EQUITY RESEARCH Friday, 24 June 2016

PT Waskita Karya (Persero), Tbk (WSKT) - Solid Precast Margin To Support The Business
We reiterate BUY on WSKT with a higher TP of Rp 2,750 based on
20x FY17F P/E. We like WSKT, because it: 1) has the fastest
BUY
TARGET PRICE : Rp 2,750
growth of new contracts among peers, 2) has the fastest growing
LAST PRICE Rp 2,490
precast concrete with higher margins among peers. We view that PREVIOUS TARGET PRICE Rp 2,300
the major constraint is the financing risk due to the growth pace VOLUME 12 MONTH 319,398 Lot/Day
of WSKT. WSKT currently trades at 18x FY17F P/E. VALUE 12 MONTH Rp 61.6 Bn/Day
HIGH 12 MONTH Rp 2,660
Increasing contribution from high margin precast - At 2.3mn tons LOW 12 MONTH Rp 1,490
capacity p.a., WSKT Precast Concrete is catching up WTON, the
leading precast company. WSKT Precast targeted to get Rp 7trn in
FY16, an increase of 133% YoY. 78.6% of the projects will come
from WSKT. In 1Q16, WSKT Precast has a 28.1% GPM and 14.3%
net income margin, more than 2x WTON’s margins.
1Q16 new contracts achievement - In 1Q16, the WSKT new con-
tract reached Rp 3.92trn or 6.5% of WSKT’s FY16 target of new
contract of Rp 60trn. It reached 9.7% our FY16F. We set a lower
new contract at Rp 40.2trn or grew 25% YoY, bringing the total
order book to Rp 74trn. Last year WSKT reached 82% of its target.
Based on the new contracts’ owner, SOE dominated the contract
with a 62.3% contribution.
Stronger 1Q16 compare to 1Q15 - In 1Q16, the revenue in-
creased by 119% YoY to Rp 3.1trn, reaching 14.6% BCf and 13.1% Market Capitalization Rp 33,795,508,341,900
of cons. The operating profit even increased to almost 4x 1Q15. Number of Shares 13,572,493,310
Despite an increase of financial expenses by 157%, the net profit Daily Volatility 2%
significantly increased 965% to Rp 127bn or 10x 1Q15 at Rp 12bn.
It reached 9% BCf and 8.6% consensus. The GPM improved from
12% in 1Q15 to 15.8% in 1Q16 and the net profit margin improved
Shareholders
from 0.8% in 1Q15 to 4.0% in 1Q16.
Government : 66.00 %
Exhibit 1. Financial Summary Public : 34.00 %

Suria Dharma
suria.dharma@buanacapital.com
(62-21) 515-0203 (Ext 320)

Sources: Company, Buana Research

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Exhibit 2. WSKT Precast Plants

Sources: Company, Buana Research

The increasing contribution from high margin precast concrete business

WSKT Precast Concrete capacity is currently catching up WTON, the lead-
ing SOE precast company. WSKT owns 8 plants with 7 plants located in
Java and 1 plant in Palembang, Sumatra. The total capacity installed is
2.875 million tons p.a. with an estimated normal capacity of 2.3 million
tons p.a. WSKT has a total normal capacity of 1.8 million in 2015. WSKT
Precast was targeted to get Rp 7trn in FY16, an increase of 133% YoY.
78.6% or Rp 5.5trn of it is projected from WSKT’s projects and only 21.4%
(Rp 1.5trn) from external projects.
In 1Q16, WSKT Precast business booked Rp 705bn of sales with a gross
profit of Rp 198bn and a net income of Rp 101bn. It had a high 28.1%
gross profit margin and 14.3% net income margin. Both are higher than
the total consolidated WSKT with 15.8% gross profit margin and 4% net
income margin. As a comparison, WTON booked Rp 733bn of sales, but
had a far lower gross profit of Rp 91bn (12.4% margin) and net income of
Rp 50bn (6.9% margin). They were less than half of WSKT’s margins. The
WSKT Precast contributed 23% of revenue with 80% of net income in
1Q16. They were higher than 2015, when WSKT Precast contributed 19%
of revenue with 32% of net income.
WSKT Precast also booked a total sales of Rp 2.64trn in 2015, similar to
WTON’s Rp 2.65trn. However, the gross profit margin and net income
margin were higher than WTON’s. Compared to 1Q16, WSKT Precast had
a lower 15.8% gross profit margin and 12.6% net income margin, but still
higher than WTON with 12.3% gross profit margin and 6.6% net income
margin.
WSKT is planning to bring the WSKT Precast Concrete unit to IPO this
year. WSKT plans to sell 40% of WSKT Precast shares with estimated val-
ue between Rp 3.5trn to Rp 4trn. We believe the IPO will help to reduce
WSKT’s financing constraints due to WSKT’s rapid growth of business.

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Exhibit 3. WSKT’s Order Book

Sources: Company, Buana Research

1Q16 new contracts achievement

In 1Q16, the WSKT new contracts reached Rp 3.92trn or 6.5% of WSKT’s
FY16 target of new contracts of Rp 60trn. It is similar to 1Q15 at 6.6%. On
the other hand, the Rp 3.92trn achievement was actually reaching 9.7%
our FY16F. We are more conservative with the projection and expect
WSKT’s new contracts to grow 25% to Rp 40.2trn, bringing total order
book to Rp 74trn. Last year, WSKT reached 82% of its target.
Based on the new contracts’ owner, SOE dominated the contracts with
62.3% contribution. It was followed by the government and private cus-
tomers with 33.7% and 4.0%, respectively. Last year, SOE, government
and private customers contributed 56.4%, 30.7% and 12.9%, respectively.

Exhibit 4. New Contracts by Owner

Sources: Company, Buana Research

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Exhibit 5. WSKT’s Toll Roads Investment

Sources: Company, Buana Research

Currently WSKT engaged in 14 toll roads with a total investment of Rp
88trn. WSKT has a total equity portion of Rp 16trn for the whole toll road
investments. Only 1 toll road at Kanci-Pejagan has been operated.
We anticipate WSKT to get additional major infrastructure projects this
year, such as the Palembang LRT. We estimate Palembang LRT to contrib-
ute ~Rp 8trn in 2016. Separately, Sumatra electricity transmission phase 2
was projected to contribute Rp 6trn. However, we still expect toll road
projects to give the highest contribution at ~Rp 20trn.
WSKT had a carry over of Rp 34trn from last year. With the additional
carry over, the order book as of 1Q16 will be at Rp 37.9trn. The manage-
ment guided for a Rp 94trn order book this year, a more aggressive out-
look than our forecast at Rp 72trn. We view that WSKT has the fastest
growth among peers. However, we have to price in the financing risk.
With the current pace, WSKT will face financing constraints, even after
the successful Rp 5.3trn right issue last year.

Exhibit 6. Margins Comparison

Sources: Company, Buana Research

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Exhibit 7. 1Q16 Financial Result

Sources: Company, Buana Research

The 1Q16 financial performance was stronger than 1Q15

In 1Q16, the revenue increased by 119% YoY to Rp 3.1trn, reaching 14.6%
BCf and 13.1% of consensus. The gross profit after JO (joint operation)
increased at a higher rate of 188% YoY to Rp 484bn in 1Q16 from Rp
168bn in 1Q15. The operating profit even increased 292% YoY to Rp
384bn or almost 4 times 1Q15, reaching 16.9% BCf and 16.6% consensus.
EBIT also increased 270% YoY. Despite an increase of financial expenses
by 157%, the net profit significantly increased 965% to Rp 127bn or 10x
1Q15 at Rp 12bn. It reached 9% BCf and 8.6% consensus.
The gross profit margin has improved from 12% in 1Q15 to 15.8% in
1Q16. As a result, the operating margin increased from 7% in 1Q15 to
12.5% in 1Q16. EBITDA margin also improved from 9.9% in 1Q15 to 15.3%
in 1Q16. On the bottom line, net profit margin improved from 0.8% in
1Q15 to 4.0% in 1Q16. We view that the WSKT Beton Precast has contrib-
uted most to this margin improvement.
If we compare it to 4Q15, the revenue actually declined by –54.4% QoQ
and cost of revenue declined by –55.3% QoQ. As a result, gross profit
after JO declined –50.3% with operating expenses declining –58.8%. EBIT
also declined –54.2% QoQ. However, we have to underline the financial
expenses, which increased by 69.6%. This resulted in net profit declining
at a higher rate of –80.7% QoQ. As a comparison, WSKT’s revenue in
1Q15 reached 9.9% of the FY15 revenue and net profit reached 1.1%
FY15 net profit. Both achievement in 1Q15 were lower than achievement
in 1Q16.

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The recent updates

The major constraint for WSKT is the financing risk due to the growth
pace of WSKT. WSKT booked a negative cash flow of –Rp 2.6trn from the
operation in 1Q16. In May 2016, WSKT issued a Rp 2trn bonds to antici-
pate the financing constraints. 70% of the bonds proceeds will be used to
finance the working capital for the projects‘ construction, especially the
multi-year projects. The remaining 30% will be used as the paid up capital
in Waskita Toll Road and Waskita Karya Realty. The Rp 2trn bonds will be
part of a series of bonds amounting to Rp 5trn to be issued in the next
two years.
In June, WSKT also got another Rp 4.4trn bank loans from BBRI and BBCA
and another Rp 3.7trn bridging funding for land acquisition from Sarana
Multi Infrastruktur (SMI), the SOE under Ministry of Finance.

We reiterate BUY on WSKT with a higher TP of Rp 2,750 based on 20x

FY17F P/E. We like WSKT, because it: 1) has the fastest growth of new
contracts among peers, 2) has the fastest growing precast concrete with
higher margins among peers. The only major constraint is the financing
risk due to the growth pace of WSKT. WSKT currently trades at 18x FY17F
P/E.

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Exhibit 8. Financial Summary

Sources: Company, Buana Research

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Exhibit 9. Key Ratios

Sources: Company, Buana Research

PT. BUANA CAPITAL

INDONESIA STOCK EXCHANGE BUILDING
TOWER II, 26th FLOOR
JL. JEND. SUDIRMAN KAV.52-53
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