364 600 420 420 15%
EV/EBITDA, 5.3x PE, and 0.8 P/BV – which is at -2SD of its 3- Source: AllianceDBS, DBSVI
year average and a five-year low. This is too pessimistic given
the strong orderbook visibility and solid potential for
Construction sector EV/EBITDA
Indonesia’s infrastructure development. Our sensitivity analysis
using new contracts and burn-rate growth assumptions of 10.0
-20% indicates a 12% downside in TP for WSKT. Interestingly,
PTPP and WTON still offer upside potential of 19% and 15%, 9.0
+2 SD
respectively, from their current levels, assuming an identical
20% drop for our sensitivity-analysis variables. 8.0
+1 SD
Valuation and recommendation. We upgrade our call on 7.0 3-year

WSKT to BUY (from HOLD previously) while we maintain our avg.
BUY calls on PTPP and WTON. We change our valuation 6.0 -1 SD

method to EV/EBITDA (from PE previously) to better reflect the
respective stocks’ operational capabilities. Our new TPs are 5.0 -2 SD
based on their 3-year historical averages to strip out the over

optimistic valuation arising from the Jokowi rally back in 2014. 4.0
Sep‐15 Mar‐16 Sep‐16 Mar‐17 Sep‐17 Mar‐18 Sep‐18
Our TPs are based on c.5x FY19F EV/EBITDA for SOE Source: AllianceDBS, DBSVI
contractors and 7.1x FY19F EV/EBITDA for WTON.
ed: CK / sa:YM, PY, CS

Industry Focus
Contents
Overweight on construction sector ................................................................................................... 3
Future of infrastructure development for the next regime ............................................................. 5
Less subsidies in favour of more infrastructure spending ................................................................ 8
Ample room for growth ................................................................................................................... 10
YTD new contract wins (8M18) ........................................................................................................ 16
Orderbook replenishment ................................................................................................................ 17
Valuation and recommendation ...................................................................................................... 19
Low risk to our TPs .............................................................................................................. 23
Page 2
Industry Focus
Overweight on construction sector

Upgrade from Neutral was expected to be put on hold previously due to a higher
We upgrade our call on the construction sector from Neutral current account deficit for the country.
to Overweight, with BUY calls across our universe – PTPP,
WSKT and WTON. We believe sector valuations have The Indonesian government has allocated Rp410.7tr for its
bottomed at -2SD below mean and investors should start infrastructure budget in 2018 that represents a 5.8% y-o-y
positioning for a recovery moving into 4Q18 and 2019. Our increase. Despite its decision not to increase fuel prices amid
renewed optimism is based on three factors: 1) still solid rising global crude oil prices and introduce more subsidy-
orderbook backlog that provides an average visibility of 2-4 centric policies in 2018, its solid commitment to infrastructure
years, 2) continued infrastructure spending where the spending can be seen in the ratio of infrastructure budget
upcoming presidential elections may serve as a catalyst, and over total government spending, which stood at 18.5% – flat
3) bargain valuation of 4.9x EV/EBITDA that is near its 5-year y-o-y but still much higher than the previous regime’s c.10%.
lows, which provides an ideal entry point.
Share price correlation with government infrastructure
Construction sector EV/EBITDA budget
14.0
DBS Construction Index (Rp) - LHS Infra budget (Rp tr) - RHS
12.0
4,000 500
Share price rally driven by
3,500
positive trend from infra 450
10.0 spending
3,000 400
8.0
2,500 350
6.0 2,000 300
1,500 250
4.0
2013`s crash current valuation
1,000 200
Share price drop due to concern
2.0 Pre-Jokowi`s
500 over lower infra spending and 150
weak balance sheet
- - 100
Apr-11 Apr-12 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 Apr-18 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18
Source: Bloomberg Finance L.P., DBSVI Source: Bloomberg Finance L.P., CEIC, DBSVI
Solid orderbook with strong revenue visibility Concerns over 2019 presidential election have been priced in
Companies in our coverage have strong revenue visibility of Despite the high commitment of the current government to
c.2-4x FY18F revenue. This provides a strong enough buffer infrastructure development, concerns over the future direction
should new contracts decline in FY19F due to rising of infrastructure spending for the next administration and a
uncertainty due to elections. Supported by a huge orderbook general deterioration in balance sheet have resulted in the
and still intact growth prospects for future infra projects, we sector’s underperformance relative to the JCI since late 2016.
believe the construction sector should gain more traction in Additionally, with the construction sector’s premium over JCI
the coming months. narrowing, the downside risk to our call is becoming more
limited, in our view.
Commitment to infrastructure development
Despite the uptrend of infrastructure allocation for the State Construction sector performance vs JCI
Budgets over 2015-19, we notice that the allocation growth DBS Construction Index JCI
has decelerated in the last two State Budgets which saw only 500
450 Construction sector outperformed JCI

an annual increase of only 2.4-2.5%. Notwithstanding the during Jokowi`s government
Approaching presidential
election, construction sector
400
muted growth, the government’s commitment to 350
continue to underperformed JCI
infrastructure development can be inferred from its latest 300

infrastructure budget which contradicts previous expectations 250
of shrinking allocation in a tilt towards provision of subsidies, 200
especially those for energy. The commitment to infrastructure 150
100
can also be seen in the absence of new import income taxes
50
for infrastructure-related materials in the recent past as well 0
as the continuation of the 35GW power plant project which Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19
Source: Company, DBSVI
Page 3
Industry Focus
Betting on 2019 presidential election contracts growth assumption set at -20% and burn rate
We believe Jokowi will continue to make infrastructure as one assumption at -20% to stress test our TP valuations. Based on
of his priorities if he is re-elected while the challenger, our analysis, only WSKT is expected to offer negative return
Prabowo, will focus on immediate economic improvement with a downside potential of 10% to our TP, if our stress-test
which may not place much emphasis on infrastructure scenario materialises. Interestingly, PTPP and WTON still offer
development. However, with the recent surveys pointing to upside potential of 28% and 18%, respectively, from their
an early lead for Jokowi in the upcoming presidential election, current levels, assuming an identical 20% drop for our
we think that there is a higher-than-expected probability that sensitivity-analysis variables.
the sector may re-rate ahead of a Jokowi victory.
Low downside risk to our call

We have conducted a two-variable sensitivity analysis,
involving new contracts growth and burn rate, with the new
Page 4
Industry Focus
Future of infrastructure development for the next regime
Infrastructure spending in 2019-2024? Infrastructure funding plan for 2015-2019 National

We think there is a high probability that Jokowi will continue Medium-term Development Plan
to lead the country in the next administration (2019-2024)
and stay the course when it comes to developing Indonesia’s
infrastructure. As such, we expect Indonesian contractors’
orderbook to remain solid given the country’s slower-than- Private
36.5% States budget
expected infrastructure development. We expect new 41.3%
contracts for companies in our coverage to grow at a CAGR
of 5.03% in FY18F-FY20F (vs CAGR of 30.17% in FY10-
FY17), as we take into account the soft economic growth
outlook and global economy uncertainties such as the
currently escalating US-China trade war. SOE
22.2%
Source: Ministry of Finance, DBSVI

Infrastructure in the eyes of the current government
“Indonesia will not be able to compete with other countries if Infrastructure outlook for 2018
infrastructure is falling behind. Even more, as an archipelago The Indonesian government has allocated Rp410.7tr for its
country Indonesia needs to be well connected.” – Joko infrastructure budget in 2018 that represents a 5.8% y-o-y
Widodo increase. Despite its decision not to increase fuel prices amid
rising global crude oil prices and introduce more subsidy-
Improving Indonesia’s infrastructure is the top policy priority centric policies in 2018, its solid commitment to infrastructure
of the current Indonesian President. Subscribing to its slogan spending can be seen in the ratio of infrastructure budget
to build from the outskirts, Jokowi has been embarking on over total government spending, which stood at 18.5% – flat
intense efforts to build infrastructure in remote areas. By y-o-y but still much higher than the previous regime’s c.10%.
improving connectivity across Indonesia, this will help reduce
the economic gap throughout the country, thus achieving the In terms of the breakdown of the infrastructure budget, the
last principle of Indonesia’s National Basic Principle, “Social Ministry of Housing, which is responsible for providing
Justice for All Indonesian People”. affordable housing to the low income segment, receives a
26% allocation of the total government spending or Rp107tr.
In the government’s National Medium-term Development Plan The Ministry of Transportation only gets less than half of the
(RPJMN) 2015-2019, which focuses strongly on infrastructure amount, at Rp48.2tr. The Special Allocation Fund (DAK) and
development, a budget of around Rp4,769tr is needed for its State Asset Management Institution (LMAN) are given 2018
infrastructure development over 2015-2019. However, not all budget allocations of Rp33.9tr and Rp41.5tr respectively.
will be funded by the State Budget. The government will
allocate Rp1,941tr of its State Budget (41.3% of the required Infrastructure budget allocation in APBN 2018 (Rp tr)
total funding) to build infrastructure, while SOEs and the
private sector are expected to support state infrastructure PMN & LMAN 41.5
programmes by contributing 22.2% and 36.5%, respectively,
of the total funding requirement.
DAK 33.9
Ministry of Transportation 48.2
Ministry of Housing 107.4
0 20 40 60 80 100 120
Page 5
Industry Focus
The Rp410tr infrastructure budget is allocated to create new For the latest 2019 State Budget, infrastructure spending
infrastructure as well as complete unfinished projects. The stood at Rp420tr, which appears to be relatively flat (+2.5%
broad allocation is for: y-o-y) compared to 2018. However, this still implies a CAGR
1. Road building and maintenance (865km for new of 21% for infrastructure spending during Jokowi’s 5-year
roads, 25km for toll roads and 8,695m for bridges) administration. At the same time, the budget allocation for
2. Railway facilities (620km) and LRT (23km) subsidies dropped at a CAGR of 11%, while those for
3. Airport completion (eight locations) healthcare and education remain in an uptrend with CAGRs
4. Information and technology (broadband in 100 of 5% and 15% respectively.
villages and 380 Base Transceiver Stasion (BTS) in
380 blank spot areas) Infrastructure budget vs overall spending
5. Affordable housing (13,405 apartment units Infra budget (Rp tr) - LHS as % of total spending - RHS
and174,300 subsidised units) 450.0 18.8% 18.5%

17.2%
20.0%
400.0 18.0%
15.2% 16.0%
350.0
Current vs old government: Subsidies vs infrastructure 12.9% 14.0%
300.0
The most notable change seen for the incumbent (in relation 12.0%
250.0
to the previous administration) is the shift in government 8.6%
9.4% 9.0%
8.2%
10.0%
200.0 7.6%
budget towards infrastructure at the expense of subsidies, 8.0%
150.0
especially those for energy. 100.0
6.0%
4.0%
50.0 2.0%
In his first State Budget, Jokowi cut subsidies by almost half. 0.0 0.0%
He then allocated most of the funds freed to infrastructure 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
spending that rose a whopping 66% vs the last State Budget. Source: CEIC, DBSVI
Indonesian government budget (Rp tr)
Infrastructure Education Healthcare Subsidies
600.0
487.9
500.0
420.5
400.0
300.0
220.9
200.0
122.0
CAGR: 15%
100.0
0.0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Source: CEIC, DBSVI
Page 6
Industry Focus
Changes in State Budget (Rp tr) Rising crude oil prices and rupiah depreciation put pressure
2014 2015 on energy subsidies
450.0 Despite the higher budget for fuel subsidies, the volume for
408.5 403.0
400.0 375.5 fuel subsidies dropped to 15.1m litres in the 2019 State
350.0 Budget from 16.2m litres in 2018, due to the pressure of
300.0
256.3
rupiah depreciation and higher crude oil prices. Subsidies for
250.0
212.1 3kg LPG still increased to 7m kg from 6.4m kg previously.
200.0
154.6
150.0
Risks of a higher subsidy budget persist and are dependent on
100.0
61.2
74.4
external factors. The government’s macroeconomic
50.0
assumptions for 2019 State Budget include an exchange rate
0.0
of Rp14,500/US$ while the YTD exchange rate is
Source: CEIC, DBSVI Rp13,998/US$.
Energy subsidy volume in State Budget

Rising subsidy budget allocation ahead of presidential election
2017 2018 2019
not an uncommon development
18000
Ahead of the presidential election in 2019, the incumbent
16000
president’s decision to put more emphasis on subsidies rather
14000
than infrastructure has been a headwind for the construction 12000
sector. The decision to pursue a more populist policy ahead of 10000
the election is a very common development, as the previous 8000
government also ramped up its subsidy budget by 16% y-o-y 6000
prior to the previous presidential election. 4000
2000
In nominal terms, not a lot of difference 0
Despite the huge increase (+41% y-o-y) in subsidies for the Fuel (mn L) LPG (mn Kg)
2019 State Budget compared to the y-o-y 2014 State budget Source: Ministry of Finance, DBSVI
increase in subsidies of 16%, both increases only differ by
Rp10tr in terms of nominal value. Factoring in the element of Macroeconomic assumptions in State Budget
inflation, the latest increase in subsidies is actually not Assumption 2018 2019
significantly higher. Thus, this implies a typical but yet rare
GDP (%) 5.4 5.3
deviation in the State Budget prior to a presidential election.
Inflation (%) 3.5 3.5
Both periods (2013-2014 and 2018-2019) saw an increase in SPN rate (%) 5.2 5.3
subsidies which was mainly due to the rise in energy
Exchange rate (Rp/US$) 13,400 14,500
subsidies, for fuel (oil and gas) in particular. During 2013-
ICP (US$/barrel) 48.0 70.0
2014, fuel subsidies rose by Rp46.6tr (+23% y-o-y) while it
rose by Rp53.2tr (+114% y-o-y) over 2018-2019. The y-o-y Source: Ministry of Finance, DBSVI
increment differs by a lot due to the low base in 2018 in
terms of State Budget subsidies.
Indonesian government’s budget trends ahead of presidential elections
States budget (Rp tr) 2013 2014 y-o-y 2018 2019 y-o-y
Subsidies: Fuel 199.9 246.5 46.6 23% 46.9 100.1 53.2 114%
Subsidies: Electricity 100.0 103.8 3.8 4% 47.7 56.5 8.8 18%
Subsidies: Non-energy 48.3 52.7 4.4 9% 61.7 64.3 2.6 4%
Subsidies: Total 348.1 403.0 54.9 16% 156.2 220.9 64.7 41%
Source: CEIC, DBSVI
Page 7
Industry Focus
Less subsidies in favour of more infrastructure spending
Will the current subsidy budget trend continue? infrastructure spending trend. However, based on his speech
If the incumbent, Jokowi, wins the 2019 presidential election, in the media that criticise the current economic situation, we
we believe the current trend of favouring subsidies over believe that he will try to focus on short-term economic
infrastructure will not continue in the 2020 State Budget, as stimulus with long-term infrastructure programmes being less
we believe: of a priority.
1. Jokowi will continue his infrastructure programme
2. Lower crude oil prices will prevail in 2020 Therefore, we believe that the re-election of the incumbent
3. The rupiah will see a slower depreciation president will be more positive for the infrastructure sector.
If the challenger, Prabowo, wins the 2019 election, there are

question marks over whether he will maintain the current
Indonesian government`s budget trend (Rp tr)
1400.0
1200.0
1000.0
800.0
600.0
?
400.0
200.0
0.0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Source: CEIC, DBSVI
Lower crude oil prices to ease subsidy budget More muted rupiah depreciation going forward
DBS is revising up its average Brent crude oil forecast for 2019 We believe that sharp moves for the rupiah are unlikely as
to US$75-80/bbl (from US$65-70/bbl earlier) and has also Bank Indonesia’s (BI) ability to respond with proactive policies,
introduced a lower 2020 average Brent crude oil forecast of local support and foreign investors rebuilding their positions
US$70-75/bbl. The key forces that would limit further upside in the country should see the local currency rebounding from
are demand destruction in oil importing countries if oil prices its current levels. Indonesia still has room to hike rates, the
rise too high, and increasing US shale supplies. For more capacity to control imports, and adequate foreign reserves to
details on our crude oil price outlook, please refer to our intervene in the currency market.
regional sector report: Regional Oil and Gas: Bullish near-term
outlook. Indonesia has always been singled out as one Asia’s most
vulnerable countries in terms of capital flight due to its
Page 8
Industry Focus
sizeable current account deficit and the fact that foreign Although its foreign reserves have deteriorated since early
investors hold around 36% of its debt. The current sentiment 2018, Indonesia still has adequate foreign reserves that can
for the rupiah is weak but we do not think that it would end finance 7.0x its imports in Aug 2018. This is slightly lower
up like Turkey and Argentina, or like in 1997, when it had to than its average of 7.7x but still much higher than the
raise rates sharply to defend its currency. Its current foreign international standard of 3.0x foreign reserves to import ratio.
reserves as a percentage of debt and as a percentage of
imports are stronger than the two abovementioned countries, Indonesia’s foreign reserves per total imports
compared to 1997 levels. 14.0
12.0
DBS USD/IDR currency forecasts (Rp/US$)
10.0
3Q18 4Q18 1Q19 2Q19 3Q19 4Q19
10,000
average=7.7x
8.0
11,000
6.0
12,000
4.0
international standard for foreign reserves
13,000
2.0
14,000
-
Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 Apr-18
15,000
15,000 15,050 15,100 15,150 15,200
Source: Bloomberg Finance L.P., DBSVI
15,250
16,000
Source: DBS Bank, DBSVI Risk of further rupiah depreciation as current account balance
remains in the red
Room for more interest rate hikes Despite its ample room to increase interest rates and
Despite the 150bps increase this year, we believe that BI still adequate balance of foreign reserves, Indonesia still faces
has room to increase its benchmark interest rates (if deemed economic risks arising from strong rupiah depreciation and
necessary) to soften the impact of rupiah depreciation arising the government’s need to balance between spending on
from the US Fed’s rate hikes going forward. infrastructure and subsidies, which can impact the
construction sector in general.
Indonesia interest rate (%)
14 Indonesia’s foreign reserves per total imports
6,000 0
12
4,000 2,000
10 2,000
4,000
0
6,000
8 (2,000)
8,000
(4,000)
6
10,000
(6,000)
4 12,000
(8,000)
(10,000) 14,000
2
(12,000) 16,000
0
Jul‐05 Jul‐06 Jul‐07 Jul‐08 Jul‐09 Jul‐10 Jul‐11 Jul‐12 Jul‐13 Jul‐14 Jul‐15 Jul‐16 Jul‐17 Jul‐18
Current account balance (US$ mn) ‐ LHS USD/IDR (Rp/US$) ‐ RHS
Still manageable foreign reserves
As of end-Aug 2018, Indonesia’s foreign reserves have
dropped by US$14.1bn from its peak at end-Jan 2018,
representing a sharp drop of 10.7%. The drop in foreign
reserves was caused by the use of foreign exchange for the
payment of government foreign debt and the stabilisation of
the rupiah amid high uncertainty in global financial markets.
Page 9
Industry Focus
Ample room for growth
A lot of infrastructure targets still to be fulfilled The government is speeding up the construction of various
Despite all the endeavours to boost investment in various infrastructure projects in all corners of the archipelago. Some
sectors related to infrastructure, i.e. improvement in have approached the 2015-2019 National Medium Term
regulatory, fiscal, and institutional aspects, the progress of Development Plan (RPJMN) targets. But quite a few still lag far
infrastructure rollout in Indonesia is still sluggish due to behind expectations. As of end-Oct 2017, the government has
obstacles encountered at various project stages, from the delivered 2,623km of new roads, thus almost fulfilling its
preparatory to execution stages. Problems for land acquisition RPJMN 2015–2019 target of 2,650km. However, the fast pace
often hinder projects from achieving financial close, in of progress for building new roads is not evident for other
addition to the lack of investment interest due to the infra projects such as toll roads, dams, railways and airports
limitation on guarantees being provided by the government. which have thus far only fulfilled 13%, 57%, 66%, and 13%
of their respective targets in RPJMN 2015-2019.
Indonesia’s RPJMN targets and realisation in the past three years
Projects Unit RPJMN Target Realisation Unrealised % realised

Road Km 2,650 2,623 27 99%

Toll road Km 1,851 240 1,611 13%

Dam Unit 65 37 28 57%

Railway Km 3,258 2,154 1,104 66%

Airport Unit 15 2 13 13%
Source: Tempo, DBSVI
Page 10
Industry Focus
Indonesia’s National Strategic Project distribution

R p 564tr
2 4 projects
R p 638tr - Serang-Balikpapan-Samarinda toll road
6 1 projects - Mine mouth power plant
- 15 segments of Trans Sumatera toll road - Balikpapan oil refinery revitalisation
- Kuala Tanjung International seaport - Railway system in East Kalimantan
- Palembang LRT - Indonesian Deepwater Development
- Mine mouth power plant - Bontang oil refinery
- Dumai and Plaju oil refinery revitalisation
- Water supply system in Lampung
R p 444tr
1 3 projects
- Steam based power plant
- Palapa Ring Broadband
- Tangguh Train 3 development
R p 150tr
2 7 projects
- Waste resources power plant in Makassar
- Manado-Bitung toll road
R p 1,065tr - Makassar-Parepare railway system
9 3 projects - Bitung international seaport
- Serang-Panimbang toll road - Palapa Ring Broadband in Manado
- Jabodetabek LRT - Mine mouth power plant in Manado
- Railway system in Jakarta
- Batang power plant
- Indramayu power plant
- Jakarta MRT R p 11tr
- National Capital Integrated Coastal Development, Jakarta 1 5 projects
- Patimban international seaport - Waste resources power plant in 8 cities
- Soekarno-Hatta express train - Steam based power plant
- Eternal field Masela Block
Source: Tempo, DBSVI
Progress of Priority Project Progress of 37 Priority Projects as at end-Dec 2017

As at end-Dec 2017, there is no Priority Project which has
been fully operational. According to KPPIP (Committee for
4 Under construction and partly
Acceleration of Priority Infrastructure Delivery), only four operating
projects of the 37 Priority Projects are partially operational. 11 4 Under construction and will
operate in 2018
There are 23 projects that are under construction while nine Under construction and will
operate in 2019
projects are expected to commence operation from 2020
Under construction and will
onwards. Despite being on the priority list, there are still 14 6
operate after 2019
In transcation stage
projects which have yet to start construction (three are in the 3
transaction phase and 11 are still in the preparatory stage). In preparation stage
This suggests that there is ample room for long-term contract 9

growth for Indonesia’s infrastructure development.
Source: KPPIP, DBSVI
Page 11
Industry Focus
Indonesia’s 37 Priority Projects

Pro ject s Lo cat io n Co mplet io n St age I nvest ment (Rp t r)
Wa te r a n d Sa n i ta ti o n
Jakarta Sewerage System (JSS) DKI Jakarta 2022 Preparation 150.0
West Semarang Drinking Water Supply System Semarang, Jawa Tengah 2022 Transaction 0.9
National Capital Integrated Coastal Development (NCICD) Phase A DKI Jakarta 2018 - 2.4
Drinking Water Supply System (SPAM) Lampung Bandar Lampung 2020 Transaction 0.7
Sistem Penyediaan Air Minum (SPAM) Jatiluhur Jatiluhur Jawa Barat 2022 - 1.7
M i n ya k d a n Ga s
Oil Refinery in Bontang Bontang, Kalimantan Timur 2023 Transaction 197.6
Oil Refinery in Tuban Tuban, Jawa Timur 2024 Transaction 199.3
Cilacap, Jawa Tengah; Balongan,
Jawa Barat; Dumai, Riau; Balikpapan,
Refinery Development Master Plan (RDMP) 2025 Transaction 246.2
Kalimantan Timur; dan Plaju, Sumatera
Selatan
Abadi Field Development in Masela Block - - - -
Jambaran - Tiung Biru Gas Field Unitization - - - -
Indonesian Deepwater Development Project/IDD (Gendalo, Maha,
- - - 0.1
Gandang, Gahem, and Bangka)
Tanguh LNG Train 3 Project - - - 0.1
Ke te n a g a l i s tri ka n
Sumatera Selatan, Lampung, Banten,
High Voltage Direct Current (HVDC) 2024 - 33.4
Jawa Barat
PLTU Mulut Tambang Sumsel 8 Sumatera Selatan 2023 Construction 18.0
The 500KV Sumatera Transmission Pulau Sumatera 2019 Construction 24.4
Central-West Java Transmission Line 500kV Jawa Barat dan Tengah 2019 Construction 7.6
PLTU Indramayu Indramayu, Jawa Barat 2019 Preparation 27.0
Batang Power Plant/Central Java Power Plant - 2019 Construction 40.0
Energy From Big Cities' Waste (Semarang, Makassar, Tangerang) - - Construction -
Combined-Cycle Power Plant - - - -

Ja l a n d a n Je mb a ta n
Sumatera Utara, Riau, Sumatera
Trans Sumatera Toll Road 2016 Construction 81.0
Selatan dan Lampung
Balikpapan-Samarinda Toll Road Kalimantan Timur 2018 Construction 10.0
Manado-Bitung Toll Road Sulawesi Utara 2019 Construction 5.1
Serang-Panimbang Toll Road Banten 2019 Construction 5.3
Yogyakarta-Bawen Toll Road Yogyakarta 2020 Preparation 12.1
Probolinggo-Banyuwangi Toll Road Jawa Timur 2019 Transaction 11.7
Tra n s p o rta s i Pe rko ta a n
MRT Jakarta (North - South Corridor) DKI Jakarta 2019 Construction 39.5
Light Rail Transit (LRT) South Sumatera Palembang, Sumatera Selatan 2018 Construction 12.5
Light Rail Transit (LRT) Jakarta, Bogor, Depok, Bekasi DKI Jakarta dan Jawa Barat 2019 Construction 23.0
Kereta Api Potensi KPBU 2018 Preparation 24.5
Soekarno-Hatta International Airport (SHIA) Express Railway DKI Jakarta dan Banten 2022 Preparation 24.5
Makassar - Parepare Railway Sulawesi Selatan 2018 Construction 8.3
East Kalimantan Railway Kalimantan Timur 2021 Preparation 53.3
General Railway Organization in Jakarta Tangerang, Banten 2019 Construction 4.0
Pe l a b u h a n
Bitung International Hub Seaport Bitung, Sulawesi Utara 2022 Preparation 34.0
Kuala Tanjung International Hub Seaport Kuala Tanjung, Sumatera Utara 2021 Preparation 30.0
Patimbang Seaport Patimban, Subang, Jawa Barat 2019 Preparation 43.2
Inland Waterways/Cikarang-Bekasi-Java Sea (CBL) DKI Jakarta dan Jawa Barat 2021 Preparation 3.4
Te kn o l o g i I n fo rma s i
Palapa Ring Broadband Seluruh Indonesia 2018 Construction 5.1
Page 12
Industry Focus
Progress of National Strategic Project The government has placed 223 projects and three
As at end-2016, 20 National Strategic Projects were programmes under the National Strategic Project (PSN). Based
completed with a value of Rp33.3tr. Then, at the end of on the progress so far, we believe the government still has a
2017, there were an additional 10 projects completed with a lot to do to fulfil the RPJMN 2015-2019 targets. KPPIP aims to
value of Rp61.5tr. During 1H18, the government completed complete 10 more National Strategic Projects by the end of
two strategic projects, which are Prabumulih-Kertapati 2018. If this goes according to plan, there will be 40 National
Railway and Raknamo Dam, NTT. Thus, since 2016, the Strategic Projects finished by the end of 2018, leaving the
government has completed a total of 32 National Strategic remaining 183 projects classified as in progress.
Projects.
32 National Strategic Projects are completed

National Strategic Projects Completed in 2016 (20 projects)
Investment
Value (Rp bn)
Project Name
Gempol - Pandaan Toll Road (14km) 1,470
Sentani Airport, Jayapura 1,471
Juwata Airport, Tarakan 1,391
Fatmawati Soekarno Airport, Bengkulu 1,674
Mutiara Airport, Palu 1,391
Matahora Airport, Wakatobi 662
Labuan Bajo Airport, Komodo Island 662
Development of Soekarno Hatta Airport (including Terminal 3) 4,700
Kalibaru Seaport 12,000
Belawan-Sei Mangkei Gas Pipe with 75 mmscfd capacity 1,215
Cross- Border Post (PLBN) Development & Its Supporting Facilities Entikong, Sanggau District 152
Cross- Border Post (PLBN) Development & Its Supporting Facilities, Mota’ain, Belu District 82
Cross- Border Post (PLBN) Development & Its Supporting Facilities Motamassin, Malaka District, East Nusa Tenggara 128
Cross- Border Post (PLBN) Development & Its Supporting Facilities, Skouw, Jayapura 166
Paya Seunara Dam, Sabang City, NAD 57
Rajui Dam, Pidie District, NAD 138
Jatigede Dam, Sumedang City, West Java 4,825
Bajulmati Dam, Banyuwangi, East Java 454
Nipah Dam, Madura, East Java 213
Titab Dam, Buleleng District, Bali 496

Total 33,347
National Strategic Projects completed in 2017 (10 projects)
Page 13
Industry Focus
Investment
Value (Rp bn)
Project Name
Soreang-Pasirkoja (11km) Toll Road 1,510
Mojokerto-Surabaya Toll Road (36.3km) 4,980
Tanjung Priok Access Road (16.7km) 6,270
Raden Inten II Airport, Lampung 1,472
Development of Jangkrik and Jangkrik North East fields, Muara Bakau 45,500
Cross- Border Post (PLBN) Development & Its Supporting Facilities, Nanga Badau, Kab. Kapuas Hulu 154
Cross- Border Post (PLBN) Development & Its Supporting Facilities Aruk, Sambas District, West Kalimantan 131
Cross- Border Post (PLBN) Development & Its Supporting Facilities Wini, North Timor Tengah District, East Nusa Tenggara 130
Teritip Dam 262
Umpu System (Way Besai) Irrigation Development 1,078

Total 61,487
National Strategic Projects completed in 1H18 ( two projects)

Investment
Value (Rp bn)
Project Name
Prabumulih – Kertapati Train (80km – part of Trans-Sumatera Railway) 1,281
Raknamo Dam, East Nusa Tenggara 782

Total 2,063
Palapa Ring realisation is slow in East Indonesia Progress and target of Palapa Ring as at end-Dec 2017
One of the key projects to be addressed is the Palapa Ring. (km)
Palapa Ring is an infrastructure project that spans 36,000km Progress Target
8,000
in Indonesia. The project consists of seven small fibre optic
circles (for Sumatra, Java, Kalimantan, Nusa Tenggara, Papua, 7,000
Sulawesi, and Maluku) and one backhaul to connect all of 6,000
them. As of end-Dec 2017, the progress of West, Central, 5,000
and East packages has reach more than 2,000km each. 4,000
However, in terms of realisation, the East package is still 3,000

95.1% 71.9% 32.7%
lagging behind its target with only 32.7% realisation as at 2,000
end-Dec 2017. 1,000
-
West package Central package East package
Slowdown in toll road progress

Despite being on track for the first two years of RPJMN 2015-
2019, toll road developments have lagged behind somewhat
and achieved 59% of the 2017 target. This is not surprising
Page 14
Industry Focus
given the frequent delays for projects due to land acquisition, Finished toll road projects as at end-Dec 2017
right-of-way and environmental clearance issues.
Toll Road Completed Year
Total
Based on BPJT data, 614.5km of planned toll roads are slated Length (km)
to commenced operations in 2018. The planned toll roads Gempol-Pandaan toll road 2015 12.0
include the Bakauheni-Terbanggi toll road package size 1-4 Porong-Gempol toll road 2015
(126.8 km), Pemalang-Batang sections I and II (39.2 km), Kayu Kejapanan-Gempol segment 3.5
Agung-Palembang-Betung sections I-III (111.6 km), Cikopo-Palimanan toll road 2015 116.7
Semarang-Solo sections IV and V (32.5 km), Batang-toll road Surabaya-Mojokerto toll road 2016 43.7
Semarang sections I-V (75 km), and Gempol-Pasuruan section Pejagan-Pemalang sections I and II 2016
II (8.1 km). toll road 20.2
Kertosono-Mojokerto section III toll 2016
Progress of and target for toll roads as at end-Dec 2017 road 5.0
(km) Tanjung-Priok toll road 2017 11.4
Gempol-Pasuruan I-A2 2017 7.9
Progress Target
2000 Gempol-Pasuruan I-A1 2017 7.8

1800 Kertosono-Mojokerto section I 2017 19.9
1600 Semarang-Solo section III 2017 17.5
1400
Palembang-Indralaya section I 2017 7.8
1200
Medan-Binjai 2017 10.6
1000
800 Medan-Kualanamu-Tebing Tinggi 2017

600 sections I-VI 41.6
59% 29% 18%
400
100%
Bekasi-Cawang-Kampung Melayu 2017
200 100%
sections IB and IC 8.4
0
Soreang-Pasirkoja 2017 8.2
2015 2016 2017 2018 2019
Source: KPPIP, DBSVI Surabaya-Mojokerto sections IB, II, 2017

and III 15.5
Page 15
Industry Focus
YTD new contract wins (8M18)
Mixed results for 8M18 new contract achievement and 61% of our forecast of Rp45.75tr. PTPP’s historical
Companies within our coverage have shown mixed results for achievement of 61% is slightly higher than the company’s
their 8M18 new contract achievement. We have compared target and in line with our forecast.
the respective stocks’ 8M18 achievement with their 8M
performance in the past three years. The results show that WSKT’s 8M18 new contract wins trail our and management
WTON’s 8M18 achievement is above, PTPP’s is in line with, targets. WSKT only booked 8M18 new contracts of Rp9.2tr,
and WSKT’s is below their respective historical averages. representing 13% of the company’s target of Rp70tr and
18% of our forecast of Rp50tr. Its 8M18 new contract
WTON leads 8M18 new contract wins by securing Rp4.30tr achievement is far below its historical average of 61%. Note
new contracts. This represents 57% of the company’s FY18 that the company has indicated that it will revise down its
target of Rp7.56tr and 59% of our forecast of Rp7.23tr. FY18 new contract target by 10-15%. But this still implies a
WTON’s 8M18 showing trumps its historical average of 46%. new contract growth of 6.6-12.8% compared to last year.
PTPP booked 8M18 new contract wins of Rp27.75tr,

representing 57% of the company’s FY18 target of Rp49.10tr
8M18 new contract wins (Rp bn)

% of company 3-year average 8M
8M18 Company target % of DBSVI forecast DBSVI forecast
target achievement
PTPP 27,750 57% 49,100 61% 45,754 61%
WSKT 9,200 13% 70,000 18% 49,994 61%
WTON 4,300 57% 7,560 59% 7,230 46%

Source: Company, Various sources, DBSVI
Page 16
Industry Focus
Orderbook replenishment
New contract growth to slow down in FY18F-FY20F Strong orderbook to support revenue visibility
We expect new contract growth for companies within our Companies in our coverage show a strong revenue visibility
coverage to slow down in FY18F-FY20F due to the transition that is driven by strong new contract wins in the past few
period from the election period in 2018-2019 and softening years. PTPP and WSKT have revenue visibility of 3.9x and 3.0x
macroeconomic conditions. We expect a moderate aggregate FY18F revenue respectively. This revenue visibility will support
new contract win CAGR of 5.03% in FY17-FY20F for SOE both contractors’ earning delivery should new contract
contractors and WTON, which is much lower than the CAGR growth decelerate during the election period.
of +30.17% experienced in FY10-FY17. We like PTPP for its higher revenue visibility and more diverse
orderbook. Note that the majority of WKST’s orderbook is
Among companies in our coverage, we expect PTPP to book highly leveraged to toll road projects.
the highest new contract growth of +11.41%, driven by its
property and precast business. We expect a slightly slower We also like WTON’s revenue visibility of 1.9x FY18F revenue.
new contract growth for WSKT mainly due to its stellar CAGR Despite its smaller revenue base compared to the bigger
of 35.92% over FY10-FY17 and its weakening balance sheet contractors, we note that WTON’s burn rate is also more than
that may hinder its growth. We expect WTON to book annual double that of its bigger cousins (WTON’s burn rate stands at
new contract growth of 6.56% in FY17-FY20F, partly driven c.50% vs c.20-30% for contractors).
by its parent company’s new contract growth.
Revenue visibility
Aggregate new contracts of construction companies Outstanding orderbook (Rp bn) Revenue FY18F (Rp bn) Outs. Order book/revenue FY18F
(Rp bn) 160,000 5
45,000 4
+5.03% 140,000 3.9
40,000 4
120,000
35,000 3.0 3
100,000
3
30,000
80,000
2
25,000 +30.17% 1.9
60,000
2
20,000
40,000
1
15,000
20,000 1
10,000
0 0
PTPP WSKT WTON
5,000
- Source: Company, DBSVI

10 11 12 13 14 15 16 17 18F 19F 20F

*consists of SOE contractors and WTON
Aggregate orderbook of construction companies (Rp bn)

120,000
+8.49%
100,000
80,000
60,000 +33.14%
40,000
20,000
-
10 11 12 13 14 15 16 17 18F 19F 20F

*consists of SOE contractors and WTON
Page 17
Industry Focus
PTPP new contracts (Rp bn) PTPP orderbook (Rp bn)

60,000 160,000
+11.41%
140,000 +20.37%
50,000
120,000
40,000
100,000
30,000 +24.98% 80,000

+32.97%
60,000
20,000
40,000
10,000
20,000
- -
10 11 12 13 14 15 16 17 18F 19F 20F 10 11 12 13 14 15 16 17 18F 19F 20F
Source: Company, DBSVI Source: Company, DBSVI
WSKT new contracts (Rp bn) WSKT orderbook (Rp bn)

80,000 160,000 +0.94%
70,000 140,000
-0.42%
60,000 120,000
50,000 100,000
+35.92% +43.16%
40,000 80,000
30,000 60,000
20,000 40,000
10,000 20,000
- -
10 11 12 13 14 15 16 17 18F 19F 20F 10 11 12 13 14 15 16 17 18F 19F 20F
WTON new contracts (Rp bn) WTON orderbook (Rp bn)

10,000 16,000
9,000 +6.56% 14,000 +9.92%

8,000
12,000
7,000
10,000
6,000
+27.62%
5,000 8,000 +24.52%
4,000 6,000
3,000
4,000
2,000
2,000
1,000
- -
10 11 12 13 14 15 16 17 18F 19F 20F 10 11 12 13 14 15 16 17 18F 19F 20F
Page 18
Industry Focus
Valuation and recommendation
Overweight on construction sector

We upgrade our rating on the construction sector from Maintaining PTPP and WTON as our top picks
Neutral to Overweight, with BUY calls on PTPP, WSKT and We like PTPP for its attractive valuation and promising growth
WTON. Our renewed optimism is based on three factors: 1) outlook. It is also worth noting that PTPP has a smaller capex
still solid orderbook backlog that provides an average visibility commitment compared to WSKT, and a relatively less
of 2-4 years, 2) continued infrastructure spending where the leveraged balance sheet to support its future earnings and
upcoming presidential elections may serve as a catalyst, and 3) new contract growth. We forecast PTPP’s net profit to grow
bargain valuation of 4.9x EV/EBITDA that is near its 5-year at a CAGR of 18% in 2017A-2020F. At the current share
lows, which provides an ideal entry point. price, PTPP’s valuation is at 3.7x 12M forward EV/EBITDA,
lower than the SOE contractor peer average of 4.6x and
Change our valuation to EV/EBITDA WSKT’s 7.1x.
We change our valuation of WSKT’s construction business
and PTPP to EV/EBITDA from PE previously, as we believe this As new contract growth decelerates in the next few years,
can better reflect their operational capabilities and make them project execution and delivery will become more important
more comparable with peers – EV/EBITDA strips out than earnings delivery. As work on the new projects
depreciation and interest expenses which are highly commences, WTON is also in a sweet spot to receive new
dependent on interest capitalisation. orders being dished out by contractors/project owners. We
view WTON as a good proxy to the infrastructure sector given
Using -1SD of 3-year average as our valuation base its strong presence across Indonesia.
We are applying -1SD to factor in uncertainties stemming
from next year’s presidential election. At the same time, we
are also using the 3-year average to remove the overly
optimistic valuation arising from the Jokowi rally in 2014.
Old vs new valuations

Old New
Stock
Call TP Valuation method Call TP Valuation method
PTPP BUY 4100 P/E BUY 3010 EV/EBITDA

WSKT HOLD 2050 SOTP BUY 2800 SOTP
WTON BUY 600 EV/EBITDA BUY 600 EV/EBITDA
Source: DBSVI
Page 19
Industry Focus
SOE contractors 12M forward EV/EBITDA PTPP 12M forward EV/EBITDA

10.0 10.0
9.0 9.0
+2 SD
+2SD
8.0
8.0
+1 SD +1SD
7.0
7.0 3-year 3-year
avg. avg.
6.0
6.0 -1 SD
-1SD
5.0 -2SD
5.0 -2 SD
4.0
4.0 Sep‐15 Mar‐16 Sep‐16 Mar‐17 Sep‐17 Mar‐18 Sep‐18
Sep‐15 Mar‐16 Sep‐16 Mar‐17 Sep‐17 Mar‐18 Sep‐18
WSKT 12M forward EV/EBITDA WTON 12M forward EV/EBITDA

10.0 20.0
9.5 +2SD 18.0 +2SD
9.0 16.0
8.5 +1SD
14.0 +1SD
8.0
3-year 12.0
7.5 avg. 3-year
10.0 avg.
7.0
6.5 -1SD 8.0
-1SD
6.0 6.0
5.5 -2SD
4.0 -2SD
5.0 2.0
Sep‐15 Mar‐16 Sep‐16 Mar‐17 Sep‐17 Mar‐18 Sep‐18 Sep‐15 Mar‐16 Sep‐16 Mar‐17 Sep‐17 Mar‐18 Sep‐18
SOE contractors 12M forward PE PTPP 12M forward PE

35.0 35.0
30.0 30.0
+2SD +2SD
25.0 25.0
+1SD +1SD
20.0 20.0
5-year
5-year avg.
avg. 15.0
15.0
-1SD
-1SD 10.0
10.0
5.0 -2SD
5.0 -2SD
‐
‐ Jan‐10 Jan‐11 Jan‐12 Jan‐13 Jan‐14 Jan‐15 Jan‐16 Jan‐17 Jan‐18
Apr‐11 Apr‐12 Apr‐13 Apr‐14 Apr‐15 Apr‐16 Apr‐17 Apr‐18
Page 20
Industry Focus
WSKT 12M forward PE WTON 12M forward PE

35.0 80.0
70.0
30.0
60.0 +2SD
25.0
+2SD
50.0
20.0 +1SD
+1SD 40.0
15.0 30.0 5-year

5-year avg.
avg.
10.0 20.0
-1SD -1SD
10.0
5.0
-2SD
‐
‐ -2SD
Apr‐14 Apr‐15 Apr‐16 Apr‐17 Apr‐18
Dec‐12 Dec‐13 Dec‐14 Dec‐15 Dec‐16 Dec‐17 Dec‐18 (10.0)
SOE contractor 12M forward P/BV PTPP 12M forward P/BV

4.5
4.5
4.0 +2SD
4.0
3.5
3.5 +1SD
+2SD 3.0
3.0
2.5
+1SD 5-year
2.5 avg.
2.0
5-year
2.0 avg. -1SD
1.5
1.5 -1SD
1.0
-2SD
1.0
-2SD 0.5
0.5
‐
‐ Aug‐12 Aug‐13 Aug‐14 Aug‐15 Aug‐16 Aug‐17 Aug‐18
Apr‐11 Apr‐12 Apr‐13 Apr‐14 Apr‐15 Apr‐16 Apr‐17 Apr‐18
WSKT 12M forward P/BV WTON 12M forward P/BV

4.0 6.0
+2SD
3.5 5.0
+1SD
3.0 4.0
+2SD
2.5 5-year
+1SD 3.0
avg.
5-year
2.0 avg. 2.0 -1SD
-1SD
1.5 1.0
-2SD
-2SD
1.0 ‐
Dec‐12 Dec‐13 Dec‐14 Dec‐15 Dec‐16 Dec‐17 Dec‐18 Apr‐14 Apr‐15 Apr‐16 Apr‐17 Apr‐18
Page 21
Industry Focus
PTPP gearing vs peer average PTPP EBITDA to interest cover

Gross gearing peers avg. 6.0X
1.4 5.1X
5.0X
4.5X 4.4X
1.2 4.3X
4.1X
4.0X 3.9X 3.8X
1.0 3.6X
3.2X 3.3X
0.8 3.0X
0.6
2.0X
0.4
0.2
1.0X
0.0 0.0X
11 12 13 14 15 16 17 18F 19F 20F 11 12 13 14 15 16 17 18F 19F 20F
WSKT gearing vs peer average WSKT EBITDA to interest cover

Gross gearing peers avg. 8.0X 7.6X
2.5 7.0X
6.0X
6.0X
2.0
5.1X
5.0X
4.3X
1.5
4.0X 3.7X 3.6X
3.3X 3.4X
3.1X 3.0X
1.0 3.0X
2.0X
0.5
1.0X
0.0 0.0X
11 12 13 14 15 16 17 18F 19F 20F 11 12 13 14 15 16 17 18F 19F 20F
WTON gearing vs peer average WTON EBITDA to interest cover

Gross gearing peers avg. 45.0X 42.2X
1.2 40.0X
1.0 35.0X
30.0X
0.8
25.0X
0.6 20.0X
15.0X
0.4
10.2X 9.4X
10.0X 7.9X 7.3X
6.5X 6.6X
0.2 5.1X
5.0X
0.0X 0.0X
0.0 0.0X
11 12 13 14 15 16 17 18F 19F 20F 11 12 13 14 15 16 17 18F 19F 20F
Page 22
Industry Focus
Low risk to our TPs
Two-variable sensitivity analysis shows limited downside to WSKT still exposed to burn-rate risks
our TP Our burn-rate growth assumption of -20% for WSKT implies
We have conducted a two-variable sensitivity analysis, a burn rate of 28%. Such a burn rate still has downside risks
involving new contracts growth and burn rate, with the new as WSKT’s all-time low burn rate stands at 23% (which was
contracts growth assumption set at -20% and burn-rate recorded in 2016). However, our burn-rate assumption of
assumption at -20% to stress test our TP valuations. Based on 28% is still significantly lower than its 5-year historical burn-
our analysis, only WSKT is expected to offer negative return rate average of 38%.
with a downside potential of 12% to our TP, if our stress-test
scenario materialises. Interestingly, PTPP and WTON still offer We have the lowest implied burn rates of 20% and 42% for
upside potential of 19% and 15%, respectively, from their PTPP and WTON, respectively, and these numbers are actually
current levels, assuming an identical 20% drop for our lower than their respective all-time low burn rates of 23%
sensitivity-analysis variables. and 46% and well below their 5-year averages. This suggests
that the pessimistic burn-rate growth assumption of -20%
Contractors are more vulnerable to contract growth might not materialise at all for PTPP and WTON.
We have also conducted a one-variable sensitivity analysis on
both new contract growth and burn-rate assumptions. Our Lowest implied burn rates vs historical trends
analysis suggests that contractors are slightly more susceptible Historical Assumption 5‐year average
to new contract growth compared to burn rate. Therefore, 70%
we advise investors to keep a close eye on new contract win 59%
60%
achievement that has more influence on a contractor’s
profitability and thus, its share price direction. 50% 46%
42%
40% 38%
Precast companies are more sensitive towards burn rate 30% 27% 28%
23% 23%
Based on our sensitivity analysis, we believe that burn rate has 20%
20%
more influence on a precast company’s earnings and share
price movement. Normally, as a precast company has a higher 10%
burn rate, it makes sense for such a company’s performance 0%

PTPP WSKT WTON
to be more vulnerable to burn rate.
Summary of two-variable sensitivity analysis
TP sensitivity
Base-case Upside to
Stock Price
TP Contract growth Burn rate assumption (- Lowest TP lowest TP
assumption (-20%) 20%) (both)
PTPP 3,030 1,645 2,360 2,510 1,950 19%
WSKT 2,310 1,735 1,860 1,900 1,530 -12%
WTON 600 364 600 420 420 15%

Page 23
Industry Focus
Waskita Karya (WSKT) sensitivity analysis
WSKT one-variable sensitivity analysis
Contract growth 0% -20% -10% 10% 20%
FY19F net profit (Rp bn) 4,530 3,644 4,068 5,028 5,564
FY19F EBITDA (Rp bn) 10,168 9,004 9,562 10,822 11,523
TP 2,310 1,860 2,070 2,560 2,830
Burn rate 0% -20% -10% 10% 20%
FY19F EBITDA (Rp bn) 10,168 9,218 9,717 10,570 10,923
TP 2,310 1,900 2,110 2,480 2,640
Source: DBSVI
WSKT two-variable (contract growth and burn rate) sensitivity analysis

Net profit (Rp bn) Contract growth
4,530 0% -20% -10% 10% 20%
0% 4,530 4,530 4,530 5,028 5,564
-20% 3,840 3,108 3,460 4,251 4,691
Burn rate
-10% 4,204 3,393 3,782 4,659 5,147

10% 4,819 3,860 4,319 5,360 5,941
20% 5,072 4,042 4,535 5,654 6,279
TP Contract growth
2,310 0% -20% -10% 10% 20%
0% 2,310 1,860 2,070 2,560 2,830
-20% 1,900 1,530 1,710 2,110 2,330
Burn rate
-10% 2,110 1,700 1,900 2,340 2,590

10% 2,480 1,990 2,230 2,760 3,050
20% 2,640 2,110 2,360 2,930 3,250
Source: DBSVI
Page 24
Industry Focus
PT PP (PTPP) sensitivity analysis
PTPP one-variable sensitivity analysis
Contract growth 0% -20% -10% 10% 20%
FY19F EBITDA (Rp bn) 3,752 2,927 3,323 4,214 4,710
TP 3,030 2,360 2,680 3,400 3,800
Burn rate 0% -20% -10% 10% 20%
FY19F EBITDA (Rp bn) 3,752 3,169 3,468 4,021 4,275
TP 3,030 2,510 2,780 3,270 3,500
Source: DBSVI
PTPP two-variable (contract growth and burn rate) sensitivity analysis

1,774 0% -20% -10% 10% 20%
0% 1,774 1,205 1,478 2,094 2,436
Burn rate
-20% 1,382 905 1,134 1,649 1,934

-10% 1,583 1,059 1,311 1,876 2,191
10% 1,956 1,341 1,636 2,300 2,670
20% 2,126 1,468 1,784 2,496 2,893
TP Contract growth
3,030 0% -20% -10% 10% 20%
0% 3,030 2,360 2,680 3,400 3,800
Burn rate
-20% 2,510 1,950 2,220 2,820 3,150

-10% 2,780 2,160 2,460 3,120 3,480
10% 3,270 2,550 2,890 3,670 4,100
20% 3,500 2,720 3,100 3,930 4,400
Source: DBSVI
Page 25
Industry Focus
Wijaya Karya Beton (WTON) sensitivity analysis
WTON one-variable sensitivity analysis – contract growth
Contract growth 0% -20% -10% 10% 20%
FY19F net profit (Rp bn) 401 401 401 401 401
FY19F EBITDA (Rp bn) 847 847 847 847 847
TP 600 600 600 600 600
Source: DBSVI
Burn rate 0% -20% -10% 10% 20%
FY19F net profit (Rp bn) 401 256 328 473 546
FY19F EBITDA (Rp bn) 847 660 754 941 1,035
TP 600 420 510 690 770
Source: DBSVI
WTON two-variable (contract growth and burn rate) sensitivity analysis

401 0% -20% -10% 10% 20%
0% 401 401 401 401 401
-20% 256 256 256 256 256

Burn rate
-10% 328 328 328 328 328
10% 473 473 473 473 473
20% 546 546 546 546 546
TP Contract growth
600 0% -20% -10% 10% 20%
0% 600 600 600 600 600
-20% 420 420 420 420 420

Burn rate
-10% 510 510 510 510 510
10% 690 690 690 690 690
20% 770 770 770 770 770
Source: DBSVI
Page 26
Indonesia Company Guide
Pembangunan Perumahan
Version 7 | Bloomberg: PTPP IJ | Reuters: PTPP.JK Refer to important disclosures at the end of this report
BUY Ample balance sheet capacity to

Last Traded Price ( 2 Oct 2018): Rp1,645 (JCI : 5,875.60) sustain growth
Price Target 12-mth: Rp3,030 (84% upside) (Prev Rp4,100)
Analyst Maintain BUY on attractive EV/EBITDA valuation. We maintain
Victor STEFANO +6221 3003 4934 victor.stefano@id.dbsvickers.com our BUY call on PTPP. We have changed our valuation
Tjen San CHONG +60 3 26043972 tjensan@alliancedbs.com methodology to EV/EBITDA from PE (Our previous TP was
Rp4,100) as we believe this would better reflect its operational
What’s New capabilities and makes it more comparable with its peers
 Maintain BUY with lower TP of Rp3,030 (EV/EBITDA strips out depreciation and interest expenses which
 Changed our valuation methodology to EV/EBITDA are highly dependent on interest capitalisation). Our new TP of
Rp3,030 is based on 5.1x FY19F EV/EBITDA which is pegged to -
 Strongest balance sheet vs peers implies sufficient room 1SD of its 3-year EV/EBITDA mean to factor in uncertainties
to take on more contracts
stemming from next year’s presidential election. We have used
 Secured Rp27.7tr in new contracts in 8M18 (57% of the 3-year mean as a reference point to remove the overly
target) optimistic valuation arising from the Jokowi rally in 2014.
Where we differ: We value the stock using EV/EBITDA.
Contrarian to consensus valuation of using PE, we value the
Price Relative
counter using EV/EBITDA as we believe it better reflects the
company`s operational capabilities.
Potential catalyst: Strong growth in value of new contracts
clinched. As the company`s balance sheet is expected to remain
healthy in our forecast years, we believe strong growth in value
of new contracts will drive the share price up. We forecast new
contracts of Rp45.7tr in FY18, lower than management’s target
Forecasts and Valuation
FY Dec (Rpbn) 2016A 2017A 2018F 2019F of Rp49.1tr. Our new contract forecast implies 11% growth in
Revenue 16,459 21,502 25,479 29,996 value of new contracts y-o-y.
EBITDA 2,071 2,820 3,181 3,752
Pre-tax Profit 1,704 2,436 2,711 3,009 Valuation:
Net Profit 1,023 1,453 1,635 1,775
Net Pft (Pre Ex.) 1,023 1,453 1,635 1,775
We maintain our BUY call with lower TP of Rp3,030 (pegged
Net Pft Gth (Pre-ex) (%) 38.2 42.0 12.5 8.5 to 5.1x FY19F EV/EBITDA) as we change our valuation to
EPS (Rp) 211 234 264 286 EV/EBITDA (previously we used 15.5x FY18F P/E valuation).
EPS Pre Ex. (Rp) 211 234 264 286
EPS Gth Pre Ex (%) 38 11 13 9
Diluted EPS (Rp) 165 234 264 286
Key Risks to Our View:
Net DPS (Rp) 39.5 56.0 63.0 68.4 Prolonged slowdown in property sector. PTPP has both direct
BV Per Share (Rp) 1,580 1,847 2,055 2,278 and indirect exposure to the property sector. A prolonged
PE (X) 7.8 7.0 6.2 5.7 slowdown in the economy and demand for property can
PE Pre Ex. (X) 7.8 7.0 6.2 5.7
P/Cash Flow (X) 8.1 7.0 5.6 5.9 negatively impact earnings and cash flows.
EV/EBITDA (X) 3.0 4.0 3.4 2.8 At A Glance
Net Div Yield (%) 2.4 3.4 3.8 4.2 Issued Capital (m shrs) 6,200
P/Book Value (X) 1.0 0.9 0.8 0.7 Mkt. Cap (Rpbn/US$m) 10,199 / 678
Net Debt/Equity (X) CASH CASH CASH CASH Major Shareholders (%)
ROAE (%) 14.4 13.7 13.5 13.2 Republic of Indonesia (%) 51.0
Earnings Rev (%): 0 (1) (8) Koperasi Karyawan Pemegang 0.1
Consensus EPS (Rp): N/A 277 341 Free Float (%) 48.9
Other Broker Recs: B: 22 S: 0 H: 2
3m Avg. Daily Val (US$m) 1.8
Source of all data on this page: Company, AllianceDBS, DBSVI, ICB Industry : Industrials / Construction & Materials
Bloomberg Finance L.P
ed: JS / sa:MA, CW, CS

Company Guide
WHAT’S NEW
Ample balance sheet to sustain growth
Maintain BUY on attractive EV/EBITDA valuation PTPP’s forward EV/EBITDA band

12.0
We maintain our BUY call on PTPP. We have changed our
valuation methodology to EV/EBITDA from PE (Our previous 10.0
TP was higher TP at Rp4,100) as we believe this would better 8.0

EV/EBITDA
reflect its operational capabilities and makes it more MEAN

+1 STDEV
comparable with its peers (EV/EBITDA strips out depreciation 6.0
+2 STDEV
and interest expenses which are highly dependent on interest 4.0 ‐1 STDEV
capitalisation). Our new TP of Rp3,030 is based on 5.1x ‐2 STDEV
2.0
FY19F EV/EBITDA which is pegged to -1SD of its 3-year
EV/EBITDA mean to factor in uncertainties stemming from ‐
Jan‐11 Jan‐12 Jan‐13 Jan‐14 Jan‐15 Jan‐16 Jan‐17 Jan‐18
next year’s presidential election. We have used the 3-year
mean as a reference point to remove the overly optimistic Source: Company, DBSVI
valuation arising from the Jokowi rally in 2014.
PTPP’s forward PE band
Secured Rp27.7tr in new contracts in 8M18 35.0
PTPP secured new contracts worth Rp27.7tr in 8M18 which 30.0
represents 57% of management’s FY18 target of Rp49.1tr. 25.0 P/E

We have assumed a slightly lower value of Rp45.7tr for FY18. MEAN
20.0
In term of achievement and contract size, PTPP’s new contract +1 STDEV
win has outperformed its SOE contractor peers. 15.0 +2 STDEV
‐1 STDEV
Strong balance sheet to maintain growth 10.0
‐2 STDEV
5.0
Among SOE contractor peers, PTPP has the strongest balance
sheet. We expect PTPP’s gross gearing to increase from 56% ‐
Jul‐10 Jul‐11 Jul‐12 Jul‐13 Jul‐14 Jul‐15 Jul‐16 Jul‐17 Jul‐18
in FY17 to 74% in FY20F to account for higher orderbook.
However, we believe the company’s has strong capability to Source: Bloomberg Finance L.P., DBSVI
manage its working capital requirements to maintain a net
cash position. PTPP’s forward P/B band
Valuation and recommendation 4.5
4.0
We maintain our BUY call with lower TP of Rp3,030 (pegged 3.5
to 5.1x FY19F EV/EBITDA) as we change our valuation 3.0
P/BV
methodology to EV/EBITDA (previously we used 15.5x FY18F 2.5

MEAN
+1 STDEV
P/E valuation). 2.0
+2 STDEV
1.5
PTPP’s gross gearing (%) ‐1 STDEV
1.0 ‐2 STDEV
1.4
0.5
1.2 ‐
Aug‐12 Aug‐13 Aug‐14 Aug‐15 Aug‐16 Aug‐17 Aug‐18
1.0
0.8
0.6
0.4
0.2
-
14 15 16 17 18F 19F 20F
Page 28
Company Guide
New Contract Win (Rp bn)

CRITICAL DATA POINTS TO WATCH
Critical Factors
Maintaining positive new contract growth momentum post rights
issue. PTPP raised Rp4.4tr cash through a rights issue in December
2016. The plan is to use 76% of the rights issue proceeds to fund
its equity investments in infrastructure projects, among which are
Kuala Tanjung Multi-Purpose Terminal and Industrial Estate, five toll
roads (among which are Balikpapan-Samarinda toll road, Manado-
Bitung toll road, Pandaan-Malang toll road), a 2x200MW power
plant in Sumatra and low-cost apartments, while the remaining Carry Over Contract (Rp bn)
24% will be used for working capital. With ample cash post rights
issue, the company will be able to take on more projects going
forward. The company is eyeing new contracts worth Rp49.1tr in
FY18F, a 20% increase y-o-y.
Beneficiary of Indonesia’s port build-out. PTPP has over the years

developed a niche in port construction in Indonesia. According to
Bapennas, Indonesia would need as much as Rp59tr to develop and
expand 24 ports from 2015-2019. Among the larger projects are
the multi-year expansion projects at Kuala Tanjung port (Rp18.4tr)
and Tanjung Perak port (Rp8.6tr). Both ports were initially built by Construction Gross Margin (%)
PTPP, hence this gives the company a competitive edge to secure
work contracts once the projects are out for tender. This year,
Pelindo I-IV, the state-run port operators that will carry out a
significant part of the government’s port development plan, have
allocated capex of more than Rp13tr for port expansion.
Redirecting focus to government-related infrastructure projects.

We estimate that 15%-20% of PTPP’s backlog came from private
property developers. The project execution may be slower amid the
still subdued property market, therefore negatively affecting the
company’s contract burn rate and earnings. Since 2016, Gross Margin (%)
management has redirected its focus to government-related
infrastructure projects, including the higher margin EPC projects.
Currently, PTPP has three power plant projects in its order book
with total capacity of 420 MW. The company plans to bid for more
small-scale power plant projects in the future. With this strategy,
we expect the value of EPC contracts to grow by 10% annually in
FY18F-FY20F.
EV/EBITDA band
12.0
10.0
EV/EBITDA
8.0
MEAN
6.0 +1 STDEV
+2 STDEV
4.0 ‐1 STDEV
‐2 STDEV
2.0
‐
Jan‐11 Jan‐12 Jan‐13 Jan‐14 Jan‐15 Jan‐16 Jan‐17 Jan‐18
Source: Company, AllianceDBS, DBSVI
Page 29
Company Guide
Appendix 1: A look at Company's listed history – what drives its share price?
Orderbook as future revenue and share price driver
Share price (Rp) - LHS Orderbook (Rp bn) - RHS
5000 120,000
4500
100,000
4000
3500
80,000
3000
2500 60,000
2000
40,000
1500
1000
20,000
500
0 -
Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17
Source: Company, Bloomberg Finance L.P., DBSVI
As the one to drive revenue and share price, PTPP’s orderbook Despite the rising subsidies in 2018, we continue to see that the
has been on an uptrend from 2009-2017 with value of new government’s commitment over infrastructure spending
contracts growing at 33% CAGR. PTPP’s share price has been continues to rise. We believe PTPP’s order book will continue on
moving in tandem with order book size as it is the main a positive trajectory at c.11% CAGR over FY18F-FY20F, driven
earnings driver. by the growth in its property and precast business.
However PTPP’s share price has been dropping since late 2015 We expect PTPP to secure RP45.7tr worth of new contracts in
on concerns that government spending on infrastructure would FY18F, lower than management’s guidance of Rp49.1tr. Our
fall as the government is likely to put more emphasis on new contract forecast represents 11.4% y-o-y new contract
subsidies following weak consumption and rising crude oil price. growth.
Page 30
Company Guide
Leverage & Asset Turnover (x)

Balance Sheet:
Strong balance sheet enables PTPP to take on more projects.
PTPP is in a net cash position after receiving rights issue
proceeds of Rp4.4tr in December 2016. We forecast PTPP’s debt
to rise with gross gearing of 0.7x in FY19F as the company
starts to fund its equity investments in a number of
infrastructure projects.
Share Price Drivers:

Award of a large-sized, multi-year infrastructure contracts.
The award of large-sized, multi-year contracts will further
Capital Expenditure
improve PTPP’s revenue and earnings visibility, and ultimately Rpbn
lead to re-rating of its share price.
Key Risks:
Slowdown in property sector
PTPP’s exposure to the property sector has increased notably
with EBIT contribution from the property arm at 23% in FY17.
We estimate that 15%-20% of PTPP’s outstanding order book
is from private developers. A prolonged slowdown in the
property market may pose risks to PTPP’s earnings and cash
flows. ROE (%)
Prolonged weak economic conditions

If the economic conditions do not improve in the subsequent
years, it might pressure the government to reallocate
infrastructure spending to subsidies.
Rupiah depreciation
Weakening rupiah could pressure government to delay some
projects which has high exposure to imported goods such as
EPC and high rise buildings. Higher material cost on the back
of weakening rupiah could also put some pressure on Forward PE Band (x)
contractors’ margins if they could not renegotiate the
contracts.
Company Background
PTPP is Indonesia's leading construction company with a
portfolio ranging from building engineering to infrastructure
construction projects. It has established a solid reputation in
the construction of high-rise buildings and ports.
PB Band (x)
Page 31
Company Guide
Key Assumptions
FY Dec 2015A 2016A 2017A 2018F 2019F
New Contract Win (Rp bn) 27,074 32,600 41,070 45,754 50,957
Carry Over Contract (Rp 29,867 39,600 41,400 58,668 73,943
Construction Gross 10.7 12.1 12.5 12.5 12.5
margins
Segmental Breakdown
FY Dec 2015A 2016A 2017A 2018F 2019F
Revenues (Rpbn)
Construction 11,611 11,857 15,074 16,168 18,890
Real Estate and Property 1,573 2,180 2,732 2,845 2,987
EPC 928 2,366 3,244 4,263 5,238
Others 106 56.1 453 2,203 2,880
Total 14,217 16,459 21,502 25,479 29,996

Gross Profit (Rpbn)
Construction 1,244 1,433 1,877 2,014 2,353
Real Estate and Property 680 593 654 659 692
EPC 206 359 556 730 898
Others (124) (558) 193 302 391
Total 2,007 1,827 3,280 3,704 4,333

Gross Profit Margins (%)
Construction 10.7 12.1 12.5 12.5 12.5
Real Estate and Property 43.3 27.2 24.0 23.1 23.1
EPC 22.2 15.2 17.1 17.1 17.1
Others (117.1) (995.3) 42.5 13.7 13.6
Total 14.1 11.1 15.3 14.5 14.4
Income Statement (Rpbn)

FY Dec 2015A 2016A 2017A 2018F 2019F
Revenue 14,217 16,459 21,502 25,479 29,996
Cost of Goods Sold (12,210) (14,003) (18,251) (21,774) (25,663)
Gross Profit 2,007 2,456 3,252 3,704 4,333
Other Opng (Exp)/Inc (410) (487) (726) (872) (992)
Operating Profit 1,597 1,968 2,525 2,832 3,341
Other Non Opg (Exp)/Inc (50.5) (69.4) (61.4) (61.4) (61.4)
Associates & JV Inc 67.0 155 364 449 449
Net Interest (Exp)/Inc (326) (350) (392) (508) (720)
Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0
Pre-tax Profit 1,288 1,704 2,436 2,711 3,009
Tax (442) (552) (712) (808) (953)
Minority Interest (105) (128) (271) (268) (282)
Preference Dividend 0.0 0.0 0.0 0.0 0.0
Net Profit 740 1,023 1,453 1,635 1,775
Net Profit before Except. 740 1,023 1,453 1,635 1,775
EBITDA 1,678 2,071 2,820 3,181 3,752
Growth
Revenue Gth (%) 14.4 15.8 30.6 18.5 17.7
EBITDA Gth (%) 26.6 23.4 36.2 12.8 17.9
Opg Profit Gth (%) 25.9 23.2 28.3 12.1 18.0
Net Profit Gth (Pre-ex) (%) 38.8 38.2 42.0 12.5 8.5
Margins & Ratio
Gross Margins (%) 14.1 14.9 15.1 14.5 14.4
Opg Profit Margin (%) 11.2 12.0 11.7 11.1 11.1
Net Profit Margin (%) 5.2 6.2 6.8 6.4 5.9
ROAE (%) 22.0 14.4 13.7 13.5 13.2
ROA (%) 4.4 4.1 4.0 3.7 3.5
ROCE (%) 12.8 9.1 8.3 7.8 7.9
Div Payout Ratio (%) 33.2 33.0 33.9 26.9 25.9
Net Interest Cover (x) 4.9 5.6 6.4 5.6 4.6
Page 32
Company Guide
Quarterly / Interim Income Statement (Rpbn)

FY Dec 2Q2017 3Q2017 4Q2017 1Q2018 2Q2018
Revenue 5,209 5,635 7,741 3,683 5,824

Gross Profit 791 812 1,257 558 905
Other Oper. (Exp)/Inc (137) (150) (284) (219) (237)
Operating Profit 654 663 973 339 668
Other Non Opg (Exp)/Inc (12.9) (9.3) (24.8) (11.7) 37.5
Associates & JV Inc 49.0 90.0 209 31.4 41.2
Net Interest (Exp)/Inc (61.3) (61.1) (296) (39.9) (118)
Pre-tax Profit 629 682 862 319 629
Tax (158) (196) (256) (120) (195)
Minority Interest (27.9) (69.1) (142) (48.2) (105)
Net Profit 442 417 463 151 329
Net profit bef Except. 442 417 463 151 329
EBITDA 766 829 1,214 464 794
Growth
Revenue Gth (%) 78.6 8.2 37.4 (52.4) 58.1
EBITDA Gth (%) 144.4 8.3 46.5 (61.8) 71.3
Opg Profit Gth (%) 177.2 1.3 46.9 (65.2) 97.0
Net Profit Gth (Pre-ex) (%) 239.9 (5.6) 11.0 (67.4) 117.9
Margins
Gross Margins (%) 15.2 14.4 16.2 15.2 15.5
Opg Profit Margins (%) 12.6 11.8 12.6 9.2 11.5
Net Profit Margins (%) 8.5 7.4 6.0 4.1 5.6
Balance Sheet (Rpbn)

FY Dec 2015A 2016A 2017A 2018F 2019F
Net Fixed Assets 2,989 4,178 5,790 6,093 6,335

Invts in Associates & JVs 272 486 1,184 1,184 1,184
Other LT Assets 467 2,225 4,902 4,902 4,902
Cash & ST Invts 3,302 9,424 9,587 11,906 15,091
Inventory 2,499 2,656 2,421 2,888 3,404
Debtors 8,829 10,920 15,915 17,761 20,910
Other Current Assets 800 1,345 1,986 1,986 1,986
Total Assets 19,159 31,233 41,783 46,719 53,811
ST Debt 1,722 3,698 2,763 2,763 2,763

Creditor 7,372 10,237 14,506 16,387 19,313
Other Current Liab 1,677 1,943 3,431 3,431 3,431
LT Debt 1,827 3,048 5,144 6,644 9,144
Other LT Liabilities 1,414 1,510 1,696 1,696 1,696
Shareholder’s Equity 4,410 9,796 11,454 12,741 14,125
Minority Interests 737 1,000 2,789 3,058 3,339
Total Cap. & Liab. 19,159 31,233 41,783 46,719 53,811
Non-Cash Wkg. Capital 3,080 2,739 2,384 2,818 3,556

Net Cash/(Debt) (247) 2,678 1,680 2,498 3,184
Debtors Turn (avg days) 206.3 219.0 227.8 241.2 235.3
Creditors Turn (avg days) 216.6 231.2 251.5 263.1 258.0
Inventory Turn (avg days) 77.8 67.7 51.6 45.2 45.5
Asset Turnover (x) 0.8 0.7 0.6 0.6 0.6
Current Ratio (x) 1.4 1.5 1.4 1.5 1.6
Quick Ratio (x) 1.1 1.3 1.2 1.3 1.4
Net Debt/Equity (X) 0.0 CASH CASH CASH CASH
Net Debt/Equity ex MI (X) 0.1 CASH CASH CASH CASH
Capex to Debt (%) 11.8 19.3 16.5 6.9 5.5
Z-Score (X) 1.8 1.4 1.3 1.3 1.5
Page 33
Company Guide
Cash Flow Statement (Rpbn)

FY Dec 2015A 2016A 2017A 2018F 2019F
Pre-Tax Profit 1,288 1,704 2,436 2,711 3,009

Dep. & Amort. 80.6 103 295 349 411
Tax Paid (442) (552) (712) (808) (953)
Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0
Chg in Wkg.Cap. (497) 341 355 (434) (738)
Other Operating CF (403) (608) (911) 0.0 0.0
Net Operating CF 25.8 987 1,463 1,818 1,729
Capital Exp.(net) (420) (1,305) (1,305) (653) (653)
Other Invts.(net) (83.3) (124) (124) 0.0 0.0
Invts in Assoc. & JV (125) (440) (440) 0.0 0.0
Div from Assoc & JV 0.0 0.0 1.00 0.0 0.0
Other Investing CF (33.7) 42.8 (2,035) 0.0 0.0
Net Investing CF (662) (1,826) (3,904) (653) (653)
Div Paid (106) (177) (245) (347) (391)
Chg in Gross Debt 405 2,663 2,663 1,500 2,500
Capital Issues 0.0 4,412 4,413 0.0 0.0
Other Financing CF 884 1.50 (4,135) 0.0 0.0
Net Financing CF 1,182 6,899 2,696 1,153 2,109
Currency Adjustments 71.1 39.9 3.20 0.0 0.0
Chg in Cash 617 6,100 258 2,318 3,186
Opg CFPS (Rp) 108 133 179 363 398
Free CFPS (Rp) (81.5) (65.8) 25.4 188 174
Target Price & Ratings History
Source: AllianceDBS, DBSVI

Analyst: Victor STEFANO
Tjen San CHONG
Page 34
Waskita Karya
Version 8 | Bloomberg: WSKT IJ | Reuters: WSKT.JK Refer to important disclosures at the end of this report
BUY(Upgrade from HOLD) Sufficient orderbook despite slow

Last Traded Price ( 2 Oct 2018): Rp1,735 (JCI : 5,875.60) new contract achievement
Price Target 12-mth: Rp2,310 (33% upside) (Prev Rp2,050)
Upgrade to BUY with different valuation. We upgrade our call
Analyst
to BUY and change our valuation of WSKT’s construction
Victor STEFANO +6221 3003 4934 victor.stefano@id.dbsvickers.com
business to EV/EBITDA from PE (previously, we had a HOLD call
Tjen San CHONG +60 3 26043972 tjensan@alliancedbs.com
with a TP of Rp2,050) as we believe this can better reflect its
What’s New operational capabilities and makes it more comparable with its
peers (EV/EBITDA strips out depreciation and interest expenses
 Upgrade to BUY with higher TP of Rp2,310
which are highly dependent on interest capitalisation). We
 Change our valuation to EV/EBITDA to better reflect its maintain our market capitalisation valuation and DCF valuation
operation capabilities for its precast and toll road businesses respectively. We are
 Undemanding valuation of single-digit PE at -2SD applying -1SD of its 3-year EV/EBITDA mean to factor in
below mean uncertainties stemming from next year’s presidential election.
 Secured Rp9.2tr new wins in 8M18 (13% of target) We reckon that the 3-year mean can remove the overly
optimistic valuation arising from the Jokowi rally in 2014. Thus,
our SOP-based TP rises from Rp2,050 to Rp2,310.
Price Relative
Where we differ: We are valuing WSKT using EV/EBITDA.
Contrary to consensus PE valuation, we are valuing WSKT’s
construction business using EV/EBITDA which we believe reflects
its operational capabilities better.
Potential catalysts: Toll road divestment. We believe tits

Forecasts and Valuation successful toll road divestment will help re-rate WSKT’s share
FY Dec (Rpbn) 2016A 2017A 2018F 2019F price as this will ease the burden on its balance sheet, remove
Revenue 23,788 45,213 47,790 47,123 the uncertainty of future interest expenses, and help fund the
EBITDA 3,527 8,255 8,521 10,251 future expansion of its construction business.
Pre-tax Profit 2,481 6,056 5,192 5,190
Net Profit 1,713 3,882 4,327 4,530
Net Pft (Pre Ex.) 1,713 3,882 4,327 4,530 Valuation:
Net Pft Gth (Pre-ex) (%) 79.4 126.6 11.5 4.7 Our SOP-based TP rises to Rp2,310, as we change our
EPS (Rp) 126 286 319 334 valuation basis of WSKT`s construction business to EV/EBITDA
EPS Pre Ex. (Rp) 126 286 319 334 from PE.
EPS Gth Pre Ex (%) 79 127 11 5
Diluted EPS (Rp) 126 286 319 334
Net DPS (Rp) 37.9 57.2 63.8 66.8 Key Risks to Our View:
BV Per Share (Rp) 816 1,032 1,294 1,564 Lower-than-expected new contract wins due to balance sheet
PE (X) 13.7 6.1 5.4 5.2 constraints, especially if it fails to divest its toll road.
PE Pre Ex. (X) 13.7 6.1 5.4 5.2
P/Cash Flow (X) nm nm 2.5 4.0
At A Glance
EV/EBITDA (X) 12.4 8.5 8.5 6.8
Net Div Yield (%) 2.2 3.3 3.7 3.8 Issued Capital (m shrs) 13,574
P/Book Value (X) 2.1 1.7 1.3 1.1 Mkt. Cap (Rpbn/US$m) 23,551 / 1,565
Net Debt/Equity (X) 0.9 1.7 1.5 1.3 Major Shareholders (%)
ROAE (%) 16.6 31.0 27.4 23.4 Republic of Indonesia 68.0
Earnings Rev (%): Free Float (%) 32.0
Consensus EPS (Rp): N/A 319 337 3m Avg. Daily Val (US$m) 4.6
Other Broker Recs: B: 19 S: 0 H: 7 ICB Industry : Industrials / Construction & Materials
Source of all data on this page: Company, AllianceDBS, DBSVI,
ed: CK / sa:MA, PY, CS

Company Guide
Waskita Karya
WHAT’S NEW
Sufficient orderbook despite slow new contract achievement
Upgrade to BUY with EV/EBITDA valuation WSKT’s orderbook (Rp bn)

160,000 Flat growth at high level
We upgrade our call to BUY and change our valuation of
WSKT’s construction business to EV/EBITDA from PE 140,000
(previously, we had a HOLD call with a TP of Rp2,050) as we 120,000

believe this can better reflect its operational capabilities and 100,000
makes it more comparable with its peers (EV/EBITDA strips 80,000 Exponential order
out depreciation and interest expenses which are highly book growth
60,000
dependent on interest capitalisation). We maintain our
40,000
market capitalisation valuation and DCF valuation for its
precast and toll road businesses respectively. We are applying 20,000
-1SD of its 3-year EV/EBITDA mean to factor in uncertainties -

stemming from next year’s presidential election. We reckon
that the 3-year mean can remove the overly optimistic
valuation arising from the Jokowi rally in 2014. Thus, our Source: Company, DBSVI
SOP-based TP rises from Rp2,050 to Rp2,310.
WSKT’s forward EV/EBITDA band
Secured Rp9.2tr new contracts in 8M18 18.0
WSKT secured new contracts worth Rp9.2tr in 8M18 which 16.0

14.0
represent only 13% of its FY18 new contract target of EV/EBITDA
12.0
Rp70tr. Our current forecast is Rp50tr which is 29% below MEAN
10.0
management’s forecast. Management has stated that it will +1 STDEV
8.0
revise down its new contract target by c.10-15%. WSKT's 6.0
+2 STDEV
‐1 STDEV
YTD new contract achievement has lagged behind other SOE 4.0 ‐2 STDEV
contractors but we expect a huge surge in 4Q18 driven by 2.0
turnkey toll road projects. ‐
Mar‐13 Mar‐14 Mar‐15 Mar‐16 Mar‐17 Mar‐18
Sufficient orderbook to sustain growth
Despite the weak YTD new contract achievement, we expect
the company to book Rp50tr new contracts in FY18F, WSKT’s forward PE band
representing a 12.5% y-o-y drop in new contract wins. Going 35.0
forward, we expect a moderate 5% growth in new contract 30.0

wins for WSKT. We expect a lower new contract growth as
25.0 P/E
most of WSKT`s future projects will be turnkey toll road
MEAN
projects, which will stretch its balance sheet. 20.0
+1 STDEV
15.0
Thus, our annual orderbook forecast for WSKT remains stable +2 STDEV
‐1 STDEV
at c.Rp140tr in FY18F-FY20F. Given its strong orderbook 10.0
‐2 STDEV
outlook, we believe that WSKT deserves a higher valuation 5.0
than what the market is currently valuing it.
‐
Valuation and recommendation Dec‐12 Dec‐13 Dec‐14 Dec‐15 Dec‐16 Dec‐17

Our SOP-based TP rises to Rp2,310, as we change our
valuation basis of WSKT`s construction business to EV/EBITDA
from PE.
Page 36
Company Guide
Waskita Karya
WSKT’s forward P/B band

4.5
4.0
3.5
P/BV
3.0
MEAN
2.5
+1 STDEV
2.0
+2 STDEV
1.5 ‐1 STDEV
1.0 ‐2 STDEV
0.5
‐
Aug‐12 Aug‐13 Aug‐14 Aug‐15 Aug‐16 Aug‐17 Aug‐18
Page 37
Company Guide
Waskita Karya
Critical Factors New Contract Wins (Rp bn)

A shift in business model. Following the toll road acquisition spree
over the past two years, WSKT has shifted its business model to
become more of a toll road developer from a pure civil contractor
previously. The company would continue to acquire greenfield toll
road concessions in the foreseeable future, build them and divest
the stakes after the construction is completed to free up capital.
This way, it would be able to secure profit in a shorter time span
compared to if it operates the toll roads over the concession period
on its own, as the company would be able to reap gain from both
the civil work (during construction phase) and the asset divestment.
Its subsidiary Waskita Toll Road is the majority stakeholder for ten Carry Over Contract (Rp bn)
toll road concessions in Java and one in Sumatra with a total
investment value of Rp65tr. It also owns minority stakes in eight
other toll road concessions.
All eyes on toll road divestment. The change in business model

makes toll road divestments crucial for WSKT given the high capital
requirements to build the toll roads. The investment in toll road
would further exacerbate its weak operating cashflow position.
Given the potential surge in interest expenses with the end of the
interest capitalisation period, its earnings outlook could be at risk.
We believe toll road divestments will remain a key focus for WSKT Construction Gross Margin (%)
in shoring up its balance sheet and funding its expansion plan.
PT Waskita Toll Road (WTR) managed to reap large funds worth Rp

5 trillion obtained through the issuance of Equity Investment Fund
(RDPT) of the Danareksa Infrastructure Toll Trans Java Road. The
RDPT uses underlying assets in the form of WTR shares in the
investment company PT Waskita Transjawa Toll Road (WTTR). WTTR
currently manages three toll roads, namely Kanci-Pejagan, Pejagan-
Pemalang, and Pasuruan Probolinggo with a total length of 123.8
kilometers.
Precast Gross Margin (%)
New wins from government or external parties. The award of new

contracts had been a key positive driver of WSKT’s share price. This
was evident where the strong growth in new contracts in 2015-
2016 drove the shares’ outperformance in the same period.
However, we think the concern over the sustainability of its new
contract wins has outweighed the excitement over its recent new
contract wins, especially since most of the growth in its orderbook
has been driven by its internal toll road projects instead of
government or external projects. Note that internal toll road
projects are riskier in nature as the profit would only fully translate
Toll road start-up losses (Rp bn)
into cash upon the divestment of the concessions – a process that
would likely take additional time. This has caused WSKT’s share
price to underperform the market despite the company’s relatively
strong new contract and earnings growth (refer to Appendix 1) in
the past few months.
Page 38
Company Guide
Waskita Karya
Orderbook as future revenue and share price driver
3500 160,000
3000 140,000
120,000
2500
100,000
2000
80,000
1500
60,000
1000
40,000
500 20,000
0 -
Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18
Share price (Rp) - LHS Orderbook (Rp bn) - RHS
As the one to drive revenue and share price, WSKT`s orderbook We expect WSKT to secure RP40.9tr new contracts in FY18F,
has been on the uptrend from 2009-2017 as new contract was lower than management’s potentially lower guidance of
growing at 32% CAGR. Since its initial public offering back in Rp59.5tr-Rp73tr. Our new contract forecast represents a lower
December 2012 WSKT’s share price movement has been in y-o-y contract growth of 12.5%.
tandem with its orderbook size and reached its peak in early
2019. Despite the slower new contract assumption, we expect WSKT’s
orderbook to plateau until 2020 at c.Rp140tr, which we believe
However WSKT’s share price has trended downward as its new should be supportive of its share price. In view of its high
contracts began to decline in FY17, coupled with slow YTD new orderbook size and the possibility of securing more
contract achievement. As end of Aug 2018, WSKT only infrastructure projects post presidential election in 2019, we
achieved 13% of its FY18 new contract target of Rp70tr. believe WSKT’s current share price downtrend should see a
Management stated that it will revise down its target by c.10- reversal.
15%.
Page 39
Company Guide
Waskita Karya

Balance Sheet:
Further fund raising needed. As at end-June 2018, WSKT had a
net debt of Rp23.3tr, translating to a net gearing of 1.1x. We
expect its debt to rise as the company extends its business
model to include the capital-intensive toll road operating
business and expansion of its precast business.

Award of large-sized infrastructure contracts. The award of
large-sized, multi-year projects will improve WSKT’s revenue
and earnings visibility, and ultimately lead to an upward re-
Capital Expenditure
rating of its share price. Rpbn
Toll road divestment. After divesting a 29% stake in Waskita

Toll Road to SMI and Taspen, WSKT is planning to raise more
funds by further divesting its stakes in WTR and individual toll
road concessions. These corporate actions are targeted to take
place next year and are crucial for WSKT given its high capex
needs.
Key Risks:
Persistently weak operating cashflow. We have yet to see ROE (%)
positive operating cashflows at WSKT despite strong contract
wins last year. Its venture into the toll road operating business
could also deteriorate WSKT’s operating cashflow during the
early years of operations. As such, its balance sheet could
remain stretched, forcing it to make another right or bond
issue in the future.
Delay in toll road divestment. A delay in toll road divestment
would be negative for WSKT. As it continues to acquire new
greenfield toll road concessions to grow its orderbook, a timely
fund raising is needed to make sure that the projects do not
stall due to cashflow constraints. Forward PE Band (x)
Prolonged weak economic condition
If the economic condition does not improve in the subsequent
years, it might be pressure the government to reallocate
infrastructure spending to the provision of subsidies.
Rupiah depreciation
A weakening rupiah could pressure the government to delay
some projects that have high import content such as EPC and
high-rise building projects. Higher material costs on the back of
a weakening rupiah could also weigh down the margins of
contractors, if they are unable to renegotiate their contracts.
PB Band (x)
Company Background
PT Waskita Karya Tbk (WSKT) is a state-owned contractor
engaged in a wide variety of construction activities including
toll roads, bridges, ports and buildings. It is the most leveraged
proxy to the Indonesian construction sector, deriving c. 95% of
its revenues from construction.
Page 40
Company Guide
Waskita Karya
Key Assumptions
FY Dec 2015A 2016A 2017A 2018F 2019F
New Contract Wins (Rp 32,084 69,974 55,834 49,994 52,494
Carry Over Contract (Rp 19,746 34,049 82,274 91,630 88,094
Construction Gross 13.0 16.1 20.2 18.0 18.0
Precast Gross Margin (%) 15.9 22.2 27.4 19.0 18.0
Segmental Breakdown
FY Dec 2015A 2016A 2017A 2018F 2019F
Revenues (Rpbn)
Construction 12,052 22,373 42,347 43,637 42,309
Building rentals/Property 0.60 46.8 251 327 425
Precast 2,069 1,149 2,224 2,974 3,122
Energy 0.0 1.80 76.9 76.9 76.9
Others 31.8 218 314 775 1,190
Total 14,153 23,788 45,213 47,790 47,123
Gross Profit (Rpbn)
Construction 1,561 3,591 8,558 7,855 7,616
Building rentals/Property 0.60 17.7 61.1 79.4 103
Precast 328 255 610 565 562
Energy 0.0 1.70 54.2 54.2 54.2
Others 0.0 102 147 363 652
Total 1,889 3,968 9,430 8,916 8,987
Gross Profit Margins (%)
Construction 13.0 16.1 20.2 18.0 18.0
Building rentals/Property 100.0 37.9 24.3 24.3 24.3
Precast 15.9 22.2 27.4 19.0 18.0
Energy N/A 94.9 70.4 70.4 70.4
Others 0.0 46.8 46.8 46.8 54.8
Total 13.4 16.7 20.9 18.7 19.1

FY Dec 2015A 2016A 2017A 2018F 2019F
Revenue 14,153 23,788 45,213 47,790 47,123
Gross Profit 1,921 3,968 9,464 8,916 8,987
Other Opng (Exp)/Inc (518) (788) (2,104) (1,309) (1,298)
Other Non Opg (Exp)/Inc 159 103 268 0.0 0.0
Associates & JV Inc 10.1 (7.4) 26.1 69.2 82.2
Net Interest (Exp)/Inc (267) (795) (1,598) (2,486) (2,583)
Pre-tax Profit 1,398 2,481 6,056 5,192 5,190
Tax (350) (667) (1,854) (973) (869)
Minority Interest 0.10 (99.8) (320) 109 210
Net Profit 1,048 1,713 3,882 4,327 4,530
Net Profit before Except. 955 1,713 3,882 4,327 4,530
EBITDA 2,041 3,527 8,255 8,521 10,251
Growth
Revenue Gth (%) 37.6 68.1 90.1 5.7 (1.4)
EBITDA Gth (%) 118.5 72.9 134.0 3.2 20.3
Opg Profit Gth (%) 106.9 126.6 131.5 3.4 1.1
Net Profit Gth (Pre-ex) (%) 90.4 79.4 126.6 11.5 4.7
Margins & Ratio
Gross Margins (%) 13.6 16.7 20.9 18.7 19.1
ROAE (%) 17.0 16.6 31.0 27.4 23.4
ROA (%) 4.9 3.7 4.9 4.2 4.2
ROCE (%) 7.8 7.1 8.7 8.0 7.5
Div Payout Ratio (%) 20.0 30.0 20.0 20.0 20.0
Page 41
Company Guide
Waskita Karya

FY Dec 2Q2017 3Q2017 4Q2017 1Q2018 2Q2018
Revenue 8,193 12,986 16,679 12,397 10,503

Gross Profit 1,575 2,960 3,814 2,791 1,938
Other Oper. (Exp)/Inc (219) (358) (1,360) (179) (413)
Other Non Opg (Exp)/Inc 82.1 224 (34.9) (5.3) 1,704
Associates & JV Inc 15.9 90.2 (90.5) 73.3 (37.3)
Net Interest (Exp)/Inc (277) (427) (527) (388) (208)
Pre-tax Profit 1,178 2,489 1,801 2,292 2,984
Tax (177) (1,010) (505) (557) (781)
Minority Interest (86.3) (189) 13.6 (215) (733)
Net Profit 914 1,290 1,310 1,520 1,470
Net profit bef Except. 914 1,290 1,310 1,520 1,470
EBITDA 1,571 3,049 2,580 2,880 3,208
Growth
Revenue Gth (%) 11.4 58.5 28.4 (25.7) (15.3)
EBITDA Gth (%) 49.1 94.1 (15.4) 11.6 11.4
Opg Profit Gth (%) 43.1 91.9 (5.7) 6.4 (41.6)
Net Profit Gth (Pre-ex) (%) 148.6 41.1 1.6 16.0 (3.3)
Margins
Gross Margins (%) 19.2 22.8 22.9 22.5 18.5

FY Dec 2015A 2016A 2017A 2018F 2019F
Net Fixed Assets 1,923 3,275 4,742 14,903 14,748

Invts in Associates & JVs 1,572 2,071 3,449 3,449 3,449
Other LT Assets 11,009 19,197 37,277 37,277 37,277
Cash & ST Invts 5,522 10,664 6,097 12,612 15,298
Inventory 442 1,819 2,186 2,167 2,031
Debtors 7,824 19,795 39,154 31,154 30,720
Other Current Assets 2,018 4,605 4,989 5,431 5,616
Total Assets 30,309 61,425 97,896 106,994 109,139
ST Debt 3,483 15,344 25,880 25,880 25,880

Creditor 8,773 14,653 24,126 20,979 19,670
Other Current Liab 1,409 1,464 2,303 2,303 2,303
LT Debt 4,547 9,890 17,892 26,695 26,695
Other LT Liabilities 2,394 3,300 4,940 4,940 4,940
Minority Interests 157 5,704 8,748 8,639 8,429
Total Cap. & Liab. 30,309 61,425 97,896 106,994 109,139
Non-Cash Wkg. Capital 102 10,101 19,901 15,470 16,394

Net Cash/(Debt) (2,508) (14,570) (37,675) (39,963) (37,278)
Asset Turnover (x) 0.7 0.5 0.6 0.5 0.4
Current Ratio (x) 1.2 1.2 1.0 1.0 1.1
Quick Ratio (x) 1.0 1.0 0.9 0.9 1.0
Net Debt/Equity (X) 0.3 0.9 1.7 1.5 1.3
Net Debt/Equity ex MI (X) 0.3 1.3 2.7 2.3 1.8
Capex to Debt (%) 11.7 2.4 5.6 20.9 4.4
Z-Score (X) NA NA NA NA NA
Page 42
Company Guide
Waskita Karya

FY Dec 2015A 2016A 2017A 2018F 2019F
Pre-Tax Profit 1,398 2,480 6,055 5,191 5,189

Dep. & Amort. 468 251 600 843 2,479
Tax Paid (350) (667) (1,854) (973) (869)
Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0
Chg in Wkg.Cap. 2,417 (10,099) (9,791) 4,431 (925)
Other Operating CF (3,275) 272 (971) 0.0 0.0
Net Operating CF 658 (7,762) (5,960) 9,492 5,875
Capital Exp.(net) (938) (611) (2,435) (11,004) (2,324)
Other Invts.(net) 0.0 0.0 0.0 0.0 0.0
Invts in Assoc. & JV (498) (172) (938) 0.0 0.0
Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0
Other Investing CF (5,491) (8,772) (15,866) 0.0 0.0
Net Investing CF (6,927) (9,555) (19,239) (11,004) (2,324)
Div Paid (100) (210) (514) (776) (866)
Chg in Gross Debt (729) 17,227 19,687 8,803 0.0
Capital Issues 5,348 0.0 0.0 0.0 0.0
Other Financing CF 5,580 5,442 1,458 0.0 0.0
Net Financing CF 10,099 22,459 20,631 8,027 (866)
Chg in Cash 3,836 5,143 (4,567) 6,515 2,686
Opg CFPS (Rp) (130) 172 282 373 501
Free CFPS (Rp) (20.7) (617) (619) (111) 262

Tjen San CHONG
Page 43
Wijaya Karya Beton
Version 7 | Bloomberg: WTON IJ | Reuters: WTON.JK Refer to important disclosures at the end of this report
BUY Limited downside risk to earnings

Last Traded Price ( 2 Oct 2018): Rp364 (JCI : 5,875.60)
Price Target 12-mth: Rp600 (65% upside) (Prev Rp600) Strong revenue visibility with contract backlog reaching 84%
of our FY18 revenue forecast. We see limited downside risk to
Analyst our FY18 earnings forecast of Rp401bn (+19% y-o-y), as we
Victor STEFANO +6221 3003 4934 victor.stefano@id.dbsvickers.com
believe our FY18F revenue is achievable and our margin
Tjen San, CHONG +603 26043972; tjensan@alliancedbs.com
forecast is quite conservative. We forecast Wijaya Karya Beton
What’s New (WTON) to book revenue of Rp6.5tr which is lower than
 Strong revenue visibility with contract backlog reaching management’s target of Rp6.9tr but higher than consensus
84% of our FY18 revenue forecast estimate of Rp6.2tr. Meanwhile, our gross margin assumption
of 12.7% is at the mid-range of management’s guidance of
 First contract of Rp400bn from Jakarta-Bandung HSR
12-14%.
secured, another Rp800-1,100bn expected next year
Where we differ: Highest revenue with lowest net profit
 Bargain valuations at FY19F PE of 8.2x and P/BV of 1.1x
forecasts. Our revenue forecast is the highest across the street
while our net profit is the lowest. While we believe the 21% y-
 Maintain BUY with lower TP of Rp600 o-y revenue growth is achievable, we are taking a more
cautious stance in view of its higher interest expenses.
Potential catalyst: 2019 presidential election. WTON is trading

Price Relative
at 5.0x FY19F EV/EBITDA and 8.2x FY19F PE that is at -1.5SD of
its adjusted 5-year average. Based on the previous presidential
election, we believe the 2019 presidential election will serve as a
re-rating catalyst for its share price.
Valuation:
We change our TP valuation for WTON to EV/EBITDA. Our TP
Forecasts and Valuation of Rp600 (vs Rp760 previously) is based on 7.1x EV/EBITDA
FY Dec (Rpbn) 2016A 2017A 2018F 2019F and implies 12.4x FY18F PE. Our valuation multiple is based on
Revenue 3,482 5,362 6,485 6,937 -1SD of its adjusted 5-year average to account for uncertainty
EBITDA 529 698 849 909 in the upcoming presidential election next year. Previously, we
Pre-tax Profit 353 436 518 546
Net Profit 272 337 401 422 had used 16.5x FY18F PE (based on its 2-year average). We
Net Pft (Pre Ex.) 272 337 401 422 maintain our BUY call with 44% upside to our TP.
Net Pft Gth (Pre-ex) (%) 56.7 23.7 18.9 5.3
EPS (Rp) 32.7 40.4 48.1 50.6 Key Risks to Our View:
EPS Pre Ex. (Rp) 32.7 40.4 48.1 50.6
EPS Gth Pre Ex (%) 57 24 19 5
Delay in project rollout, particularly for the Jakarta-Bandung
Diluted EPS (Rp) 31.3 38.7 46.0 48.4 HSR, would result in lower-than-expected earnings for WTON.
Net DPS (Rp) 9.38 11.6 13.8 14.5
BV Per Share (Rp) 278 307 341 376 At A Glance
PE (X) 11.1 9.0 7.6 7.2 Issued Capital (m shrs) 8,715
PE Pre Ex. (X) 11.1 9.0 7.6 7.2 Mkt. Cap (Rpbn/US$m) 3,172 / 211
P/Cash Flow (X) nm 5.5 3.8 4.6
Major Shareholders (%)
EV/EBITDA (X) 6.5 5.6 4.8 4.7
Net Div Yield (%) 2.6 3.2 3.8 4.0 PT Wijaya Karya (Persero) Tbk 60.0
P/Book Value (X) 1.3 1.2 1.1 1.0 KKMS 8.8
Net Debt/Equity (X) 0.1 0.3 0.3 0.3 Treasury Stock 4.3
ROAE (%) 11.8 13.2 14.2 13.5 Free Float (%) 26.9
Earnings Rev (%): 0 0 0 3m Avg. Daily Val (US$m) 0.30
Consensus EPS (Rp): N/A 91.1 110 ICB Industry : Basic Materials / Industrial Metals
Other Broker Recs: B: 12 S: 0 H: 1
Source of all data on this page: Company, AllianceDBS, DBSVI,
ed: CK / sa:MA, CW, CS

Company Guide
Wijaya Karya Beton
WHAT’S NEW
Limited downside risk to earnings
Limited downside risk to earnings 300bn is expected in 2H19. The total expected contracts for
We see limited downside risk to our FY18 earnings forecast of the HSR project are valued at c.Rp1.2-1.5tr, which is lower
Rp401bn (+19% y-o-y), as we believe our FY18F revenue is than Rp2-3tr previously.
achievable and our margin forecast is quite conservative. We New contracts still on track to meet FY18 target
forecast Wijaya Karya Beton (WTON) to book revenue of WTON is targeting to book Rp7.56tr (+5% y-o-y) new
Rp6.5tr which is lower than management’s target of Rp6.9tr contracts this year. As of end-July 2018, WTON had secured
but higher than consensus estimate of Rp6.2tr. Meanwhile, new contracts of Rp3.7tr (+11% y-o-y) which represent 48%
our gross margin assumption of 12.7% is at the mid-range of of its FY18 new contract target. The 7M18 new contract
management’s guidance of 12-14%. achievement is still in line with the historical level with 60-
FY17 carryover order book to support FY18F revenue 70% new contracts being booked in the second half. Of the
Our FY18F revenue of Rp6.5tr (+21% y-o-y) is lower than new contract target, management has guided that 70%
management’s target of Rp6.9tr but higher than consensus would have come from government projects.
estimate of Rp6.2tr. We believe our revenue forecast is Valuation
conservative in view of its carryover order book of Rp5.4tr We change our TP valuation for WTON to EV/EBITDA. We
(84% revenue visibility). We believe Rp5.0tr of this order believe it is a more appropriate valuation methodology now
book can be recognised in FY18 revenue, as we assume as it directly reflect the company`s operational capabilities.
c.RP400bn carryover loss that is equal to 7.8% of carryover, Our TP of Rp600 (vs Rp760 previously) is based on 7.1x
its 5-year average. EV/EBITDA and implies 12.4x FY18F PE. Our valuation
With only Rp1.5tr left to be achieved for our FY18 revenue multiple is based on -1SD of its adjusted 5-year average to
forecast, we believe there is limited downside risk to our account for uncertainty in the upcoming presidential election
numbers. As at end-March 2018, WTON had secured new next year. Previously, we had used 16.5x FY18F PE (based on
contracts of Rp1.5tr which are likely to be booked in FY18 its 2-year average). We maintain our BUY call with 44%
revenue. upside to our TP.
We use a more conservative approach for our FY18F new
contracts target by assuming new contracts of Rp7.2tr Quarterly net gearing
(flattish y-o-y). This compares to management’s target of 60%
53%
Rp7.56tr. 50%
49%
Conservative gross margin 41%

40%
Our gross margin assumption of 12.7% is at the mid-range of 32%
management’s guidance of 12-14%. As we are forecasting 30%
29%
25%
21% y-o-y higher revenue in FY18F, our gross margin inches
up from 12.4% in FY17. Net margin, however, is expected to 20%
13%
drop slightly from 6.3% to 6.2% on the back of higher 10%
10% 10%
interest expenses.
0%
Higher gearing from lower cash balance 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18
WTON’s net gearing stood at 49% as of end-June 2018, Source: Company, AllianceDBS, DBSVI
slightly lower vs end-March 2018. WTON’s net gearing is on
an upward trend as the company has a lower cash balance WTON EV/EBITDA band
due to its higher receivables. WTON`s managements indicate 40.0
35.0
a lower receivable as they expect more collection in 2H18. Excluding Jul-14 to
30.0 Dec-15 valuation
They also maintain gearing at a comfortable level of 100%. 25.0
First contract from Jakarta-Bandung High Speed Railway 20.0

+2sd
Despite prolonged delays for the Jakarta-Bandung HSR, 15.0
+1sd
mean
WTON has finally secured its first contract for the project with 10.0
-1sd
-2sd
5.0
a value of Rp400bn. Management expects contracts for ready
‐
mix of c.Rp700-800bn to be awarded at the beginning of
Apr‐14
Apr‐15
Apr‐16
Apr‐17
Apr‐18
Jul‐14
Jul‐15
Jul‐16
Jul‐17
Jul‐18
Oct‐14
Oct‐15
Oct‐16
Oct‐17
Oct‐18
Jan‐15
Jan‐16
Jan‐17
Jan‐18
2019 at the earliest. The remaining contract of c.Rp100-

Source: Company, Bloomberg Finance L.P., AllianceDBS, DBSVI
Page 45
Company Guide
Wijaya Karya Beton
Gross margin (%)
Critical Factors
Clear beneficiary of Jakarta-Bandung HSR. The Jakarta-
Bandung high-speed railway (HSR) project is estimated to
require 3-3.5m tons of precast concrete in 2017-2019 with a
contract value of Rp6tr-Rp9tr. WTON expects to win at least
Rp1.2tr-Rp1.5tr of the total contract size. The company plans
to set up several temporary production facilities near HSR’s
Production capacity ('000 tons)
construction site to cater to this large order. In addition, the
HSR consortium also plans to build a Transit Oriented
Development (TOD) in the vicinity of HSR’s four stations.
First-mover advantage in ex-Java market. WTON has continued

to expand its coverage to markets outside Java where there are
fewer competitors. In these areas, the company often serves as
the only large-scale precast producer, allowing it to maintain
higher pricing and margins compared to those in Java. Based
on our channel checks, WTON’s state-run competitors will still
be focusing on expanding in the Java market in the near
future. Therefore, we are confident that WTON’s position Sales volume ('000 tons)
outside Java markets will remain firm. The rollout of toll roads
and port projects outside Java should benefit WTON as it will
be able to meet the precast requirements. In FY17, the net
margin of the ex-Java market was 400bps higher than Java’s.
Best proxy to domestic construction boom. We believe WTON

is in a sweet spot to benefit from the government’s ambitious
infrastructure buildout plan given that it has the most
extensive product offerings and geographical reach. It is worth
noting that more than 20% of WTON’s total installed capacity
(610,000 ton p.a.) is located outside Java, the largest among Utilisation rate (%)
peers. As the government plans to place more focus on
infrastructure development outside Java, we believe WTON
would be the biggest beneficiary of this shift.
Forward P/E band (x)

80.0
70.0
60.0
P/E
50.0
MEAN
40.0
+1 STDEV
30.0 +2 STDEV
20.0 ‐1 STDEV
‐2 STDEV
10.0
‐
Oct‐14
Oct‐15
Oct‐16
Oct‐17
Apr‐14
Apr‐15
Apr‐16
Apr‐17
Apr‐18
Jan‐15
Jan‐16
Jan‐17
Jan‐18
Jul‐14
Jul‐15
Jul‐16
Jul‐17
Jul‐18
(10.0)
Page 46
Company Guide
Wijaya Karya Beton
WTON`s share price vs peers*
WTON share price (LHS) WTON vs. construction (RHS)
1,600 2.0
1,400 A 1.8
B
1,200 C1 1.6
1,000 C2 1.4
800 1.2
D
600 1.0
400 0.8
200 0.6
0 0.4
Dec-14
Dec-15
Dec-16
Dec-17
Jun-14
Jun-15
Jun-16
Jun-17
Jun-18
Oct-14
Feb-15
Oct-15
Feb-16
Oct-16
Feb-17
Oct-17
Feb-18
Apr-14
Apr-15
Apr-16
Apr-17
Apr-18
Aug-14
Aug-15
Aug-16
Aug-17
Aug-18
*Listed state-owned contractors
Source: Bloomberg Finance L.P., AllianceDBS, DBSVI
A: Strong pricing power C: Jakarta-Bandung high-speed railway (HSR)
WTON’s share price rally post IPO in April 2014 was driven by Despite the declining order book from state-owned
its strong earnings growth. WTON had a strong competitive contractors, the appointment of its parent company, WIKA,
position with market share of 38.6% in 2013, while the as one of the main contractors for the mega project Jakarta-
second largest player only commanded 15.9% market share. Bandung HSR is positive for WTON. Initially, management had
This allows the company to enjoy strong pricing power and indicated a potential contract worth Rp6tr-Rp9tr from the
margin expansion. mega project. This positive news caused WTON’s share price
to rally following the ground breaking of the project in early
B: Intensifying competition
2016 (C1). However, after a prolonged series of negotiations
Slower-than-expected rollout of government’s infrastructure with China, management had guided that it would likely get
projects along with intensifying competition, especially a significantly lower contract target of Rp2tr-Rp3tr as it was
among state-owned precast producers, caused WTON’s share unable to meet some of the product specifications. This along
price to de-rate in 2015. In FY15, WTON saw its revenue with the delay in HSR construction caused the share price to
declining by 19% on the combination of declining ASP and de-rate (C2).
revenue contribution from state-owned contractors. State-
D: Margin improvement
owned contractors such as Waskita Karya, Hutama Karya and
PTPP started to expand precast production capacity and opted WTON’s share price continued to underperform in view of its
to source their precast requirements internally. This caused lower gross margin from lower ASP arising from tight
revenue contribution from state-owned contractors to decline competition in the industry. WTON’s gross margin stood at
by 43% y-o-y in FY15 with contribution to WTON’s 12.4% in FY17 (back to the FY15 level) after improving to
consolidated sales shrinking from 13% to 9%. Meanwhile, 14.5% in FY16. In 1Q18, gross margin remained weak at
we reckon intense competition resulted in WTON lowering its 11.5% but recovered strongly to 14.1% in 2Q18. The strong
selling price to maintain market share. margin improvement has yet to be reflected in WTON’s share
price.
Page 47
Company Guide
Wijaya Karya Beton

Balance Sheet:
Robust balance sheet to fund expansion plan. As at end of June
2018, WTON had Rp1,569bn interest-bearing debt, bringing its
gross and net gearing to 56% and 49% respectively. The
company has allocated a capex budget of Rp676bn for FY18
which will be funded by the combination of internal cash and
debt. The company also plans to sell its treasury stocks to the
public starting this year. Assuming the treasury stocks are sold
at Rp600/share, the proceeds raised would be Rp226bn.

Capital Expenditure
Award of large-sized, multi-year contracts. Among the potential Rpbn
contracts are the Jakarta-Bandung HSR and Giant Sea Wall.

There is also a clear pipeline of multi-year contracts from its
parent WIKA which could amount to Rp1.5tr.
Better progress of Jakarta-Bandung HSR construction. The

construction progress of the Jakarta-Bandung HSR project is
running behind schedule after breaking ground in January
2016. The construction work has finally resumed after months
of delay but the consortium has to wait for land clearing
process before it can accelerate the construction progress. ROE (%)
Better progress for the project would be a re-rating catalyst for
WTON’s earnings and share price.
Key Risks:
Delay in government’s infrastructure project rollout,
particularly for the Jakarta-Bandung HSR, would result in
lower-than-expected order book and profit for WTON.
Delays in infrastructure project execution will cause WTON’s
revenue to fall short of expectations, and also lower WTON’s
profitability given its high operating leverage.
Forward PE Band (x)
Increasing competition in the Java market. Major SOE
contractors are looking to increase their precast production
capacities, particularly in the Java market. Intensifying
competition may weaken WTON’s pricing power in Java and
erode its margins. In FY17, Java contributed 60% and 44% of
WTON’s consolidated revenue and earnings respectively.
The bulk of WTON’s cost of goods sold (COGS) is in USD. Steel

and cement make up 30% and 20% of WTON’s COGS
respectively. Additionally, some overhead costs for its
production facilities are also in USD, which exposes WTON’s PB Band (x)
profitability to currency fluctuations. Nevertheless, the
company has mitigated this risk by signing umbrella contracts
for its key raw materials, enabling it to lock in prices for three
months.
Company Background
WTON is the dominant market leader in precast concrete with
over 30% market share.
Page 48
Company Guide
Wijaya Karya Beton
Key Assumptions
FY Dec 2015A 2016A 2017A 2018F 2019F
Gross margin (%) 12.4 14.5 12.4 12.7 12.6
Production capacity ('000 2,335 2,540 3,065 3,600 4,003
Sales volume ('000 tons) 1,413 1,520 1,841 2,054 2,546
Utilisation rate (%) 60.5 59.8 60.1 57.0 63.6
Segmental Breakdown
FY Dec 2015A 2016A 2017A 2018F 2019F
Revenues (Rpbn)
Concrete 2,591 3,349 4,818 5,832 6,218
Service 61.7 133 545 654 719
Total 2,653 3,482 5,362 6,485 6,937

Operating Profit (Rpbn)
Concrete 231 393 467 564 594
Service 7.20 15.5 63.6 76.3 83.9
Total 238 408 530 640 678

Operating Profit Margins
Concrete 8.9 11.7 9.7 9.7 9.6
Service 11.7 11.7 11.7 11.7 11.7
Total 9.0 11.7 9.9 9.9 9.8

FY Dec 2015A 2016A 2017A 2018F 2019F
Revenue 2,653 3,482 5,362 6,485 6,937
Gross Profit 329 504 667 827 877
Other Opng (Exp)/Inc (90.2) (96.2) (136) (187) (199)
Other Non Opg (Exp)/Inc (6.4) (16.0) (10.5) 0.0 0.0
Associates & JV Inc 0.0 0.0 0.0 0.0 0.0
Net Interest (Exp)/Inc (25.9) (40.2) (84.7) (123) (133)
Pre-tax Profit 206 353 436 518 546
Tax (34.3) (70.5) (94.7) (113) (119)
Minority Interest 2.10 (9.1) (3.3) (4.0) (4.2)
Net Profit 174 272 337 401 422
Net Profit before Except. 174 272 337 401 422
EBITDA 322 529 698 849 909
Growth
Revenue Gth (%) (19.1) 31.3 54.0 20.9 7.0
EBITDA Gth (%) (34.5) 64.2 32.0 21.6 7.2
Opg Profit Gth (%) (41.9) 71.2 29.9 20.7 5.9
Net Profit Gth (Pre-ex) (%) (47.1) 56.7 23.7 18.9 5.3
Margins & Ratio
Gross Margins (%) 12.4 14.5 12.4 12.7 12.6
ROAE (%) 8.0 11.8 13.2 14.2 13.5
ROA (%) 4.2 6.0 5.7 5.5 5.4
ROCE (%) 6.9 10.6 11.0 11.3 11.2
Div Payout Ratio (%) 30.0 30.0 30.0 30.0 30.0
Page 49
Company Guide
Wijaya Karya Beton

FY Dec 2Q2017 3Q2017 4Q2017 1Q2018 2Q2018
Revenue 1,267 1,429 1,937 1,193 1,402

Gross Profit 173 159 233 137 197
Other Oper. (Exp)/Inc (35.6) (31.8) (48.9) (29.4) (44.9)
Other Non Opg (Exp)/Inc 1.60 3.70 (17.7) (5.5) 16.2
Associates & JV Inc 0.0 0.0 0.0 0.0 0.0
Net Interest (Exp)/Inc (22.3) (21.9) (25.7) (19.6) (27.8)
Pre-tax Profit 116 109 141 82.4 141
Tax (30.1) (24.0) (23.9) (24.8) (38.1)
Minority Interest (0.2) (1.8) (0.5) 0.0 (0.2)
Net Profit 86.0 83.5 117 57.6 102
Net profit bef Except. 86.0 83.5 117 57.6 102
EBITDA 139 131 167 102 169
Growth
Revenue Gth (%) 73.7 12.8 35.5 (38.4) 17.5
EBITDA Gth (%) 66.0 (5.4) 27.1 (38.8) 65.1
Opg Profit Gth (%) 67.9 (7.0) 44.7 (41.6) 41.6
Net Profit Gth (Pre-ex) (%) 68.5 (2.8) 39.7 (50.6) 77.6
Margins
Gross Margins (%) 13.6 11.1 12.0 11.5 14.1

FY Dec 2015A 2016A 2017A 2018F 2019F
Net Fixed Assets 1,998 2,219 2,680 3,317 3,787

Invts in Associates & JVs 0.0 0.0 32.8 32.8 32.8
Other LT Assets 3.70 3.90 4.40 4.40 4.40
Cash & ST Invts 824 343 639 483 323
Inventory 623 695 1,034 1,043 1,115
Debtors 570 654 1,220 1,133 1,211
Other Current Assets 439 750 1,460 1,506 1,525
Total Assets 4,456 4,663 7,068 7,519 7,998
ST Debt 212 470 1,445 1,445 1,445

Creditor 558 664 1,223 1,139 1,218
Other Current Liab 1,025 730 1,548 1,779 1,874
LT Debt 320 200 0.0 0.0 0.0
Other LT Liabilities 79.2 108 104 104 104
Minority Interests 58.2 68.5 71.9 75.9 80.1
Total Cap. & Liab. 4,456 4,663 7,068 7,519 7,998
Non-Cash Wkg. Capital 49.3 704 943 764 760

Net Cash/(Debt) 292 (327) (807) (962) (1,122)
Asset Turnover (x) 0.6 0.8 0.9 0.9 0.9
Current Ratio (x) 1.4 1.3 1.0 1.0 0.9
Quick Ratio (x) 0.8 0.5 0.4 0.4 0.3
Net Debt/Equity (X) CASH 0.1 0.3 0.3 0.3
Net Debt/Equity ex MI (X) CASH 0.1 0.3 0.3 0.3
Capex to Debt (%) 88.8 72.0 34.6 58.5 48.4
Z-Score (X) 2.1 2.4 1.7 1.7 1.9
Page 50
Company Guide
Wijaya Karya Beton

FY Dec 2015A 2016A 2017A 2018F 2019F
Pre-Tax Profit 206 352 435 517 545

Dep. & Amort. 89.9 135 177 207 230
Tax Paid (34.3) (70.5) (94.7) (113) (119)
Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0
Chg in Wkg.Cap. 94.4 (654) (239) 179 3.30
Other Operating CF 102 158 278 0.0 0.0
Net Operating CF 458 (79.2) 556 791 660
Capital Exp.(net) (472) (482) (501) (845) (700)
Other Invts.(net) 0.0 0.0 0.0 0.0 0.0
Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0
Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0
Other Investing CF 0.0 0.0 (31.0) 0.0 0.0
Net Investing CF (472) (482) (532) (845) (700)
Div Paid (98.6) (52.2) (81.7) (101) (120)
Chg in Gross Debt (103) 138 310 0.0 0.0
Capital Issues 0.0 0.0 0.0 0.0 0.0
Other Financing CF 0.80 (5.8) 43.0 0.0 0.0
Net Financing CF (201) 80.2 271 (101) (120)
Chg in Cash (215) (481) 296 (155) (160)
Opg CFPS (Rp) 43.7 69.0 95.4 73.4 78.7
Free CFPS (Rp) (1.6) (67.4) 6.66 (6.5) (4.8)

Tjen San CHONG
Page 51
Industry Focus
AllianceDBS, DBSVI recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
Share price appreciation + dividends
Completed Date: 3 Oct 2018 11:11:24 (WIB)

Dissemination Date: 3 Oct 2018 14:55:21 (WIB)
Sources for all charts and tables are AllianceDBS, DBSVI unless otherwise specified.
GENERAL DISCLOSURE/DISCLAIMER
This report is prepared by AllianceDBS Research Sdn Bhd (''AllianceDBS''), PT DBS Vickers Sekuritas Indonesia (''DBSVI''). This report is solely
intended for the clients of DBS Bank Ltd, its respective connected and associated corporations and affiliates only and no part of this document may
be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of AllianceDBS Research
Sdn Bhd (''AllianceDBS''), PT DBS Vickers Sekuritas Indonesia (''DBSVI'').
The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS
Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively,
the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other
factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or
warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without
notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific
investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees
only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial
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arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not
to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons
associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have
positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and
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Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can
be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments.
The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may
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The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and
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which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual
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Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.
Page 52
Industry Focus
Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)
mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the
commodity referred to in this report.
DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public
offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage
in market-making.
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The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the
companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her
compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s)
1
primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate does not serve as an officer of the
issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real
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2
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proprietary position in the securities recommended in this report as of 31 Aug 2018.
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Compensation for investment banking services:

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Disclosure of previous investment recommendation produced:

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1
An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his
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2
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Page 53
Industry Focus
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Page 54
Industry Focus
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Page 55
Industry Focus
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Indonesian Construction Sector

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Indonesian Construction Sector

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Indonesia Industry Focus

Indonesia Construction Sector

DBS Group Research . Equity 3 Oct 2018

Time to start constructing

Valuation and recommendation. We upgrade our call on 7.0 3-year

BUY calls on PTPP and WTON. We change our valuation 6.0 -1 SD

based on their 3-year historical averages to strip out the over

ed: CK / sa:YM, PY, CS

Overweight on construction sector ................................................................................................... 3

Future of infrastructure development for the next regime ............................................................. 5

Less subsidies in favour of more infrastructure spending ................................................................ 8

Ample room for growth ................................................................................................................... 10

YTD new contract wins (8M18) ........................................................................................................ 16

Orderbook replenishment ................................................................................................................ 17

Valuation and recommendation ...................................................................................................... 19

Low risk to our TPs .............................................................................................................. 23

Overweight on construction sector

6.0 2,000 300

450 Construction sector outperformed JCI

infrastructure development can be inferred from its latest 300

of shrinking allocation in a tilt towards provision of subsidies, 200

especially those for energy. The commitment to infrastructure 150

Source: Company, DBSVI

Low downside risk to our call

Future of infrastructure development for the next regime

Infrastructure spending in 2019-2024? Infrastructure funding plan for 2015-2019 National

Source: Ministry of Finance, DBSVI

Source: Ministry of Finance, DBSVI

and174,300 subsidised units) 450.0 18.8% 18.5%

Indonesian government budget (Rp tr)

Infrastructure Education Healthcare Subsidies

Energy subsidy volume in State Budget

In nominal terms, not a lot of difference 0

Indonesian government’s budget trends ahead of presidential elections

Less subsidies in favour of more infrastructure spending

If the challenger, Prabowo, wins the 2019 election, there are

Indonesian government`s budget trend (Rp tr)

Infrastructure Education Healthcare Subsidies

Ample room for growth

Indonesia’s RPJMN targets and realisation in the past three years

Projects Unit RPJMN Target Realisation Unrealised % realised

Source: Tempo, DBSVI

Indonesia’s National Strategic Project distribution

Source: Tempo, DBSVI

Progress of Priority Project Progress of 37 Priority Projects as at end-Dec 2017

This suggests that there is ample room for long-term contract 9

Indonesia’s 37 Priority Projects

Combined-Cycle Power Plant - - - -

Source: KPPIP, DBSVI

32 National Strategic Projects are completed

Gempol - Pandaan Toll Road (14km) 1,470

Sentani Airport, Jayapura 1,471

Juwata Airport, Tarakan 1,391

Fatmawati Soekarno Airport, Bengkulu 1,674

Mutiara Airport, Palu 1,391

Matahora Airport, Wakatobi 662

Labuan Bajo Airport, Komodo Island 662

Development of Soekarno Hatta Airport (including Terminal 3) 4,700

Kalibaru Seaport 12,000

Belawan-Sei Mangkei Gas Pipe with 75 mmscfd capacity 1,215

Paya Seunara Dam, Sabang City, NAD 57

Rajui Dam, Pidie District, NAD 138

Jatigede Dam, Sumedang City, West Java 4,825

Bajulmati Dam, Banyuwangi, East Java 454