Post on 20-Jun-2020
ed-CK / sa- WMT
Dissecting the AMPC dream Transportation spending to anchor ASEAN’s growth
Cross-border projects – Malaysia more dire
DBS Matrix ranks Indonesia highest and Thailand lowest
Key Buys – PTPP, Gamuda, Suncon and Ch. Karnchang Transportation infrastructure to fuel growth. The estimated annual infrastructure needs in ASEAN for 2015-2025 range from US$60-146bn where half is believed to be transport-related. Similar to One Belt, One Road (OBOR), the more advanced ASEAN Master Plan for Connectivity (AMPC) aims to link Southeast Asian countries more seamlessly. Within ASEAN, Thailand’s focus on AMPC projects appears to be more on upgrading of domestic railway works while the regional connectivity projects are hampered by G-to-G and financing issues. In Indonesia we have seen overlap between Jokowi’s Sea Toll Road programme and ASEAN Single Shipping Market (ASSM) and RO-RO network. Malaysia’s progress seems the most advanced with the last leg of double tracking awarded.
Indonesia provides highest cross-border opportunities. Indonesia’s infrastructure needs are the highest at US$235bn over 2013-30 (vs Malaysia US$100bn and Thailand US$105bn). The 2015/16 Global Competitiveness Index survey also ranks Indonesia the poorest at 62/140 vs Malaysia at 25 and Thailand at 44, implying the biggest opportunities also lie there. The AMPC could be the right platform for more G-to-G co-operation and facilitate more cross-border work. Malaysian contractors are most hungry in terms of exploring cross-border opportunities while Thailand appear more risk averse and in Indonesia there is no pressing need to do so.
Earnings momentum. Overall all three countries have shown more cuts in consensus earnings due to the mixture of project delays, margins and dilution from capital raising exercises. Malaysia and Indonesia have shown strong correlation in earnings upgrades and share prices (Suncon, Kimlun and WSKT). Revenue visibility for the larger cap contractors across three countries are at 2-3x historical revenue which should provide an adequate earnings buffer.
Stacking them up. We use five criteria to rank the order of preference for infrastructure exposure to the three ASEAN countries: 1) the GCI Ranking for Infrastructure, 2) earnings risk, 3) valuations, 4) political motivation, and 5) cross border. We like Indonesia, Malaysia and Thailand in this order. Our key BUYs are PTPP, Gamuda, Sunway Construction and Ch. Karnchang.
Analyst Chong Tjen-San, CFA +60 3 26043972 tjensan@alliancedbs.com Tiesha Putri +6221 30034931 tiesha.narandha@id.dbsvickers.com
Apichaya KETRUTTANABORVORN +66 2657 7823 apichayak@th.dbsvickers.com
ASEAN CONSTRUCTION STOCK UNIVERSE
Prices as of 8 Jul 2016
Source: AllianceDBS, DBS Vickers
DBS Internal Ranking Matrix GCI Earnings V aluat ions Polit ical Cross border A v erage Rank
Risk sMalay sia 3 2 2 1 1 1.800 2
Indonesia 1 1 1 2 3 1.600 1
T hailand 2 3 3 3 2 2.600 3
Source: AllianceDBS, DBS Vickers
DBS Group Research . Equity 11 Jul 2016
Asian Insights SparX
Asean Construction
Refer to important disclosures at the end of this report
Price Mkt Cap Target Price Performance (%)
LCL US$m LCL 3 mth 12 mth Rating
Gamuda 4.91 2,966 5.80 (1.2) 4.9 BUY IJM Corp 3.46 3,114 3.30 (4.7) 2.5 HOLD WCT Holdings Bhd 1.47 459 1.55 (15.0) 18.8 HOLD Muhibbah Engineering 2.21 261 3.10 (6.0) 5.2 BUY
Sunway Construction 1.62 524 1.92 (1.2) N.A BUY Kimlun Corp 1.82 137 2.38 (1.6) 37.9 BUY MMC Corporation 2.03 1,546 3.50 (4.3) (14.4) BUY Wijaya Karya 2,880 1,348 2,550 13.4 18.2 HOLD Waskita Karya 2,500 2,583 2,700 27.2 67.8 HOLD Pembangunan Perumahan
3,810 1,405 4,600 1.0 12.4 BUY
Wijaya Karya Beton 935 620 1,000 (3.5) (3.5) HOLD Ch. Karnchang 30.00 1,445 35.00 20.0 14.3 BUY Sino-Thai Engineering & Con. 23.20 1,006 26.00 5.0 3.1 BUY
Asian Insights SparX
Asean Construction
Page 2
The DBS Asian Insights SparX report is a deep dive look into thematic angles impacting the longer term investment thesis for a sector, country or the region. We view this as an ongoing conversation rather than a one off treatise on the topic, and invite feedback from our readers, and in particular welcome follow on questions worthy of closer examination.
Table of Contents AMPC-driven and Other Transport-related Initiatives 3
Transport-based Infrastructure Projects:
Malaysia 11
Indonesia 13
Thailand 16
Global Competitiveness Index – Standings and Opportunities 19
Cross-border Opportunities 22
Funding Gaps 25
Earnings Momentum and Consensus Change 31
Valuation and Regional Sector Comparison 33
Strategy and Stock Picks 38
Company Guides 41
Ch. Karnchang 42
Gamuda 49
IJM 56
Kimlun 64
Muhibbah Engineering 70
PTPP 76
Sino-Thai Engineering 82
Sunway Construction 90
Waskita Karya 98
WCT 105
Wijaya Karya 112
Wijaya Karya Beton 118
Special thanks toSpecial thanks toSpecial thanks toSpecial thanks to……………………
Chong Tjen-San, CFA +60 3 26043972
tjensan@alliancedbs.com
Tiesha Putri +6221 30034931
tiesha.narandha@id.dbsvickers.com
Apichaya KETRUTTANABORVORN +66 2657 7823
apichayak@th.dbsvickers.com
For their contributions on the respective company notes
Asian Insights SparX
Asean Construction
Page 3
ASEAN CONSTRUCTION – AMPC-DRIVEN AND OTHER TRANSPORT-RELATED INITIATIVES Annual Annual Annual Annual infrastructure needs infrastructure needs infrastructure needs infrastructure needs in ASEAN are huge (201in ASEAN are huge (201in ASEAN are huge (201in ASEAN are huge (2015555----2025)2025)2025)2025)
ADB-ADBIADB-ADBIADB-ADBIADB-ADBI McKins ey Globa lMcKins ey Globa lMcKins ey Globa lMcKins ey Globa l KPMGKPMGKPMGKPMG BhattacharyayBhattacha ryayBhattacha ryayBhattacha ryay Goldman SachsGoldman SachsGoldman SachsGoldman Sachs UNCTADUNCTADUNCTADUNCTAD
(2009)(2009)(2009)(2009) Ins titute (2013)Ins titute (2013)Ins titute (2013)Ins titute (2013) (2014a)(2014a)(2014a)(2014a) e t a l. (2012)e t a l. (2012)e t a l. (2012)e t a l. (2012) (2013)(2013)(2013)(2013) es timatees timatees timatees timate
Estimated annual
investment needs 60 133 146 100 69 110
(Billion of dollars)
Power, transport, Power, transport, Power, transport, Power, Power, transport
Sectors covered telecom- telecom- . .. .. .. . telecom- transport telecom-
munication, WSS munication, WSS munication, WSS munication, WSS
Period covered 2010-2020 2013-2030 mainly 2013-2030 2010-2030 2013-2030 2015-2025
All except Brunei All ASEAN All except Brunei All except Brunei Only Indonesia, All ASEAN
Countries covered Darussalam, Member States Darussalam, Darusssalam, Malaysia, Member States
Singapore Singapore Singapore Philiphines and
Thailand
Source: UNCTAD 2015b
WSS denotes water supply and sanitation
A market A market A market A market full full full full of opportunities.of opportunities.of opportunities.of opportunities. Based on six market research
data, the estimated annual infrastructure funding needs in
ASEAN is massive – ranging from US$60bn to US$146bn over
2015-2025. The highest allocation appears to be skewed
towards transport-related infrastructure projects which will be
a core topic of discussion in this report. According to a report
by UNCTAD, transport-related infrastructure (road, rail, ports
and airports) will contribute half of the US$110bn estimate of
infrastructure needs over 2015-2025.
This finding is shared by Asian Development Bank which
projects that transport and energy-related infrastructure
spending will form 63% of total ASEAN infrastructure
investment needs. The governments of all South-East Asian
countries are cognisant of the pressing needs to bridge the
infrastructure gap which will have knock-on effects on
enhanced trade, investment, tourism and development.
This report will touch on opportunities in the transport-related
infrastructure space domestically and across the region in line
with the ASEAN Master Plan for Connectivity (AMPC). The
focus will be only three ASEAN countries – Malaysia, Indonesia
and Thailand where we have coverage on the infrastructure
based companies. Based on a survey, among the three
countries, the infrastructure needs of Indonesia is the highest
at US$235bn over 2013-2020, followed by Thailand at
US$105bn and Malaysia at US$100bn.
Comparison of Comparison of Comparison of Comparison of infrastructureinfrastructureinfrastructureinfrastructure needsneedsneedsneeds
Populat ionPopulat ionPopulat ionPopulat ion GDPGDPGDPGDP Inf rast ructure needs f rom 2013-2020Inf rast ructure needs f rom 2013-2020Inf rast ructure needs f rom 2013-2020Inf rast ructure needs f rom 2013-2020
Malaysia 29.5m US$305bn US$100bn
Indonesia 244.5m US$879bn US$235bn
Thailand 67.9m US$366bn US$105bn
Source: IMF, World Economic Outlook, other surveys
AMPC AMPC AMPC AMPC –––– regional connectivity and emphasis regional connectivity and emphasis regional connectivity and emphasis regional connectivity and emphasis on on on on ttttransportransportransportransport----
based infrastructurebased infrastructurebased infrastructurebased infrastructure
Infrastructure development forms the backbone of the
economy of ASEAN countries and is crucial in the region’s
economic, social and connectivity development.
Besides improving the level of public transport ridership locally,
the interconnectivity within ASEAN member states is also
crucial through national, subregional and regional
infrastructure development. This will eventually improve
logistics efficiency, support growth of investment, trade and
tourism and could lower the cost of doing business.
Similar to the One Belt, One Road (OBOR) project, the AMPC
which is more mature aims to link Southeast Asian countries
via a system of rail, roads and even ports for RO-RO (roll-on
and roll-off). Of significance from an infrastructure standpoint,
the focus for AMPC has been the Pan-Asia Rail Network and
Asian Highway Network. It remains to be seen how compatible
AMPC and OBOR are, which shares some similarities on
wanting to enhance transport connectivity. China’s recent
involvement in Indonesia’s Jakarta to Bandung High Speed Rail
(HSR) and Malaysia’s Gemas-JB double tracking and Bandar
Malaysia while it is also aggressively pursuing the KL-Singapore
HSR is a positive sign and does suggest the momentum for
China-ASEAN initiatives to ensure AMPC comes to fruition.
Asian Insights SparX
Asean Construction
Page 4
PanPanPanPan----Asia Railway NetworkAsia Railway NetworkAsia Railway NetworkAsia Railway Network
Source: Internet
PanPanPanPan----Asia Railway Network.Asia Railway Network.Asia Railway Network.Asia Railway Network. The convergence of the Singapore-
Kunming Railway or Pan-Asia Railway Network with ASEAN’s
railway connectivity plans is taking shape. If completed, this
will link Kunming, the capital of China’s southwest Yunnan
province, with all the capitals of mainland ASEAN countries.
The Singapore-Kunming Railway or Pan-Asia Railway Network
refers to a network of railways of 6,667km that would connect
China, Singapore and all the countries of mainland Southeast
Asia. In 2007 ASEAN and China proposed building three
routes, the Eastern, Western and a Central Route via Laos. The
proposed network consists of three main routes from
Kunming, China to Bangkok, Thailand: the Eastern Route via
Vietnam and Cambodia; the Central Route via Laos, and the
Western Route via Myanmar. The southern half of the network
from Bangkok to Singapore has long been operational, though
a high-speed line has been proposed. The missing links are
mainly in Cambodia, Myanmar, Thailand and Vietnam.
The biggest missing link is from Laos where work has yet to
start as financing is a main concern, coupled with land issues.
Snapshot of PanSnapshot of PanSnapshot of PanSnapshot of Pan----Asia Railway NetworkAsia Railway NetworkAsia Railway NetworkAsia Railway Network 6,617km rail development
Provide more env ironemental friendly, efficient and economic mode for passengers and freight transport
F lagship project under ASEAN-Mekong Basin Development Cooperation
Prioitised project under MASter Plan on ASEAN Connectiv ity
Two Lines : - Eastern Line : Thailand Cambodia, V ietnam
- Western Line : Thailand, Myanmar
Common line : Singapore, Malaysia, Thailand
Spur line to Lao PDR
Source: Internet, AllianceDBS Research
Broad status of PanBroad status of PanBroad status of PanBroad status of Pan----Asia Railway NetworkAsia Railway NetworkAsia Railway NetworkAsia Railway Network
Missing Link Cambodia
Thailand
Myanmar
V ietnam
Upgrade Cambodia
Malaysia
Thailand
Spurline Laos
Source: Internet, AllianceDBS Research
MALAYSIAMALAYSIAMALAYSIAMALAYSIA –––– AMPC’s EFFORTS MOSTAMPC’s EFFORTS MOSTAMPC’s EFFORTS MOSTAMPC’s EFFORTS MOST ADVANCEDADVANCEDADVANCEDADVANCED
For Malaysia, it has given its commitment towards China’s Pan-
Asia Railway and its One Belt One Road Project. The electrified
double tracking works is part of this ambitious Pan-Asia
Railway Network. So far all sections have been completed,
apart from the Gemas-Johor Bahru section which was awarded
to a consortium led by China Railways Corporation for RM7bn.
There are parties from China, Japan, South Korea and many
others who are keen to bid for the KL-Singapore HSR project.
Of significance is the China Railway Group Limited (CREC)
which is partnering Iskandar Waterfront. Together with its
partner is has bought a 60% stake in Bandar Malaysia which
will be key station.
Electrified double tracking in Malaysia Electrified double tracking in Malaysia Electrified double tracking in Malaysia Electrified double tracking in Malaysia –––– part of Panpart of Panpart of Panpart of Pan----Asia Asia Asia Asia Railway NetworkRailway NetworkRailway NetworkRailway Network
Sect ionSect ionSect ionSect ion StatusStatusStatusStatus
Rawang - Ipoh (178km) Completed July 2007
Seremban - Gemas (98km) Completed July 2013
Ipoh - Padang Besar (328km) Physical construction completed Nov 2014
Systems works now
Gemas - Johor Bahru (197km) Land acquisition process
Source: AllianceDBS Research
Asian Insights SparX
Asean Construction
Page 5
Electrified double tracking in Malaysia Electrified double tracking in Malaysia Electrified double tracking in Malaysia Electrified double tracking in Malaysia –––– ppppart of Panart of Panart of Panart of Pan----Asia Asia Asia Asia Railway NetworkRailway NetworkRailway NetworkRailway Network
Source: Internet, AllianceDBS Research
High Speed Rail. High Speed Rail. High Speed Rail. High Speed Rail. MyHSR Corp which is the project delivery vehicle
for the HSR was also quoted in saying that they are still in the
midst of discussions with Singapore on key issues such as
approach to tendering and whether it will be a government
design-and-build contractor model. An MOU is expected to be
signed by mid-2016. The tentative alignment will be based on
two services – a direct service (90 minutes) and another with
transit stops (Bandar Malaysia, Seremban, Melaka, Muar, Batu
Pahat and Nusajaya which will take two hours). We expect this to
be a close race between the Chinese and Japanese.
Probably alignment of HSRProbably alignment of HSRProbably alignment of HSRProbably alignment of HSR
Source: MyHSR, AllianceDBS, DBS Vickers HSR HSR HSR HSR –––– Cutting down travelling timeCutting down travelling timeCutting down travelling timeCutting down travelling time
Source: MyHSR, AllianceDBS, DBS Vickers
INDONESIAINDONESIAINDONESIAINDONESIA –––– EMPHASIS ON PORT CONSTRUCTIONEMPHASIS ON PORT CONSTRUCTIONEMPHASIS ON PORT CONSTRUCTIONEMPHASIS ON PORT CONSTRUCTION
Indonesia’s involvement in the AMPC is largely from the
connectivity of ports to other countries given its status as the
largest archipelagic country in the region.
Among the flagship projects involving Indonesia are:
� Melaka-Pekanbaru interconnection (part of IMT-GT)
� West Kalimantan-Sarawak interconnection (part of BIMP-
EAGA)
� Study on RO-RO network and short-sea shipping
Brunei Action Plan as a blueprint of ASEAN maritime
connectivity. The BAP stresses, among other things, the
importance of maritime transport development to improve
regional connectivity. Four programmes were highlighted in the
BAP in connection with the maritime goal i.e.:
� Realise an ASEAN Single Shipping Market (ASSM) by 2015
� Enhance the capacity of 47 designated ports by 2015
� Establish efficient and reliable shipping routes, including RO-
RO, connections between mainland and archipelagic
Southeast Asia, and strengthen the linkages with global and
domestic routes by 2015
� Establish and enhance the Cruise Corridors by 2015
Asian Insights SparX
Asean Construction
Page 6
Connecting the mainland and archipelagic Southeast Asia
with single shipping and RO-RO network
ASEAN Single Shipping Market (ASSM) ASEAN Single Shipping Market (ASSM) ASEAN Single Shipping Market (ASSM) ASEAN Single Shipping Market (ASSM) is envisaged to facilitate
free-flowing trade among ASEAN member countries through
waterways. There are 47 ports in Southeast Asia which are
designated as gateways into and out of the member countries.
Many of them are located in Indonesia given its status as the
largest archipelagic country in the region.
47 ASEAN gateway ports
No.No.No.No. PortPortPortPort CountryCountryCountryCountry IslandIslandIslandIsland 1 Belawan Indonesia Sumatra 2 Dumai Indonesia Sumatra 3 Palembang Indonesia Sumatra 4 Panjang Indonesia Sumatra 5 Tanjung Priok Indonesia Java 6 Tanjung Emas Indonesia Java 7 Tanjung Perak Indonesia Java 8 Pontianak Indonesia Kalimantan 9 Banjarmasin Indonesia Kalimantan 10 Balikpapan Indonesia Kalimantan 11 Makassar Indonesia Sulawesi 12 Bitung Indonesia Sulawesi 13 Sorong Indonesia Papua 14 Jayapura Indonesia Papua 15 Kyaukphyu Myanmar Mainland ASEAN 16 Yangon Myanmar Mainland ASEAN 17 Thilawa Myanmar Mainland ASEAN 18 Cailan Vietnam Mainland ASEAN 19 Haiphong Vietnam Mainland ASEAN 20 Danang Vietnam Mainland ASEAN 21 Ho Chi Minh Vietnam Mainland ASEAN 22 Phnom Penh Cambodia Mainland ASEAN 23 Sihamoukville Cambodia Mainland ASEAN 24 Bangkok Thailand Mainland ASEAN 25 Laem Chabang Thailand Mainland ASEAN 26 Songkhla Malaysia Mainland ASEAN 27 Penang Malaysia Mainland ASEAN 28 Kemaman Malaysia Mainland ASEAN 29 Kuantan Malaysia Mainland ASEAN 30 Johore Malaysia Mainland ASEAN 31 Port Klang Malaysia Mainland ASEAN 32 Tanjung Pelepas Malaysia Mainland ASEAN 33 Singapore Singapore Mainland ASEAN 34 Kuching Malaysia Borneo 35 Bintulu Malaysia Borneo 36 Kota Kinabalu Malaysia Borneo 37 Sandakan Malaysia Borneo 38 Subic Bay Philippines Luzon 39 Manila Philippines Luzon 40 Batangas Philippines Luzon 41 Iloilo Philippines Visayas 42 Cebu Philippines Visayas 43 Cagayan de Oro Philippines Mindanao 44 Davao Philippines Mindanao 45 General Santos* Philippines Mindanao
46 Zamboanga Philippines Mindanao 47 Muara Brunei Borneo
* Part of ASEAN RO-RO Network’s priority routes
Source: Master Plan on ASEAN Connectivity (2010)
Roll On/Roll Off (RORoll On/Roll Off (RORoll On/Roll Off (RORoll On/Roll Off (RO----RO) Network. RO) Network. RO) Network. RO) Network. RO-RO ship is designed to
carry wheels cargo to avoid the time-consuming loading and
unloading process and costly cargo-handling which are
commonly found in conventional shipping. The launch of ASEAN
RO-RO Network was initially scheduled in 2016-2017 and will
cover three priority routes among four member countries i.e.
Indonesia, the Philippines, Malaysia and Thailand. The routes are:
� General Santos, Philippines – Bitung, Indonesia
� Melaka, Malaysia – Dumai, Indonesia
� Belawan, Indonesia – Phuket, Thailand
Four out of six ports covered by ASEAN RO-RO network are also
designated as gateway ports for ASEAN Single Shipping Market
(ASSM).
Planned RO-RO routes on Malacca Strait and Celebes Sea
Source: ASEAN (2013)
Indonesia and the missing links for AMPC
Southeast Asia comprises over 30,000 islands with Indonesia
being the largest maritime country in the region. One of the key
waterways that have a significant role in global trade flow in the
region is the Strait of Malacca as it connects East Asia to India,
Europe and Middle East. It is worth noting that over half of the
global trade flow passes through this long, narrow waterway,
making it one of the busiest straits in the world.
Asian Insights SparX
Asean Construction
Page 7
Underdeveloped ports and highway networks. Underdeveloped ports and highway networks. Underdeveloped ports and highway networks. Underdeveloped ports and highway networks. Indonesia,
together with Singapore and Malaysia, are in the sweet spot to
benefit from the heavy traffic passing the Strait of Malacca.
Nonetheless, Indonesia’s maritime transportation infrastructure is
the most underdeveloped among the three. According to World
Competitiveness Report (2015), Indonesia’s port quality ranked
82nd, far below Singapore’s (ranked 2
nd) and Malaysia's (ranked
16th). In most cases in Indonesia, while all existing ports are
connected to roads, many of them are heavily congested. That
said, moving the containers or goods from port to hinterland and
to end destination can be extremely time-consuming and costly.
Government’s and crossGovernment’s and crossGovernment’s and crossGovernment’s and cross----border initiatives. border initiatives. border initiatives. border initiatives. The Joko Widodo-led
government has launched a number of initiatives to address this
issue. The Sea Toll Road programme was introduced in 2014 and
has now begun partial operations. The programme involves a
number of hub and smaller port upgrades. The government has
also forged ahead with massive toll road developments,
particularly in Java and Sumatra, to ensure that the containers
and goods can be transported quickly via highway networks once
they are offloaded to the ground.
Furthermore, some of the projects listed in BIMP-EAGA and IMT-
GT sub-regional initiatives shares similarities with those prioritised
by the Indonesian government, such as Manado-Bitung and
Trans Sumatra toll road development which are included in the
country’s 30 priority project lists. Some major ports are currently
being upgraded, which would support the implementation of
ASSM and RO-RO shipping in the future. All of these are not only
targeted to strengthen inter-island connectivity in Indonesia, but
also to improve economic linkage between mainland and
archipelagic Southeast Asia as well as among the archipelagic
countries in the region.
ASEAN ROASEAN ROASEAN ROASEAN RO----RO network RO network RO network RO network aims to connect the missing links among
Indonesia, the Philippines, Malaysia and Thailand. It focuses on
port upgrade works to enable RO-RO ship operation.
Key projects: Bitung, Dumai and Belawan port upgrades.
The IMTIMTIMTIMT----GTGTGTGT initiative seeks to enhance connectivity between key
cities in Sumatra through land transport development. It also
seeks to improve connectivity between cities in Sumatra and
Malay Peninsula, particularly Penang, Melaka and Phuket
through port development.
Key projects: Trans Sumatra toll road (stretching from Banda
Aceh to Palembang), Dumai, Medan and Aceh port
developments.
The other sub-regional initiative, BIMPBIMPBIMPBIMP----EAGAEAGAEAGAEAGA, focuses on
enhancing connectivity between Manado-Bitung in Sulawesi
Island (Indonesia) and Bitung to the Philippines.
Key projects: Manado-Bitung toll road and Manado port
development.
Project intersection – AMPC, Government of Indonesia’s
priority projects and Sea Toll Road programme
ProjectProjectProjectProject AMPC AMPC AMPC AMPC initiativeinitiativeinitiativeinitiative
GoI’s GoI’s GoI’s GoI’s 30303030 priority priority priority priority projectsprojectsprojectsprojects
GoI’s GoI’s GoI’s GoI’s Sea Toll Sea Toll Sea Toll Sea Toll RoadRoadRoadRoad
LinkageLinkageLinkageLinkage
Bitung port RO-RO & ASSM √ √
General Santos
(Philippines) Dumai port RO-RO,
IMT-GT & ASSM
Melaka (Malaysia)
Belawan/Kuala Tanjung port
RO-RO & ASSM
√ √ Phuket (Thailand)
Trans Sumatra toll road
IMT-GT √ n/a
Medan port IMT-GT
Penang (Malaysia)
Aceh port IMT-GT
Phuket (Thailand)
Manado-Bitung toll road
BIMP-EAGA
√ n/a
Manado port BIMP-EAGA
n/a
Palembang port ASSM √ ASEAN
gateway Panjang port ASSM
√ ASEAN gateway
Tanjung Priok port ASSM √
ASEAN gateway
Tanjung Emas port ASSM √
ASEAN gateway
Tanjung Perak port ASSM √
ASEAN gateway
Pontianak port ASSM √
ASEAN gateway
Banjarmasin port ASSM √
ASEAN gateway
Balikpapan port ASSM
ASEAN gateway
Makassar port ASSM √
ASEAN gateway
Sorong port ASSM
√ ASEAN gateway
Jayapura port ASSM √
ASEAN gateway
Source: Various media sources, Master Plan on ASEAN Connectivity
(2010), IMT-GT & BIMP-EAGA Implementation Blueprint 2012-2016
Asian Insights SparX
Asean Construction
Page 8
Indonesia’s maritime axis ambition
Improving connectivity through Sea Toll Road programImproving connectivity through Sea Toll Road programImproving connectivity through Sea Toll Road programImproving connectivity through Sea Toll Road programmemememe. . . .
President Joko Widodo has announced its vision to transform
Indonesia into a maritime axis, which spells out a programme
called Sea Toll Road (nautical highway). Sea Toll Road is aimed to
strengthen inter-island connectivity in Indonesia archipelago by
providing maritime transportation network which runs according
to a predetermined schedule, connecting hub with feeder ports.
The lack of connectivity among islands has brought Indonesia’s
logistics cost to 24.5% of GDP. The launch of Sea Toll Road
programme is expected to lower the costs to 19% of GDP.
24 ports to support sea toll road... 24 ports to support sea toll road... 24 ports to support sea toll road... 24 ports to support sea toll road... There are 24 ports designated
to support Sea Toll Road programme, of which five are deep-sea
ports i.e. Kuala Tanjung, Tanjung Priok, Tanjung Perak, Makassar
and Sorong port. The sea toll road will cover six routes in the
initial phase. Five out of the planned six routes have been up and
running. Three ports were set as a starting point i.e. Tanjung
Perak (Java), Tanjung Priok (Java) and Makassar (Sulawesi).
...with total investment of Rp59tr. ...with total investment of Rp59tr. ...with total investment of Rp59tr. ...with total investment of Rp59tr. The expansion of 24 sea ports
is estimated to require an investment of Rp59tr in 2015-2019, of
which Rp41tr is allocated to develop the five deep-sea ports. The
largest project is the expansion of Kuala Tanjung and Belawan
port in North Sumatra. Both ports are located side by side along
the Strait of Malacca.
24 strategic ports supporting Sea Toll Road
Source: Ministry of Transportation
THAILANDTHAILANDTHAILANDTHAILAND –––– A LOT MORE TO BE DONEA LOT MORE TO BE DONEA LOT MORE TO BE DONEA LOT MORE TO BE DONE
According to ASEAN transport strategic plan 2016-2025, its key action is to complete the missing link section of Singapore-Kunming Rail Link, as follows: (i) Thailand:Thailand:Thailand:Thailand: Aranyaprathet Aranyaprathet Aranyaprathet Aranyaprathet –––– Klongluk (6km) Klongluk (6km) Klongluk (6km) Klongluk (6km)
- Construction is completed - Expected to start operating by 2016
(ii) Cambodia:Cambodia:Cambodia:Cambodia: Poipet Poipet Poipet Poipet –––– Sisophon (48km)Sisophon (48km)Sisophon (48km)Sisophon (48km) - Under construction - The construction is delayed from the original target date in 2013
- Expected to be completed by 2016 (iii) Cambodia: Phnom Penh Cambodia: Phnom Penh Cambodia: Phnom Penh Cambodia: Phnom Penh –––– Loc Ninh (254km)Loc Ninh (254km)Loc Ninh (254km)Loc Ninh (254km)
- Seeking fund for project implementation - Delayed from the original target date in 2015
(iv) Vietnam:Vietnam:Vietnam:Vietnam: Loc Ninh Loc Ninh Loc Ninh Loc Ninh –––– Ho Chi Minh (129km) by 2020Ho Chi Minh (129km) by 2020Ho Chi Minh (129km) by 2020Ho Chi Minh (129km) by 2020 - Seeking fund for project implementation - Expected to be completed by 2020
(v) Vietnam:Vietnam:Vietnam:Vietnam: Mu Gia Mu Gia Mu Gia Mu Gia –––– Tan Ap Tan Ap Tan Ap Tan Ap –––– Vung Ang (119kmVung Ang (119kmVung Ang (119kmVung Ang (119km) - Approved feasibility study on the development - Expected to be completed by 2020
(vi) Lao PDR: Vientiane Lao PDR: Vientiane Lao PDR: Vientiane Lao PDR: Vientiane –––– Thakek Thakek Thakek Thakek –––– Mu Gia (466km) Mu Gia (466km) Mu Gia (466km) Mu Gia (466km) - Approved feasibility study on the development - Expected to be completed by 2020
(vii) Myanmar: Thanbyuzayat Myanmar: Thanbyuzayat Myanmar: Thanbyuzayat Myanmar: Thanbyuzayat –––– Three Pagoda Pass Three Pagoda Pass Three Pagoda Pass Three Pagoda Pass (110km) (110km) (110km) (110km) - Feasibility study was conducted in 2007 - The project has been replaced with the new route from Dawei port to Kanchanaburi
(viii) Thailand: Three Pagoda Pass Thailand: Three Pagoda Pass Thailand: Three Pagoda Pass Thailand: Three Pagoda Pass –––– Name Tok (153km) Name Tok (153km) Name Tok (153km) Name Tok (153km) - Feasibility study was conducted in 2007 - The project has been replaced with the new route from Dawei port to Kanchanaburi
Thailand and upgrading works of rail system to support Singapore-Kunming Railway Link
Currently, the upgrading of the domestic railway network in Thailand, as a part of the Singapore-Kunming Railway Link project, is included in Thailand Transport Infrastructure Development Strategy 2015-2022 (Master Plan), as follows:
Asian Insights SparX
Asean Construction
Page 9
Thailand – upgrading of rail system
Double tra ck ra i lwa yDouble tra ck ra i lwa yDouble tra ck ra i lwa yDouble tra ck ra i lwa y
1s t pha se1s t pha se1s t pha se1s t pha se
Chachoengsao - Klong 19 - Kangkoi 11 0.3 Contractor: STEC
Jira Junction - Khonkaen 22 0.6 Contractor: CK
Prachuapkirikhan - Chumpon
Mapkabao - Nakornratchasrima
Lopburi - Paknampo
Nakornpathom - Nongpraduk - Huahin
Huahin - Prachuapkirikhan
Tota l 1st pha seTota l 1st pha seTota l 1st pha seTota l 1st pha se 33333333 0 .90 .90 .90 .9
2nd pha se2nd pha se2nd pha se2nd pha se
Paknampo - Denchai
Jira Junction - Ubonratchathani
Khonkaen - Nongkhai
Chumpon - Suratthani
Suratthani - Songkla
Hadyai - Padangbesa
Denchai - Chiangmai
To ta l 2nd pha seTota l 2nd pha seTota l 2nd pha seTota l 2nd pha se
Proje c tPro je c tPro je c tPro je c t RouteRouteRouteRouteVa lue Va lue Va lue Va lue
(B tbn)(B tbn)(B tbn)(B tbn)Rema rkRema rkRema rkRema rk
Va lue Va lue Va lue Va lue
(US$bn)(US$bn)(US$bn)(US$bn)
Source: Ministry of Transport, DBS Vickers
Asian Insights SparX
Asean Construction
Page 10
Transport Transport Transport Transport infrastructure important for regional connectivityinfrastructure important for regional connectivityinfrastructure important for regional connectivityinfrastructure important for regional connectivity CompaniesCompaniesCompaniesCompanies
(Cont ractors)(Cont ractors)(Cont ractors)(Cont ractors)
Neak Loeung Bridge Cambodia and V iet Nam Sumitomo Mitsui Construction Construction of the bridge started in
(Japan) 2011 and is expected to be completed
in 2015 at an estimated cost of $130
million.
Second Thai–Lao Savannakhet (Lao PDR) Sumitomo Corporation (Japan) Completed in 2006 at an estimated
Friendship Bridge and Mukdahan (Thailand) cost of $70 million.
Third Thai–Lao Thahhek (Lao PDR) and Italian-Thai Development (Thailand) Completed in 2011 at an estimated
Friendship Bridge Nakhon Phanom (Thailand) cost of $57 million.
Fourth Thai–Lao Thailand and Lao PDR China Railway No.5 Engineering The two companies jointly constructed
Friendship Bridge Group and Krung Thon Engineering the bridge, which was completed in 2013
(Thailand)
The budget of the bridge was
estimated at about $44.8 million.
Lao–Myanmar Luang Namtha (Lao PDR) China Harzone Industry Corporation The bridge links Lao PDR’s National
Friendship Bridge and Xienglap, Thakilek supplied steel trusses for the Road No.17E and Myanmar’s National
(Myanmar) construction of the bridge. Road No. 4, and connects Xiengkok
river port in the Long district in Lao
PDR with Xienglap, Thakilek district
(Myanmar). The bridge was opened in
May 2015.
Kuala Lumpur to Malaysia to Singapore A number of companies have been The project is in the bidding process.
Singapore High-Speed reported to have expressed interest
Rail Link in undertaking the project:
• China Railway Construction
Corporation
• East Japan Railway Company (JR East)
• Alstom (France)
• Siemens AG (Germany)
Thai Railway Thailand
Construction (eventually
part of the SKRL)
Thai–Lao–China rail Thailand, Lao PDR and Giant Consolidated (Malaysia) The rail link is estimated to cost $7.2
freight link Cambodia billion. Construction of the project
will be undertaken with Chinese
supervision. The current construction of this project does not
include the routes within Thai border.
Eventually part of the SKRL • Ch. Karnchang (Thailand)
• Sino-Thai Engineering & Construction (Thailand)
Thailand to V iet Nam Thailand to V iet Nam Giant Consolidated Ltd (Malaysia) Rich Banco Berhad (New Zealand)
Railway (through Lao provided a loan to Giant Consolidated
PDR) Limited (Malaysia) to fund the
construction of rail running across Lao
PDR from the Thai to the V ietnamese
border. However, according to our channel check, there is
so limited information on this project annoucing to the public.
Sources: UNCTAD 2015b, based on industry reports and media.
The first two routes was awarded to the contractors already
while the remaining 9 routes are in the bidding and EIA
approval process.
900 km double railway line
in Thailand
Inf rast ructureInf rast ructureInf rast ructureInf rast ructure Connect ing count riesConnect ing count riesConnect ing count riesConnect ing count ries Remark sRemark sRemark sRemark s
The project is waiting for the EIA approval process and other
documentation process with limited progress.The participating
contractors should be both Thai and Chinese contractors.
Asian Insights SparX
Asean Construction
Page 11
TRANSPORT-BASED INFRASTRUCTURE – MALAYSIA, INDONESIA THAILAND
MALAYSIAMALAYSIAMALAYSIAMALAYSIA
Malaysia Malaysia Malaysia Malaysia –––– TransportationTransportationTransportationTransportation----based infrastructure projectsbased infrastructure projectsbased infrastructure projectsbased infrastructure projects
AmountAmountAmountAmount AmountAmountAmountAmount Potent ial w innersPotent ial w innersPotent ial w innersPotent ial w inners F oreign Part icipat ionF oreign Part icipat ionF oreign Part icipat ionF oreign Part icipat ion
Projec tsProjec tsProjec tsProjec ts (RMbn) (RMbn) (RMbn) (RMbn) (US$bn)(US$bn)(US$bn)(US$bn)
MRT Line 2 and 3 60.0 15 Gamuda, MMC, IJM, Sunway, various Yes, Tunnelling via Swiss Challenge
Penang Integrated Transport 27.0 7 Gamuda. IJM likely to have subcon role Zenith-BUCG awarded undersea tunnel
KL Bullet Train to Singapore 60.0 15 Gamuda, YTL, various Yes, likely to China or J apan
LRT 3 10.0 2 MRCB-George Kent and other local contractors No apart from system and rolling stock
6 new highways 19.0 5 Various No
Pan Borneo Highway 27 7 CMS, Naim, HSL, other West Malaysian players No
Gemas-JB double tracking 8 2 Fajar Baru, Gamuda, IJM, WCT Yes awarded to China Railway Construction
Jalan Tun Razak traffic dispersal 0.9 0 Various No
Total 211.9 52
Source: AllianceDBS Research
The priority for Malaysian infrastructure projects over the past
few years have been more transportation-led anchored by the
MRT project. There will be in total three lines where Line 1 will
be completed by July 2017 and Line 2 is already in progress in
terms of the awards. There has been a concerted effort by the
Land Public Transport Commission (SPAD) to achieve a 40%
modal share of public transportation by 2030 from c.25% as
at end-2015.
The Project Delivery Partner (PDP) approach for large scale
government contracts which is basically appointing a
contractor to take on a supervisory role for a project in return
for fees has worked out very well for MRT Line 1. This is as
opposed to the government managing the contract on its own
where contractors may be more susceptible to not perform
optimally. So far, MRT Line 2, LRT 3 and Pan Borneo Highway
have taken this PDP route.
There is some element of foreign participation for these
projects largely either from Chinese-based contractors which
comes with associate funding or G-to-G relationships or from a
technical standpoint where local contractors do not have the
required expertise.
MRT Line 1MRT Line 1MRT Line 1MRT Line 1 which links Sungai Buloh to Kajang is slated for full
completion in July 2017. The cumulative financial progress for
underground is 85% and PDP is 76% with no significant cost
overruns and is on track to meet KPIs.
MRT Line 2.MRT Line 2.MRT Line 2.MRT Line 2. The Sungai Buloh-Serdang-Putrajaya (SSP) or MRT
Line 2 will serve a corridor with a population of around 2m
people, stretching from Sungai Buloh to Putrajaya and will
include Sri Damansara, Kepong, Kampung Batu, Jalan Sultan
Azlan Shah, Jalan Tun Razak, KLCC, Tun Razak Exchange, Kuchai
Lama, Seri Kembangan and Cyberjaya. The proposed length is
52.2km of which 13.5km is underground. A total of 36 stations,
11 of them underground, will be built. At commencement of full
service in 2Q2022, the SSP Line is expected to have a ridership of
529,000 passengers per day.
So far, four out of the ten viaduct packages have been
awarded while the balance six will be awarded over the next
12 months. Only contractors which were involved in MRT Line
1 were allowed to bid for the first three viaduct packages,
V201, V202 and V203. As for tunnelling, MMC-Gamuda has
won the RM15.47bn contract without having to exercise the
Swiss Challenge, implying margins should be intact. The PDP
fees have been set at 6% (similar to Line 1) but with three
additional KPIs which will constitute about 0.5ppt of the 6%.
This will be for safety, quality and response to the public.
LRT 3LRT 3LRT 3LRT 3
As for LRT 3, which links Bandar Utama to Klang, the
appointment of MRCB-George Kent for the PDP role will see
more concrete tenders and awards in 2016. The total length is
37km comprising 26 stations and when completed, will carry
74,000 passengers per day.
The prequalification process saw 22 key construction players
prequalifed for the larger packages. Some of the key contractors
are Gamuda, Bina Puri, Crest Builder, WCT, IJM, Naza
Engineering, Muhibbah Engineering and Sunway Construction.
Also, eight companies have been shortlisted for the tunnelling
portion which spans 2km. We expect awards at the earliest in
4QCY16.
The PDP will receive a fixed fee of 6% paid on a quarterly basis
and will not participate directly in the civil works.
West Coast ExpresswayWest Coast ExpresswayWest Coast ExpresswayWest Coast Expressway
The West Coast Expressway is a 233km tolled expressway which
will link Banting to Taiping. Specifically, it starts at a junction with
Selangor State Road B18 which runs from Banting, Selangor and
ends at the ramp of Changkat Jering toll plaza of the North-
South Expressway at Taiping, Perak. It is planned and designed to
be connected to the existing highways (such as PLUS, SKVE,
NKVE, NNKSB, LATAR, KESAS, etc.). The entire expressway will
have 21 interchanges. According to its website, progress has
reached 19.8% as at April 2016. IJM is the main contractor for
Asian Insights SparX
Asean Construction
Page 12
this project and has been awarded RM2.8bn worth of works out
of the RM5bn contract amount.
WCT was awarded a RM282m contract from IJM for
subcontracting works for Section 3,4,5,8 & 9 for WCE. This
forms part of IJM’s RM2.8bn contract for the WCE. The scope of
works consists of site clearance and earthworks, geotechnical
works, drainage works and box culverts, sub-base, road base and
pavement, traffic signs, road markings and road furniture,
utilities and services, erosion control sediment plan,
environmental protection and enhancement.
We understand tenders from the RM2.2bn open tender portion
for packages 1, 2, 6, 7, 10 and 11 will be called in 2016.
High Speed RailHigh Speed RailHigh Speed RailHigh Speed Rail
Malaysia's and Singapore's land transport regulators (SPAD and
LTA) said they received 98 submissions in response to the
request-for-information exercise for the High Speed Rail (HSR)
project. They include companies from Malaysia, Singapore, the
Asia-Pacific, Europe, the Middle East and North America. Of the
98 submissions, there were 13 from Malaysia and four from
Singapore.
At the recent China High Speed Railway symposium in KL, 14
companies were shortlisted to present their views on the project.
Apparently, the companies are France’s Alstom SA, Germany’s
Siemens AG, Spain's CAF and Talgo SA, Canada’s Bombardier,
China Railway and consortiums from South Korea and Japan.
SPAD is also exploring the use of Transport Oriented
Development (TOD), which is a mixed-use residential and
commercial area aimed at maximising access to public transport
along the HSR line.
SPAD and LTA’s CEOs were also quoted as saying that the
governments of Malaysia and Singapore expect to finalise the
commercial model and procurement approach of the project by
2016. An MOU is expected to be signed by mid-2016.
According to a local daily as reported in early January 2016, both
the Malaysian and Singaporean governments have agreed on the
alignment and have decided on two services – a direct service (90
minutes) and another with transit stops (Bandar Malaysia,
Seremban, Melaka, Muar, Batu Pahat and Nusajaya, which will
take two hours).
Prime Minister Najib has also confirmed China’s interest in the
HSR following the signing of the eight G-to-G MOU. The sale of
1MDB’s power assets to China General Nuclear Power Corp for
RM9.83bn and China Railway Engineering Corp.'s involvement in
Bandar Malaysia could be a precursor to more Chinese
involvement in Malaysia’s mega infrastructure projects like the
HSR.
We expect local contractors which have some of expertise in rail-
related works gathered from the LRT and MRT to have a role. In
particular, we think Gamuda and YTL would be frontrunners to
lead the local contractors.
Penang Transport Master PlanPenang Transport Master PlanPenang Transport Master PlanPenang Transport Master Plan
Gamuda, via SRS Consortium, has been appointed by the Penang
State Government to be the PDP for the roads and public
transport projects in Penang (Penang Transport Master Plan
Strategy 2013-2030). The shareholding structure is as follows:
Gamuda (60%), Ideal Property Development (20%), and Loh Poh
Yen Holdings (20%).
Gamuda is hoping to have two bites of the cherry – being the
PDP, and also turnkey contractor for some key components, but
that is still uncertain at this stage.
The components are an LRT from Komtar to Bayan Lepas, a
monorail from Komtar to Air Itam and Tanjung Bungah, e-buses
across North Channel, bus rapid transits on the mainland and a
20-km Pan Island Link Highway connecting Tanjung Bungah to
Penang International Airport and Tun Dr Lim Chong Eu
Expressway (LCE) with tunnels cutting through the hills.
The first components are supposed to be the LRT (which is 20km
in length) and the Pan Island Link Highway, given their high
economic IRR of 12.2% and 14% respectively. The media also
highlighted the plan to claim two islands in the south of Penang
Island, which will be fully owned by the Penang government. The
land will then be auctioned to finance the project. The estimated
cost for reclaiming two islands of 1,300 acres and 2,100 acres
respectively is RM7-8bn. This works out to be RM47-54psf as
compared to E&O’s reclamation cost at Seri Tanjung Pinang of
RM90-140psf. The previously speculated land to be reclaimed in
Middle Bank is not likely to happen given the strong protests
from environmentalists and civic groups.
The PDP where Gamuda has a 60% stake is in the midst of
extending the signing of the PDP agreement which has since
lapsed. Presentations have been made to the Federal
government, with the feedback being positive so far. There are
two key milestones to achieve, which are:
Asian Insights SparX
Asean Construction
Page 13
1) SPAD submission for the whole public transportation
system for review and approval
2) Department of Environment submission which has so far
been in bits and pieces.
The current guidance is for some approvals to occur in 2H17
and for tenders to happen in mid-2018.
GemasGemasGemasGemas----totototo----Johor Bahru double trackingJohor Bahru double trackingJohor Bahru double trackingJohor Bahru double tracking.
This 197-km stretch represents the last link for the whole
double tracking project in Malaysia. The contract, worth an
estimated RM7bn, was awarded to an entity headed by China
Railway Construction Company. However, local contractors are
eyeing a subcontractor role.
Pan BPan BPan BPan Borneo Highwayorneo Highwayorneo Highwayorneo Highway
In 2013, the Prime Minister stated his commitment towards the
Pan Borneo Highway which was also included in Budget 2016
where a total allocation of RM29bn was made for the total
stretch of 2,239km. The Sarawak portion costing c.RM16bn
has been progressing with the appointment of the PDP role to
Lebuhraya Borneo Utara for the 1,090-km stretch. The
Sarawak portion will be rolled out in two phases and be fully
completed by 2023. So far, the timing of the Sabah portion
costing RM12.8bn remains elusive but the PDP has been
appointed, comprising Warisan Tarang (60%) and a JV
between UEM and MMC holding 20% equity stake each. This
will run from Sindumin to Tawau where the total length is
706km.
The total length of the Sarawak portion is 1,089km, stretching
from Tanjung Datu to Merapok. The scope of the project is
mostly on the upgrading of the current road system from the
present 2-lane single carriageway to a 4-lane dual carriageway
(JKR R5 standard design). At present, only 144km of federal
route 1 is a 4-lane dual carriageway. But there will also be
construction of some additional 30km of roadworks.
So far, three work packages have been awarded and there are
now eight remaining work packages to be awarded this year.
The tenders for this eight closed at the end of May and will be
awarded from June to July onwards. On average, each work
package will be for 60-90km and will be at least RM1bn in
value. The initial portions will be from Jalan Nyabau to Bakun
junctions (43km) and Telok Melano to Sematan (33km). Phase
1 is from Sematan to Miri (746km) and Phase 2 from Kuala
Baram (Jalan Perlis) to Sg Tujuh, Limbang, Lawas area (96km).
This project will involve participation from West Malaysian
contractors where there are allowed to take a maximum of
30% equity stake in a JV company where there must be a
Sarawak partner which will take the balance 70%.
INDONESIA
Over 2,000km toll roads in the pipeline. In the past one year,
toll road development has recorded the best progress among all
government’s infra-related initiatives. The good progress is
largely aided by continuous land acquisition reform and increased
funding channelled through state-owned enterprises via capital
injection i.e. Hutama Karya and Waskita Karya (WSKT).
We identified over 2,000km toll roads in the pipeline and
many of them have kicked off construction. Around 130km
toll road is expected to commence operation this year,
bringing total operational toll roads to 1,080km by the end of
2016. SOEs, among which are Jasa Marga, Hutama Karya and
WSKT, grabbed the most shares in this toll road development.
The number of toll roads being developed has surpassed the
government’s initial target, which is to add 1,000km new toll
roads by 2019. While we acknowledge that private companies
can still initiate toll road developments, we think most of the
toll road projects have moved to execution phase.
Toll road projects not yet awarded to contractors
Toll roadToll roadToll roadToll road LengthLengthLengthLength (km)(km)(km)(km)
InvestmentInvestmentInvestmentInvestment (Rp tr)(Rp tr)(Rp tr)(Rp tr)
Jakarta-Cikampek II South 64.0 13.38 Jakarta-Cikampek Elevated 36.8 14.13 Semanan-Balaraja 31.7 11.31 Kamal-Teluk Naga-Balaraja 48.3 18.00 Serpong-Balaraja 30.0 5.18 Serang-Panimbang 83.9 6.74 Bandung Intra Urban 27.3 6.90 Sukabumi-Ciranjang-Padalarang 62.0 5.03 Cileunyi-Banjar 107.0 15.23 Cisamdawu Section III-VI 32.6 unknown TotalTotalTotalTotal 523.6523.6523.6523.6 95.995.995.995.9
Source: BPJT, various media sources
Reviving the maritiReviving the maritiReviving the maritiReviving the maritime glory through port development. me glory through port development. me glory through port development. me glory through port development.
Currently, there are over 100 commercial ports in Indonesia,
mostly managed by state-owned port operators Pelindo I-IV.
Four ports play the most important role i.e.:
� Belawan port, North Sumatra (1.2m TEUs)
� Tanjung Priok port, Jakarta (6.4m TEUs)
� Tanjung Perak port, East Java (3.2m TEUs)
� Makassar, South Sulawesi
Asian Insights SparX
Asean Construction
Page 14
We also identified a number of ongoing and potential major port
developments, including the mega project Patimban port. Three
ports, namely Kuala Tanjung, Bitung and Sorong port, are
located in the vicinity of special economic zones planned by the
government and designated to be international hubs.
Kuala Tanjung port
Kuala Tanjung port expansion is currently being carried out by
Pelindo I. The port, which is part of the 30 prioritised
infrastructure projects, is envisioned to connect the missing link
between Indonesia’s Sumatra Island and mainland Southeast
Asia. Kuala Tanjung port is located c.27km away from Sei
Mangkei special economic zone. A toll road network (i.e. Trans
Sumatra), is currently being built to improve land transport
linkages in the island. There is also a plan to build a 44km-long
railway to transport goods between Kuala Tanjung port and Sei
Mangkei.
The development of Kuala Tanjung port is scheduled to take
place in 2015-2019 with a total investment of Rp34tr. The first
phase of the construction kicked off in 2015 and is estimated to
cost Rp4tr. PTPP is the major contractor for the project after
clinching Rp900bn worth of construction contract in 2015. Kuala
Tanjung port will also be complemented with a multipurpose
terminal, whose development is undertaken by three SOEs i.e.
Pelindo I, PTPP and WSKT, and industrial estate.
Kuala Tanjung port development in Sumatra
Source: Ministry of Transportation
Bitung port
Bitung port is designed to support domestic as well as
international trades as it connects the missing link between
Indonesia and the Philippines. It is one of three ports included
into the government’s priority infrastructure project list. The
project is also part of AMPC and BIMP-EAGA priority port
project. The existing port is managed by Pelindo IV. The first
phase of Bitung port development has started partially, while the
remaining stages of Phase 1 development will start in 2017. Our
checks suggest that more clarity on this strategic port project will
come in September 2016.
The port project is estimated to cost Rp34tr in 2015-2019. In
addition, a special economic zone (SEZ) will be built in the vicinity
of the port on a 534ha land. To complement the planned SEZ in
Bitung, more infrastructures will also be built in the city,
including a 39km-long toll road that will connect Bitung to
Manado. The concession of the Rp5.1tr toll road was recently
awarded to an SOE consortium consisting of Jasa Marga, WIKA
and PTPP.
Sorong port
Located in West Papua, Sorong port is designated to serve as a
hub in the eastern part of Indonesia. The port is currently being
developed by Pelindo II and scheduled to be operational in 2019.
For the first phase, the port is estimated to require Rp3.5tr
(USD260mn) investment. It is also designated to support the
planned SEZ in Sorong.
Patimban port
Patimban port is initiated to replace the Cilamaya port project,
which was cancelled last year as it is located too closely to an oil
and gas block. The location of Patimban is only 40km away from
Cilamaya and 60-80km away from Cikarang and Karawang
industrial estates.
The multipurpose port, which is estimated to cost USD3bn
(c.Rp40tr), is scheduled to kick off construction in 2017 and
operate partially in 2019. In the first phase, Patimban port will
have a total capacity of 1.8m TEUs with channel depth of 12-14
metre. The container capacity is expected to rise further and
reach 7.5m TEUs by 2037.
The government is currently looking for the funding of the
project. It is reported that Japan has agreed to provide a Special
Term Economic Partnership (STEP) loan amounting to USD2.49tr.
Pelindo II has also expressed interest to take part in this project.
Asian Insights SparX
Asean Construction
Page 15
Urban rail transit and HSR
StatusStatusStatusStatus ProjectProjectProjectProject Contract Contract Contract Contract valuevaluevaluevalue (Rp tr)(Rp tr)(Rp tr)(Rp tr)
Track Track Track Track length length length length (km)(km)(km)(km)
Local contractorsLocal contractorsLocal contractorsLocal contractors Foreign Foreign Foreign Foreign
contractorscontractorscontractorscontractors FundingFundingFundingFunding TimelineTimelineTimelineTimeline
OngoingOngoingOngoingOngoing Jakarta-Bandung HSR 71
WIKA, WTON China Railway Construction
25% of total investment is funded by equity from SOE consortium (WIKA, JSMR, KAI, PTPN VIII),
while the remaining 75% is funded by loan from
China Development Bank
2016-2018
Jakarta MRT’s South-
North corridor (phase 1) 23 16
WIKA, Hutama Karya and JKON
Sumitomo Mitsui Construction,
Shimizu, Obayashi
Funded by USD1.29bn soft loan from JICA
2013-2018
Greater Jakarta LRT
(phase 1) 20 43 ADHI
2015-2018
Palembang LRT 12 23 WSKT
2016-2018
Jakarta LRT (phase 1) 6 6 ADHI*, WIKA*, WSKT*, Jakpro*
2016-2018
PipelinePipelinePipelinePipeline Jakarta-Surabaya railway
revitalisation n/a 750
unknown
Jakarta MRT South-
North corridor (phase 2) n/a 9
2017-2020
Jakarta MRT East-West
corridor n/a 87
unknown
Greater Jakarta LRT
(phase 2) n/a 36
unknown
Bandung LRT (phase 1) 10 20 2017-2018
*potential contractors
Source: companies, various media sources
Government’s priority transportation-based projects
While there are hundreds of ongoing and potential infrastructure
projects, the government has selected 225 strategic projects as
its main focus (President Regulation No.3/2016). Furthermore, 30
projects worth c.Rp851tr were selected (President Instruction No.
1/2016) as the government’s priority over the next two years,
whose progress is directly monitored by a special committee
reporting directly to the President. These high-priority projects
would receive assistance from the special committee since
preparatory stage (including permit issuance and technical
matters) up to commencement of operation. Fourteen out of 30
priority projects are transport-based projects, which are estimated
to require investments of Rp373tr.
Priority transport-based projects listed in President
Instruction No.1/2016
No.No.No.No. CategoryCategoryCategoryCategory ProjectProjectProjectProject Contract Contract Contract Contract valuevaluevaluevalue (Rp tr)(Rp tr)(Rp tr)(Rp tr)
1 Toll road Balikpapan-Samarinda 10.0
2 Toll road Manado-Bitung 5.1
3 Toll road Serang-Panimbang 6.7
4 Toll road Trans Sumatra (8 sections) 80.4
5 Railway Soekarno-Hatta airport 24.0
6 Railway Makassar-Parepare 6.4
7 Railway East Kalimantan 72.0
8 Urban rail transit Jakarta MRT (South-North) 25.0
9 Urban rail transit Palembang LRT 11.5
10 Urban rail transit Greater Jakarta LRT 20.0
11 Port Kuala Tanjung 34.0
12 Port Bitung 34.0
13 Port Cilamaya replacement 40.0
14 Water transportation
Inland waterways (Cikarang-Bekasi-Laut)
3.5
TotalTotalTotalTotal
372.6372.6372.6372.6
Source: Cabinet Secretary, various media sources
Asian Insights SparX
Asean Construction
Page 16
THAILANDTHAILANDTHAILANDTHAILAND Thailand – Transportation based infrastructure projects
Project sProject sProject sProject s Potent ial w innersPotent ial w innersPotent ial w innersPotent ial w inners
Balance of Balance of Balance of Balance of
work s to be work s to be work s to be work s to be
awarded(Btbn)awarded(Btbn)awarded(Btbn)awarded(Btbn)
Balance of Balance of Balance of Balance of
work s to be work s to be work s to be work s to be
awarded(US$awarded(US$awarded(US$awarded(US$
bn)bn)bn)bn)
MRT projects CK, STEC, ITD, UNIQ 274 7.8
Double track railway
CK, STEC, ITD, UNIQ, Ch.Tawee
construction Co Ltd., A.S.
Associated Engineering Co., Ltd. n/a n/a
Motorway Various 126 3.6
Water and irrigation Various n/a n/a
Airport expansion projects Various 49 1.4
TotalTotalTotalTotal 449449449449 12.812.812.812.8
Source: DBS Vickers
According to the Thailand Transport Infrastructure
Development Strategy 2015-2022 (Master Plan), the
government’s investment spending on infrastructure projects
has focused on transportation-based infrastructure.
The government continues to explore ways to accelerate the
process, either streamlining Environmental Impact Assessment
(EIA) approvals or dividing large projects into different phases.
MRT projects
Over the past decade, the priority for infrastructure
development has been led by the MRT projects, given the
government’s efforts to alleviate the critical traffic jam
problems in Bangkok. Currently, there are five MRT routes
operating in Bangkok, with the upcoming purple line
commencing operations in August 2016.
Current MRT lines
Source: Office of Transport and Traffic Policy and Planning (OTP)
Additionally, another three lines of MRT are under
construction:
Under construction MRT lines
Proje c tProje c tProje c tProje c t
Construc tionConstruc tionConstruc tionConstruc tion
Va lue (B tbn )Va lue (B tbn )Va lue (B tbn )Va lue (B tbn ) Contra c torsContra c torsContra c torsContra c tors
Cons truc t ion Cons truc t ion Cons truc t ion Cons truc t ion
commenceme nt commenceme nt commenceme nt commenceme nt
ye a r ye a r ye a r ye a r
Ye a r to Ye a r to Ye a r to Ye a r to
sta rt s ta rt s ta rt s ta rt
ope ra tingope ra tingope ra tingope ra ting
Red l ineRed l ineRed l ineRed l ine
Bangsue-Rangsit 78 STEC/UNIQ JV, ITD 2013 2020
B lue l i neB lue l i neB lue l i neB lue l i ne
Bangsue-Taphra
Hualumpong-Bangkae
Da rk g re e n l ineDa rk g re e n l ineDa rk g re e n l ineDa rk g re e n l ine
Bearing -Samutprakarn 26 CK 2013 2019
Morchit-Kukod 59 ITD, UNIQ, STEC 2015 2020
Tota lTota lTota lTota l 242242242242
80 ITD, CK, UNIQ JV,
STEC2011 2019
Source: CK, STEC, ITD, BEM, DBS Vickers
MRT projects to be opened for bidding by 2016
In 2016, there will be another three MRT projects to be rolled
out for bidding as follows:
(i) MRT orange line which links the Thai Cultural Center to Minburi is expected to be open for bidding in July 2016. This Bt83bn project will be funded by the government via public debt. According to our channel checks, there will be three underground contracts, worth Bt20bn each, on the MRT orange line project. There are only two Thai contractors, CK and ITD, which have the track record for underground works. (ii) MRT pink line (monorail). This Bt27bn project is under the Public-Private partnership (PPP) fast track scheme and is expected to be open for bidding by 4Q16. As the MRT pink line will connect Kaerai and Minburi, this will make it attractive to both existing MRT operators because of the two main reasons: (i) The area along this route is a residential area with a
high population density which means a higher number of passengers and higher project IRR.
(ii) The MRT pink line route will connect the MRT purple line and orange line
(iii) MRT yellow line (monorail) which links Latproa to Samrong is expected to be open for bidding by 4Q16. Like the MRT pink line, this Bt32bn project will be under the PPP fast track scheme. Compared with the MRT pink line, the MRT yellow line project seems to have attracted lower interest from the two current MRT operators.
Potential participants for MRT pink and yellow line
bidding. The PPP scheme tends to require the bidder to be
able to construct, operate and supply the rolling stock.
According to our channel checks and the media, there are
three potential candidates as follows:
Asian Insights SparX
Asean Construction
Page 17
(i) JV between CK, BEM (both subsidiaries of CK) and an undisclosed rolling stock producer
(ii) JV between STEC, BTS and a Chinese rolling stock producer
(iii) JV between ITD and a Japanese rolling stock producer
However, the three candidates prefer to wait for the official Term of References (TORs) before making a final decision on whether they will invest in the MRT pink and yellow lines.
MRT projects; to be open for bidding
Project Descript ionConst ruct ionValue (Btbn)
Const ruct ionValue
(US$bn) ProgressMass Rapid Transit Aut horit y of Thailand : MRTA
Orange line 83 2.4to be opened for bidding in July 2016
Pink line (Monorail) Khae Rai - Min Buri 27 0.8
Yellow line (Monorail) Lat proa - Samrong 32 0.9
Tot al 142 4.1
Thailand Cultural Centre - Min Buri
To be opened for bidding in 2H16
Source: Ministry of Transport, DBS Vickers
Double track railway projects
The public investment on the double track railway projects is another key flagship framework for the Thailand Transport Infrastructure Development Strategy 2015-2022.
This is crucial given the poor performance of Thailand’s current railway network due to the slower speed of the trains. The much slower rate for freight trains is because most of them travel on single track lines. After the completion of the double track railway projects, these single track lines will be upgraded into double or triple track lines, which will enable the trains to travel at 100-120km/hr.
First two projects of double track railway kicked off last
year. The government kicked off the first two double track projects, worth Bt33.2bn, in December last year. These two projects have been awarded to CK and STEC. Currently, the construction progress is still limited, given that they are in the initial phase of the construction. There are no significant cost overruns or potential delays for the projects.
Dual track railway project under construction
Pro je c t RouteConstruc tionVa lue (Btbn) Contra c tors
Klong 19 - Kaeng Koy
11STEC secured Bt9.8bn contract,
Right Tunnelling Co., Ltd. Secured Bt407m contract
Jira Junction - Khonkaen
22JV between CK and Ch. Tawee
construction
Tota l 33
Dual track railway
Source: Ministry of Transport, STEC, CK, DBS Vickers
Another four routes of double track railway. We think that the remaining four routes of double track railway projects in the 1st phase will be open for bidding by 2016. This was because of the clear source of funding for these projects, which will be funded by the government through debt.
Dual track railway projects to be open for bidding
Pro je c t De sc riptionConstruc tionVa lue (Btbn)
Construc tionVa lue
(US$bn) Progre ss
Sta te Ra i lwa y of Tha i la nd : SRT
Prachuab Khiri Khan - Chumpon 17 0.5
Map Kabao - Thanon Chira 29 0.8
Nakhon Pathom - Hua Hin 19 0.5
Lopburi - Paknampo 24 0.7
Tota l 89 2.5
Double-track rail
Cabinet approved
Waiting for the cabinet approval process
Source: Ministry of Transport, STEC, CK, DBS Vickers
Motorway projects
All three routes of motorway projects in the master plan are now in the bidding process. The Bang Pa In – Nakhon Ratchasima and Bang Yai – Karnchanaburi routes are included in the PPP fast track scheme.
The motorway projects were awarded to various contractors, given the simplicity of the civil project.
Dual track railway projects under construction
Motorway routes
Total Const ruct ionValue (Btbn)
Awarded cont ract
(Bt bn) Remark
Pattaya - Map Ta Phut 20 18 CK secured Bt785m contract
Bang Pa In - Nakhon Ratchasima (PPP Fast track)
85 10 ITD secured Bt1.5bn contract
Bang Yai - Karnchanaburi (PPP fast track)
56 7
Total 161 35
Source: Ministry of Transport, CK, DBS Vickers
However, the government still provides the funding of the civil construction for these two projects but will subsequently roll out the bidding for the operation of the concessions.
It is also worth noting that CK is likely to secure the remaining contract for the toll collection system packages of the Pattaya – Map Ta Phut route, worth c.Bt2.5bn. This is because there are only two qualified Thai contractors, including CK and See Sang Karnyotha (1979) Co., Ltd., that have the track record in toll booth construction.
Airport expansion projects
Airport of Thailand PCL (AOT) has kicked off the bidding process for the first two contracts, worth Bt16.4bn for Suvarnabhumi Airport Phase II. We also expect the bidding of another Bt32.6bn contracts from this project to follow.
Asian Insights SparX
Asean Construction
Page 18
AOT has announced the lowest bidders for the first two contracts
as follows;
(i) The lowest bidder for the first package for the ground
and underground floors of the structure is ITD with a
bidding price of Bt12bn(vs Bt13.4bn reference price)
(ii) For the second package for the utility system works is
the JV between Interlink Communication (ILINK TB) and
Samprasit Construction Co., Ltd. with a bidding price of
Bt1.9bn (vs Bt2.3bn reference price)
AOT expects to sign the official contracts with the lowest bidders
in July 2016 (vs August 2016 initially). CK and STEC commented
that the reference price of these two projects do not match with
their GPM target. Thus, they decided not to participate in the
bid.
A number of industry experts think that the developments in the
construction project of Suvarnabhumi Phase II bode well for
infrastructure spending, thus alleviating investor concerns over
potential delays in infrastructure spending. However, the
progress for the other airport expansion projects in the master
plan is still limited.
Progress on Suvarnabhumi Airport phase II project
ProjectProjectProjectProject Descript ionDescript ionDescript ionDescript ion
Const ruct ionConst ruct ionConst ruct ionConst ruct ion
Value (Btbn)Value (Btbn)Value (Btbn)Value (Btbn)
Construct ionConstruct ionConstruct ionConstruct ion
Value Value Value Value
(US$bn)(US$bn)(US$bn)(US$bn) ProgressProgressProgressProgress
Airport s of Thai land Public Company Lim ited : AOTAirport s of Thai land Public Company Lim ited : AOTAirport s of Thai land Public Company Lim ited : AOTAirport s of Thai land Public Company Lim ited : AOT
The ground and
underground floors of
the structure (Package I)
12 0.3 ITD (lowest bidder)
Utility system (Package
II)2 0.1
JV between Interlink
Communication PCL (ILINK TB)
and Samprasit Construction
Co.,Ltd. (lowest bidder)
Expect the remaining contracts
to be opened for bidding by
2017
TotalTotalTotalTotal 49494949 1.41.41.41.4
Extension of building,
terminal and utilities35 1.0
Suvarnabhumi
Airport :
Phase II
Source: AOT, AllianceDBS Research
Asian Insights SparX
Asean Construction
Page 19
GLOBAL COMPETITIVENESS INDEX – STANDINGS AND OPPORTUNITIES?
ASEAN Member States have invested in infrastructure to
varying degrees in terms of spending and development. The
Global Competitiveness Index (GCI) findings for 2015/16 are
based on 140 countries while those for 2014/15 encapsulate
144 countries.
ASEAN ASEAN ASEAN ASEAN –––– country and infrastruccountry and infrastruccountry and infrastruccountry and infrastructure rankingture rankingture rankingture ranking ASEAN CountriesA SEAN CountriesA SEAN CountriesA SEAN Countries Count ry Rank 15/16Count ry Rank 15/16Count ry Rank 15/16Count ry Rank 15/16 Inf ra Rank 15/16Inf ra Rank 15/16Inf ra Rank 15/16Inf ra Rank 15/16 Country Rank 14/15Country Rank 14/15Country Rank 14/15Country Rank 14/15 Inf ra rank 14/15Inf ra rank 14/15Inf ra rank 14/15Inf ra rank 14/15
Singapore 2 2 2 2
Malaysia 18 24 20 25
Thailand 32 44 31 48
Indonesia 37 62 34 56
Myanmar 131 134 134 137
Vietnam 56 76 68 81
Cambodia 90 101 95 107
Philippines 47 90 52 91
Laos 83 98 93 94
Source: GCI, AllianceDBS, DBS Vickers ASEAN ASEAN ASEAN ASEAN rrrranking on anking on anking on anking on iiiinfrastructure nfrastructure nfrastructure nfrastructure –––– Singapore topsSingapore topsSingapore topsSingapore tops, M’sia 2nd, M’sia 2nd, M’sia 2nd, M’sia 2nd
2
24
44
62
76
9098
101
134
2
25
4856
8191 94
107
137
0
20
40
60
80
100
120
140
160
Infra Rank 15/16
Infra Rank 14/15
Source: GCI, AllianceDBS, DBS Vickers
We highlight the infrastructure quality of all ASEAN countries
based on the last two recent GCI findings. In short, we have
concluded that:
i) Unsurprisingly Singapore is ranked the highest in
ASEAN and second in the world
ii) All ASEAN countries showed improvement in the
latest 2015/16 rankings for infrastructure, apart from
Indonesia and Laos.
iii) All ASEAN countries, apart from Singapore, Malaysia
Vietnam and Myanmar, cite the inadequate supply of
infrastructure as the top 5 most problematic reasons
for doing business. For Vietnam and Myanmar, the
likely reason why this issue doesn’t appear is because
relatively other issues cited such as access to
financing, inadequate educated workforce, political
instability, corruption, tax regulation and inefficient
government bureaucracy appear to take precedence.
For the Philippines, this appears as the number two
reason while for Cambodia, Indonesia and Laos, it is
the third reason
iv) Among the three ASEAN countries (Malaysia,
Thailand and Indonesia), the biggest opportunities
likely lie in Indonesia given the poorest ranking in
terms of infrastructure among the three and
concerted effort by the Jokowi-led government to
address this.
v) Malaysian contractors likely stand a higher chance for
Indonesian-based projects given their similar
languages, culture and historical precedence.
MALAYSIAMALAYSIAMALAYSIAMALAYSIA –––– SECOND BEST IN ASEANSECOND BEST IN ASEANSECOND BEST IN ASEANSECOND BEST IN ASEAN
MalaysiaMalaysiaMalaysiaMalaysia’s’s’s’s ininininfrastructure ranking detailfrastructure ranking detailfrastructure ranking detailfrastructure ranking detail
1615
13
16
2120
19
12
19 19
0
5
10
15
20
25
Overall Roads Railway Ports Airport
2015/16
2014/15
Source: GCI, AllianceDBS, DBS Vickers
Out of three ASEAN countries, Malaysia’s infrastructure is
probably the most mature. This implies while there is a surge in
transport-related infrastructure currently, contractors will need
to venture overseas again eventually.
For the detailed ranking for infrastructure, Malaysia’s overall
infrastructure ranking for 2015/16 fell to 16 vs 20 in 2014/15.
It showed improvement for roads and ports but not for railway
and airports. For railway, Malaysia fell to 13 in 2015/16 (vs 12
in 2014/15) and airport fell to 21 in 2015/16 (vs 19 in
2014/15). Roads and ports showed improvement to 15 and 16
in 2015/16, respectively, vs 19 for both categories in 2014/15.
Asian Insights SparX
Asean Construction
Page 20
MalaysiaMalaysiaMalaysiaMalaysia –––– ttttop 5 op 5 op 5 op 5 problematic reproblematic reproblematic reproblematic reasons for doing businessasons for doing businessasons for doing businessasons for doing business
10.8
10.2
9.2
8.6
7.6
0 2 4 6 8 10 12
Inefficient government bureaucracy
Access to financing
Insufficient capacity to innovate
Corruption
Inadequately educated workforce
Source: GCI, AllianceDBS, DBS Vickers
THAILANDTHAILANDTHAILANDTHAILAND –––– BT1.7tr PLAN TO DRIVE GROWTHBT1.7tr PLAN TO DRIVE GROWTHBT1.7tr PLAN TO DRIVE GROWTHBT1.7tr PLAN TO DRIVE GROWTH
ThailandThailandThailandThailand’s infrastructure ranking detail’s infrastructure ranking detail’s infrastructure ranking detail’s infrastructure ranking detail
71
51
78
52
38
76
50
74
54
37
0
10
20
30
40
50
60
70
80
90
Overall Roads Railway Ports Airport
2015/16 2014/15
Source: GCI, AllianceDBS, DBS Vickers Based on the Global Competitiveness Index,* Thailand’s overall infrastructure ranking for 2015/16 fell to 76 (vs 71 in 2014/15. This shows an urgent need for Thailand to invest in country’s infrastructure in order to become the ASEAN regional hub, given Thailand’s strategic location.
The survey also showed us that the inadequate supply of Thailand’s infrastructure is one of the top 5 most problematic reasons for doing business. Additionally, the government’s aim is to reduce logistics costs, which now account for c.15% of Thai’s GDP, through the upgrade of infrastructure.
Thus, the government has launched the Bt1.7tr spending plan
to upgrade rail, air and water transportation under the
“Thailand Transport Infrastructure Development Strategy
2015-2022” framework.
Thailand Thailand Thailand Thailand –––– top 5 problematic reasons for doing businetop 5 problematic reasons for doing businetop 5 problematic reasons for doing businetop 5 problematic reasons for doing businessssssss
11.7
10.6
9.6
8.7
8.4
0 2 4 6 8 10 12 14
Corruption
Inefficient government bureaucracy
Inadequate supply of infrastructure
Policy instability
Access to financing
Source: GCI, AllianceDBS, DBS Vickers
INDONESIAINDONESIAINDONESIAINDONESIA –––– A WORLD OF OPPORTUNITIESA WORLD OF OPPORTUNITIESA WORLD OF OPPORTUNITIESA WORLD OF OPPORTUNITIES
IndonesiaIndonesiaIndonesiaIndonesia’s’s’s’s infrastructure ranking detailinfrastructure ranking detailinfrastructure ranking detailinfrastructure ranking detail
81 80
43
82
66
72 72
41
77
64
0
10
20
30
40
50
60
70
80
90
Overall Roads Railway Ports Airport
2015/16 2014/15
Source: GCI, AllianceDBS, DBS Vickers
Indonesia is one of the few countries that saw its country
ranking decline. Aside from corruption and bureaucratic red
tape, the underdeveloped infrastructure is also among the
reasons for Indonesia’s weakening competitiveness.
Infrastructure ranking fell to #62 in 2015/2016, which is the
lowest compared to Malaysia (#24) and Thailand (#44).
On the other hand, the relatively low ranking indicates plenty
of opportunities for contractors in the next few years. It is
estimated that Indonesia would need as much as USD235bn to
close the infrastructure gap, which is still higher than the
combined infrastructure needs of Malaysia and Thailand. This
makes Indonesia as one of the largest markets for investors
and contractors.
Asian Insights SparX
Asean Construction
Page 21
Indonesia Indonesia Indonesia Indonesia –––– top 5 problematic reasons for doing businesstop 5 problematic reasons for doing businesstop 5 problematic reasons for doing businesstop 5 problematic reasons for doing business
18.1
12.5
12.3
12.03
8.6
0 2 4 6 8 10 12 14 16 18 20
Government instability/coups
Corruption
Inefficient government bureaucracy
Policy instability
Inadequate supply of infrastructure
Source: GCI, AllianceDBS, DBS Vickers
Asian Insights SparX
Asean Construction
Page 22
CROSS-BORDER OPPORTUNITIES MALAYSIAMALAYSIAMALAYSIAMALAYSIA –––– HIGHEST NEED FOR CROSS BORDER WORKHIGHEST NEED FOR CROSS BORDER WORKHIGHEST NEED FOR CROSS BORDER WORKHIGHEST NEED FOR CROSS BORDER WORK Malaysia contractors overseas (2013Malaysia contractors overseas (2013Malaysia contractors overseas (2013Malaysia contractors overseas (2013----15 selective)15 selective)15 selective)15 selective) Company Company Company Company T y pes of project sT y pes of project sT y pes of project sT y pes of project s Locat ionLocat ionLocat ionLocat ion Cont ract V alue US$mCont ract V alue US$mCont ract V alue US$mCont ract V alue US$mYear CompletedYear CompletedYear CompletedYear Completed
ASEAN Member StatesA SEAN Member StatesA SEAN Member StatesA SEAN Member States
Trans Resources Corp Modernization of airport termina Brunei 98 2014
Bina Puri Building construction Brunei 4 2014
MTD Construction Toll road Indonesia 371 2015
Johawaki Toll road Indonesia 428 2014
UEM Builders Toll road Indonesia 641 2015
Bina Puri Mini Hydropower plant Indonesia 10 2015
Salcon Engineering Others Lao PDR 1 2013
Eastern Soldar Tankage Work Singapore 16 2014
Salcon Engineering Reserv ior Thailand 7 2014
Prinsiptek Building and Residential Thailand 14 2015
Bina Puri Building Thailand 25 2014
Salcon Engineering Water Treatment Vietnam 22 2013
Gamuda Transmission line, mech and electrical V ietnam 146 2013
Ireka Hopsital V ietnam 26 2013
Other dev eloping economiesOther dev eloping economiesOther dev eloping economiesOther dev eloping economies
Malaysian Maritime & Dredging Dredging and bank protection Bangladesh 27 2013
HG Power Transmission Transmission Line Bangladesh 5 2014
HG Power Transmission Transmission Line Bangladesh 23 2015
Scomi Monorail Brazil 621 2014
Scomi Monorail Brazil 652 2015
MTD Highway China 429 2014
Mersing Sewage China 14 2014
Mersing Water China 26 2015
IJM Road and highway India 24 2014
Salcon Engineering Water Treatment India 5 2013
IJM Mahua-Jaipur Section 6 India 6 2015
IJM Mahua-Jaipur Section 9 India 9 2014
UEM Builders Buidling India 13 2014
UEM Builders Road works India 50 2013
Mudajaya Power plant India 588 2013
Ho Hup Road Iraq 20 2015
Ho Hup C Water System Iraq 88 2015
Steelworks Steel Water Tank Kenya 2013
Ranhill Residential Libya 143 2013
WCT Expressway Oman 2015
WCT Road and Building Watar 334 2015
Bina Puri Water System Saudi 8 2013
Salcon Engineering Water Supply Sri Lanka 18 2015
MTD Sewage tunnel UAE 19 2013 Source: CIDB, AllianceDBS, DBS Vickers Malaysia contractor’s overseas exposure Malaysia contractor’s overseas exposure Malaysia contractor’s overseas exposure Malaysia contractor’s overseas exposure –––– nnnnumber and valueumber and valueumber and valueumber and value
1 1 1 3 3 14 6
12
232426
32
41
25
36
59
47
38
6063
5554
2627
7
149
30
0
1000
2000
3000
4000
5000
6000
0
10
20
30
40
50
60
70
Amount (USDm) Total projects
Source: CIDB, AllianceDBS, DBS Vickers
Malaysian contractors are no strangers in terms of overseas
ventures. Based on the statistics from the Construction
Industry Development Board (CIDB), the number of contracts
and amount awarded for overseas jobs slowed significantly
post 2011-12 as contractors were more focused on domestic
jobs such as MRT while there was still a strong pipeline for
property-related projects from the private sector. However, this
slowed significantly since then and 2015 saw no new projects
from overseas. A case in point is IJM where it made a
conscious effort to remain domestic in terms of order flows,
given that its Indian projects faced nagging issues.
DBSVDBSVDBSVDBSV construction universeconstruction universeconstruction universeconstruction universe’s’s’s’s exposure for overseas contractors exposure for overseas contractors exposure for overseas contractors exposure for overseas contractors vsvsvsvs ttttotalotalotalotal
Total Total Total Total
numbernumbernumbernumber
Total project T otal project T otal project T otal project
(USDm)(USDm)(USDm)(USDm)
Completed Completed Completed Completed
project v alue project v alue project v alue project v alue
(USDm)(USDm)(USDm)(USDm)
On-going On-going On-going On-going
project v alue project v alue project v alue project v alue
(USDm)(USDm)(USDm)(USDm)
Gamuda 9 2273 2273 0
IJM 52 2603 2293 224
WCT 15 2016 1292 723
Sunway 12 1493 1493 0
Muhibbah 74 1184 1184 0
Kimlun 0 0 0 0
MMC 4 3458 3458 0
Total 166 13027 11993 947
Total including others 789 31853 24404 6668
% of Total 21 41 49 14 Source: CIDB, AllianceDBS, DBS Vickers DBSV construction DBSV construction DBSV construction DBSV construction universeuniverseuniverseuniverse’s’s’s’s eeeexposure for overseas contractsxposure for overseas contractsxposure for overseas contractsxposure for overseas contracts
0
500
1000
1500
2000
2500
3000
3500
4000
0
10
20
30
40
50
60
70
80
Gamuda IJM WCT Sunway Muhibbah Kimlun MMC
Total project (USDm) Total number
Source: CIDB, AllianceDBS, DBS Vickers Based on the above, contractors under our coverage contributed 21% of the total number of contracts awarded but 41% of the project value from 1996-2015. The key contributors were Gamuda, IJM and MMC. Gamuda’s exposure for overseas projects has been varied but is skewed towards Vietnam, India and the Middle East. IJM has a long standing history in India since the 1990s but given the strong pipeline projects in Malaysia and its peak
Asian Insights SparX
Asean Construction
Page 23
orderbook of RM8.5bn, we think it will be selective in terms of exploring overseas projects for now. 20% of WCT’s current outstanding orderbook comprises Middle East projects (two projects in Qatar). It continues to bid selectively for projects there. Suncon has a successful track record in the Middle East with its Rihan Heights project with JV partner CapitaLand. It has also done several road projects in India for the National Highway Authority of India. We understand that it has been winning at every level for the arbitration process and there is a high probability of some writebacks this year. Muhibbah’s overseas exposure has also been varied but it would benefit from potential flows in Cambodia given that it owns a 21% stake in the airport concession and has some on-the-ground feel of the market there. While contractors are in a sweet spot currently with ample job flows, we think post the rollout of HSR and MRT Line 3 in the next few years, there will be no meaningful large-scale projects to look forward to. Based on our conversation with contractors, there are already making some preparatory ground work to explore potential overseas contracts. For future projects, we do expect joint ventures to be formed to minimise project risk.
Malaysian contractorsMalaysian contractorsMalaysian contractorsMalaysian contractors’’’’ exposure to ASEAN countriesexposure to ASEAN countriesexposure to ASEAN countriesexposure to ASEAN countries
Brunei15%
Cambodia8%
Indonesia30%
Laos0%
Myanmar1%
Philippines7%
Singapore6%
Thailand14%
Vietnam19%
Source: CIDB, AllianceDBS, DBS Vickers
JV projects overseas JV projects overseas JV projects overseas JV projects overseas
Company Company Company Company ProjectProjectProjectProject Amount (USm)Amount (USm)Amount (USm)Amount (USm) CompletedCompletedCompletedCompleted
Gamuda -WCT (70:30)
4 Laning of Panagarh – Palsit Section of NH –
2 West Bengal, India 68 2005
Gamuda-WCT (70:30)
4 Laning of Durgapur Expressway (Dankuni –
Palsit Section on NH-2) West Bengal, India 29 2005
MRCB-Zelleco Construction (50:50) Osmani International Airport, Bangladesh 7.7 2007
Gamuda-WCT (85:15)
Design and build Airfield Paving Tunnel and
Detention Ponds NDIA 663 2008
Gamuda-WCT (51:49) Durkhan Highway 112 2009
IJM-LFE (70:30)Hotel Development Al-Reem Island, Abu Dhabi 108 2008
Source: CIDB, AllianceDBS, DBS Vickers
INDONESIA – IN A SWEET SPOT FOR NOW
Seeking opportunities abroad appears to be Seeking opportunities abroad appears to be Seeking opportunities abroad appears to be Seeking opportunities abroad appears to be lower lower lower lower priopriopriopriority for rity for rity for rity for
now. now. now. now. Indonesia is still in the early phase of an infrastructure
boom. A huge number of projects are still in the designing
phase and have yet to be awarded to contractors.
Opportunities are still abound for local contractors to beef up
their order book, which makes seeking ventures abroad less a
priority at this juncture. On the contrary, this puts Indonesia as
a target market for contractors in a more developed country,
such as Malaysia, Korea, Japan and China.
Contractor’s market share by nationality in Indonesia
Source: BMI Research
WIKA’s small but encouraging start. WIKA’s small but encouraging start. WIKA’s small but encouraging start. WIKA’s small but encouraging start. WIKA appears to be the
most active in seeking opportunities overseas among the listed
state-run contractors. This year, the company expects to win a
building project in Saudi Arabia and two airport expansion
projects in Thailand and East Timor. The contribution of
Asian Insights SparX
Asean Construction
Page 24
overseas project is expected to remain small at below 5% of total revenue and order book for this year. Indonesian contractors’ presence in foreign countries
Contractors Project CustomerContract
value(Rp bn)
Project timeline
WIKA Mall in Kuching Zeacon, Malaysia 168 2014-2015WIKA Office tower Nobel Twin, Myanmar 459 2014-2015WIKA Apartment Gov't of Algeria 350 2014-2015WIKA Oecusse Port Gov't of East Timor 910 2015-2017WIKA Sentubong Bridge Zeacon, Malaysia 110 2015-2017PTPP Tibar Road Gov't of East Timor 264 2013-2015PTPP Liquica Road Gov't of East Timor 127 2012-2014PTPP Office building Gov't of East Timor 185 2012-2014WSKT Suai Airport upgrade Gov't of East Timor 880 2014-2016WSKT Oecusse Road Gov't of East Timor 502 2014-2016 Source: Companies THAILAND – SEEMINGLY MORE RISK AVERSE
Thailand contractors – low overseas exposure. Thailand-based contractors have low exposure to overseas contracts. This is because of concerns over payment. Additionally, the abundant domestic opportunities, especially from the public sector, have eliminated the pressure on the contractors to expand their business overseas for now. CK and ITD; the first two contractors to have overseas exposure CK is the contractor with the largest exposure overseas. Currently, its Xayaburi project makes up 50% of its backlog or Bt48.5bn. The Xayaburi is a hydroelectric dam construction project in Laos. The project owner is Xayaburi power Co., Ltd., a subsidiary of CK.
ITD has 43% of its backlog from overseas projects. Of which, the largest portion (85%) is from the Hongsa Mine project in Laos. However, the major part of the funding of this project is from Thailand, as the major shareholders of Hongsa Power Company Limited are Banpu Power Limited, Ratcburi Electricity Generating Holding PCL, and Lao Holding State Enterprise. Thus, this should alleviate concerns over payment risk.
For the works in India, Mozambique and Bangladesh, ITD appears to have secured the projects through ITD Cementation India PCL (ITCE IN), an India-based construction company engaged in a number of infrastructure works in India.
ITD also owns concessions in (i) Dhaka Elevated Expressway in Bangladesh, worth Bt98bn, and (ii) Railway line and infrastructure of port terminal in Mozambique, worth Bt111bn. Currently, ITD still looking for a partner to invest in these projects. ITD plans to have less than 10% partnership stakes.
Additionally, ITD has the concession to develop the Dawei project, the development of industrial estates and infrastructure project, phase 1 (27 sq km) in Myanmar. This
Bt10bn project has already passed the EIA process and is now waiting for the Myanmar government’s order to start construction.
STEC only ventured overseas last year. Currently, it is working on road construction works in Laos, worth Bt800m, but funding is subsidised by the Thai government. STEC’s management prefers to focus on domestic works as there should be abundant opportunities in the country for many years.
For UNIQ, the company has no interest in venturing overseas as of now.
Thailand’s top four contractors’ exposure overseas (backlog overseas/total backlog)
50%
2% 0%
43%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
CK STEC UNIQ ITD*
Percentage to total backlog
*Excluding its Bt149bn concession in Bangladesh and Mozambique
Source: CK, ITD, DBS Vickers
Thailand – top four contractors’ exposure by country
India, Bt1.1bn
Laos, Bt75bn
Myanmar, 0
Mozambique, Bt3.2bn
Bangalore, Bt0.2bn
Source: CK, STEC, UNIQ, ITD, DBS Vickers
Asian Insights SparX
Asean Construction
Page 25
FUNDING GAPS
Private sector funding and PPP-related initiatives have been low
in this region due to high perceived risks and long duration of
the projects. The support from individual governments,
regional initiatives etc., will help bridge some of the funding
needs. The Asian Development Bank and Japanese Official
Development Assistance (ODA) are already involved in the
AMPC but there is room for involvement from the Asian
Infrastructure Investment Bank (AIIB), Silk Road Fund and
Chinese ODA.
The ASEAN Infrastructure Fund was launched in April 2012
with an estimated total lending commitment of US$300m a
year. This fund comprises equity contributions from individual
member countries and is also co-financed and administered by
the Asian Development Bank.
The AIIB is an international financial institution that aims to
support the building of infrastructure in the Asia-Pacific region.
The capital of the bank is US$100bn, equivalent to 2⁄3 of the
capital of the Asian Development Bank and about half that of
the World Bank.
Based on data compiled by UNCTAD, there is US$10tr in
available funding or resources which can be used for
infrastructure development. This comprises the ASEAN bond
market, ASEAN stock exchanges, ASEAN infrastructure
companies, ASEAN Banks, ASEAN Insurance Companies,
ASEAN Pension Funds.
Available Available Available Available resources regionally for fundingresources regionally for fundingresources regionally for fundingresources regionally for funding
Amount Amount Amount Amount
($ billions)($ billions)($ billions)($ billions)
ASEAN Bond Markets 2015 1,081 Asian Development Bank Bond Monitoring.
Based on second-quarter 2015 bond markets data of Indonesia ($125 billion),
Malaysia ($285 billion), Philippines ($103 billion), Singapore ($241 billion), Thailand
($284 billion) and V iet Nam ($43 billion).
ASEAN Stock 2015 2,002 World Federation of Exchanges.
Exchanges Based on stock exchange market capitalization in August 2015 of Indonesia
($334 billion), Malaysia ($363 billion), Philippines ($243 billion), Singapore ($639
billion), Thailand ($373 billion) and V iet Nam ($50 billion).
ASEAN Infrastructure 2014 1,567 Orbis.
Companies Covers construction, real estate, utilities and telecommunication companies.
(Total assets) Based on 3,319 infrastructure companies with reported financial data; of which
3,030 domestic infrastructure companies with combined total assets of $1.45
trillion and 289 foreign construction companies operating in ASEAN with $117
billion. Information for some companies was based on 2012 data (latest year for
which data are available).
ASEAN Banks 2014 4,619 Orbis.
(Total assets) Based on 477 banks with reported $4,619 billion total assets, with operations
in ASEAN, of which 338 are domestic and 139 foreign owned. Domestic banks
collectively held $4 trillion, and foreign bank subsidiaries owned $619 billion in
total assets. Information for some companies was based on 2012 data (latest
year for which data are available).
ASEAN Insurance 2014 504 Orbis.
Companies Based on data for 278 domestically owned insurance companies and 118 foreignowned
(Total assets) companies operating in ASEAN. Total assets of domestic insurance
companies were $340 billion, and foreign-owned subsidiaries held $164 billion.
Information for some companies was based on 2012 data (latest year for which
data are available).
ASEAN Pension Funds 2014 38 Orbis.
(Total assets) Based on data for 222 pension fund companies with reported financial data, of
which 176 domestic companies held total assets of $31 billion and 36 foreign
ones operating in ASEAN held $7 billion. Information for some companies was
based on 2012 data (latest year for which data are available).
Momorandum:Gross domestic sav ing 2014 820 World Bank.
Exclude data on Myanmar.
Foreign-exchange 2014/2015 750 IMF: Data for Indonesia, Malaysia, Philippines, Singapore and Thailand reported
reserves in August 2015.
World Bank: Data for Brunei Darussalam, Cambodia, Lao PDR, Myanmar and
Viet Nam based on 2014 data and for Myanmar on 2012 data.
Sovereign wealth fund 2014 620 Sovereign Wealth Fund Institute: Based on December 2014 data for Brunei
Investment Agency (Brunei Darussalam), Government Investment Unit
(Indonesia), Khazanah Nasional (Malaysia), GIC Private Limited (Singapore),
Temasek (Singapore) and V ietnam`s State Capital Investment Corporation (V iet
Nam)
Source: UNCTAD 2015b
SourceSourceSourceSourceT y pe of resourcesT y pe of resourcesT y pe of resourcesT y pe of resources YearYearYearYear
Asian Insights SparX
Asean Construction
Page 26
MALAYSIAMALAYSIAMALAYSIAMALAYSIA
For Malaysia, the construction sector in Malaysia has
historically been a localised sector where foreign participation
is only present when the required expertise is needed or it
comes with the associated funding requirements. The MRT
projects have the least risk of cuts in funding or delays as it is
deemed a high priority Economics Transformation Programme
(ETP) project. Financing of the project is off balance sheet and
hence has no impact in terms of the country’s budget deficit.
However, going forward, we expect to see more foreign
participation in the Malaysian construction space. A case in
point is the HSR where 14 companies have been shortlisted to
present their case to SPAD. Among them are companies from
France, Germany, Spain, Canada, China, South Korea and
Japan.
In our view, the sale of 1MDB’s power assets to China General
Nuclear Power Corp for RM9.83bn and China Railway
Engineering Corp’s involvement in Bandar Malaysia could be a
precursor to more Chinese involvement in Malaysia’s mega
infrastructure projects like the HSR. We think this is a ‘win-win’
situation in Malaysia as the government’s current finances and
budget deficit will render it unlikely to be able to fund another
large-scale project besides the MRT. Even with higher foreign
participation, local contractors will continue to benefit but will
have to settle for a subcontractor role.
Moreover, we understand that regionally, China’s involvement
in infrastructure projects in ASEAN comes with the most
competitive funding structure.
Malaysia Malaysia Malaysia Malaysia –––– ggggovernment’s financesovernment’s financesovernment’s financesovernment’s finances
46
47
48
49
50
51
52
53
54
55
56
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
800.0
2010 2011 2012 2013 2014 2015 2016e
% to GDPRM bnOutstanding govt debt (lhs)
Debt to GDP ratio (rhs)
Additional room space for debt
before hitting 55% to GDP limit
Source: BNM, AllianceDBS Research
INDONESIAINDONESIAINDONESIAINDONESIA
Infrastructure investment needs and funding source
State budget
Rp1,979tr(41%)
SOERp1,066tr(22%)
PrivateRp1,751tr(37%)
Source: National Development Planning Agency
State budgetState budgetState budgetState budget
As part of the efforts to narrow the country’s infrastructure
deficit, the government for the first time raised the
infrastructure budget to 15% of the total state expenditure, a
significant increase from the average of 8% in 2005-2014. The
infrastructure budget was further raised in the 2016 state
budget from Rp290tr to Rp313tr (+8% y-o-y), with its share of
total expenditure being maintained at 15%.
State’s infrastructure budget trend
26
54 60 79 76
86
114
146 156
178
290 313
0%
5%
10%
15%
20%
-
50
100
150
200
250
300
350
State's infrastructure budget (Rp tr) as % of state exp.
Source: CEIC, Ministry of Finance
Despite the higher budget, government cannot rely on the state
budget as the main source of funding as it is obliged by law to
maintain fiscal deficit below 3% of GDP every year. Revenue
shortfall is one of the key risks faced by the government as it
would force the government to scrap or delay the execution of
state-funded projects. A case in point is the government’s plan
to cut the budget of the Ministry of Public Works and Housing
in the range of 5% this year due to the widening fiscal deficit.
Asian Insights SparX
Asean Construction
Page 27
Infrastructure budget
Rp trRp trRp trRp tr %%%%
Ministerial spendingMinisterial spendingMinisterial spendingMinisterial spending 166166166166 189189189189 8888 14%14%14%14%
Public Works & Housing 102 97 (5) -5%
Transportation 46 43 (3) -6%
Non-ministerial spendingNon-ministerial spendingNon-ministerial spendingNon-ministerial spending 5555 5555
Transfer to region & village fundTransfer to region & village fundTransfer to region & village fundTransfer to region & village fund 83838383 83838383
Capital expenditureCapital expenditureCapital expenditureCapital expenditure 48 61
Capital injection to SOE** 38 52 14 37%
Social infrastructureSocial infrastructureSocial infrastructureSocial infrastructure 7777 7777
Infrastructure supportInfrastructure supportInfrastructure supportInfrastructure support 4444 4444
TotalTotalTotalTotal 313313313313 350350350350 24242424 12%12%12%12%
2016 state 2016 state 2016 state 2016 state
budget budget budget budget
(APBN)(APBN)(APBN)(APBN)
2016 2016 2016 2016
revised revised revised revised
state state state state
budget budget budget budget
draftdraftdraftdraft
(R-APBNP)*(R-APBNP)*(R-APBNP)*(R-APBNP)*
Potential changesPotential changesPotential changesPotential changes
*Indicative numbers; **Changes include a total Rp2tr cut in Pelindo III
and Hutama Karya and a budget increase of Rp16tr for BLU LMAN (land
acquisition) but not including Rp13.5tr budget increase for PLN.
Source: Ministry of Finance, AllianceDBS, DBS Vickers
Capital injection and capital market. Capital injection and capital market. Capital injection and capital market. Capital injection and capital market. Through capital injection,
the government aims to increase the role of SOEs in executing
infrastructure development plans. In the 2016 revised state
budget, as much as Rp64tr budget is allocated to SOEs,
mostly to fund infrastructure development in the country. In
some cases where the SOE entitled for capital injection is
publicly traded, a rights issue scheme will be applied to allow
private investors to retain their stakes in the company. With
enlarged equity base post capital injection or rights issue, the
SOEs will have more capacity to leverage up and can take up
more infrastructure projects in the future. Furthermore, the
capital injection budget is not constrained by the statutory
fiscal deficit limit of 3% of GDP.
Government’s capital injection budget
2.0 1.5 3.0 - -
41.4
29.7
57.3
2.0 7.2 4.6
2.0 3.0
23.5
10.7
10.7
-
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
2010 2011 2012 2013 2014 2015 2016 2016*
Infra-related capital injection (Rp tr) Non-infra related capital injection (Rp tr) *Draft of 2016 revised state budget (R-APBNP)
Source: Ministry of Finance, AllianceDBS, DBS Vickers
Capital injection to selected infra-related SOEs (in Rp bn)
CompanyCompanyCompanyCompany
Initial Initial Initial Initial proposalproposalproposalproposal
(2016 state (2016 state (2016 state (2016 state budget)budget)budget)budget)
Proposed by Proposed by Proposed by Proposed by gov’t in gov’t in gov’t in gov’t in
revised state revised state revised state revised state budget draftbudget draftbudget draftbudget draft
Approved by Approved by Approved by Approved by parliamentparliamentparliamentparliament
WIKA 4,000 4,000 4,000
PTPP 2,250 2,250 2,250
JSMR 1,250 1,250 1,250
PLN* 10,000 23,560 23,560
Hutama Karya 3,000 3,000 2,000
Angkasa Pura II 2,000 2,000 2,000
Industri KA 1,000 1,000 1,000
Pelindo III 1,000 1,000 -
Amarta Karya 32 32 32
*The budget increase of Rp13.56tr is non-cash capital injection
Source: Ministry of Finance
Infra-related SOEs’ rights issue (in Rp bn)
CompanyCompanyCompanyCompany YearYearYearYear Gov’t capital Gov’t capital Gov’t capital Gov’t capital injectioninjectioninjectioninjection
Rights issue Rights issue Rights issue Rights issue proceedsproceedsproceedsproceeds
WSKT 1H15 3,500 5,300
ADHI 2H15 1,400 2,700
WIKA* 2H16 4,000 6,150
PTPP* 2H16 2,250 4,410
JSMR* 2H16 1,250 1,785
Source: Ministry of Finance, AllianceDBS, DBS Vickers
PublicPublicPublicPublic----Private Partnership Private Partnership Private Partnership Private Partnership –––– getting the deal throughgetting the deal throughgetting the deal throughgetting the deal through. Three out
of five hub ports, which are designed to support government’s
sea toll road programme and the ASEAN Single Shipping Market
(ASSM) are also listed in Bappenas’ 2015 Public-Private
Partnership (PPP) book. The participation of the private sector is
of importance due to the high investment requirement and
limited room for government financing.
Government’s support mechanisms for PPP projects
Source: Ministry of Finance
Asian Insights SparX
Asean Construction
Page 28
Major ports offered for private financing
ProjectProjectProjectProject InvestmentInvestmentInvestmentInvestment
(USD m)(USD m)(USD m)(USD m)
RemarksRemarksRemarksRemarks
Kuala TanjungKuala TanjungKuala TanjungKuala Tanjung (Pelindo I)
2,000.00
� Phase 1 50ha container field � Phase 2 583ha container field � Phase 3 350ha container field BitungBitungBitungBitung (Pelindo IV) 500.00
Makassar New Makassar New Makassar New Makassar New PorPorPorPort t t t (Pelindo IV)
421.55
� Phase 1 46ha container terminal (reclaimed)
� Phase 2 30ha container terminal (reclaimed)
� Phase 3 30ha container terminal and 5.8ha RO-RO terminal (reclaimed)
Source: BAPPENAS’ 2015 PPP Book
The Asia infrastructure race The Asia infrastructure race The Asia infrastructure race The Asia infrastructure race –––– compecompecompecompetition heats up; more tition heats up; more tition heats up; more tition heats up; more
fund made available by Japan recently.fund made available by Japan recently.fund made available by Japan recently.fund made available by Japan recently. The large
infrastructure gap in Asia and the public fund limitation to
plug this gap have attracted Japan and China, the two
biggest powers in the region, to play a more active role in
project financing. Both countries have turned into Asian
countries for investment opportunities in an attempt to find a
new growth engine.
In Sep 2015, three Indonesian state-owned banks secured a
loan commitment worth USD3bn from the China
Development Bank (CDB) to finance infrastructure
development in Indonesia. CDB has also signed a
commitment deal with the Indonesian government to provide
up to USD20bn to support 16 infrastructure projects in
Indonesia. More loan deals have been made in the past
months, including CDB loan for the Jakarta-Bandung high-
speed railway project amounting to USD4.1bn. Based on our
checks, the financial close is currently reaching the final stage.
Furthermore, Japan has decided to loosen the lending rules
for overseas infrastructure projects this year. We note that the
initiative was taken after Japan lost the Jakarta-Bandung high-
speed railway contract to China last year. Chinese bids were
selected over those of Japan which asked for financial
guarantee from the Indonesian government.
The new policy now allows Japan to invest in riskier
infrastructure projects through a special account. The move is
part of the government’s plan called Quality Infrastructure
Initiative, which has set out a target of USD110bn new
investment in Asia infrastructure development in 2016-2020
through Japan-backed development banks i.e. JBIC, ADB and
JICA. The change is aimed at enabling Japan to bid more
competitively for large-scale infrastructure projects across
Asia.
We also note that ADB recently decided to boost its lending
commitment to fund Indonesia’s infrastructure build from
USD740m p.a. in 2010-2014 to USD2bn p.a. or a total of
USD10bn over the next five years.
JBIC’s funding commitment to ASEAN member countries
Source: FT Confidential Research, JBIC
Underleveraged nonUnderleveraged nonUnderleveraged nonUnderleveraged non----bank infrastructure financing companies. bank infrastructure financing companies. bank infrastructure financing companies. bank infrastructure financing companies.
The role of non-bank financial institutions specialising in
infrastructure financing has recently becoming more evident
in Indonesia. Currently, there are two institutions backed by
the Indonesian government, PT Sarana Multi Infrastruktur
(SMI) and PT Indonesia Infrastructure Finance (IIF). Having the
Government of Indonesia and multilateral development banks
(i.e. IFC, ADB) as shareholders, SMI and IIF have better access
to long-term funding, which is suitable for infrastructure
financing.
Both institutions have a relatively underleveraged balance
sheet and plan to ramp up its portfolio starting this year.
SMI’s recent involvement in bridging the financing needs for
toll roads’ land acquisition has marked its initial significant
role in speeding up infrastructure development. This year, the
company has proposed to receive Rp4.16tr capital injection
from the government.
Asian Insights SparX
Asean Construction
Page 29
THAILANDTHAILANDTHAILANDTHAILAND
Thailand's infrastructure investment plan by source of fund for fiscal year 2015-2022
SOEs SOEs SOEs SOEs borrowing/on borrowing/on borrowing/on borrowing/on lending, 45%lending, 45%lending, 45%lending, 45%
Government Government Government Government Budget, 20%Budget, 20%Budget, 20%Budget, 20%
PublicPublicPublicPublic----Private Private Private Private Partnership, Partnership, Partnership, Partnership,
20%20%20%20%
SOEs revenue, 10%
Infrastructure Fund, 5%
Source: Public Debt Management Office (PDMO), AllianceDBS Research
Expect government spending to become less significant.
Government financing has a number of constrains. In Thailand,
the public debt/GDP borrowing ceiling is at 60%, compared to
the current level at 44%.
Although the current funding of infrastructure projects is
highly dependent on public funding, we believe that
government financing will become less significant.
Currently, there are five infrastructure projects in the pipeline
that will be funded by government borrowings as follows: Infrastructure projects that will be funded by the government
ProjectProjectProjectProject Des criptionDes criptionDes criptionDes cription
Cons tructionCons tructionCons tructionCons truction
Va lue (Btbn)Va lue (Btbn)Va lue (Btbn)Va lue (Btbn) Progres sProgres sProgres sProgres s
Mas s Rapid Trans it Authority of Tha iland : MRTAMas s Rapid Trans it Authority of Tha iland : MRTAMas s Rapid Trans it Authority of Tha iland : MRTAMas s Rapid Trans it Authority of Tha iland : MRTA
Orange line83
to be opened for bidding in
June 2016
State Ra ilway of Tha iland : SRTState Ra ilway of Tha iland : SRTState Ra ilway of Tha iland : SRTState Ra ilway of Tha iland : SRT
Prachuab Khiri Khan - Chumpon 17
Map Kabao - Thanon Chira 29
Nakhon Pathom - Hua Hin 19
Lopburi - Paknampo 24
Tota lTota lTota lTota l 172172172172
Double-track
rail
Thailand Cultural Centre - Min
Buri
Cabinet approved
Waiting for the cabinet
approval process
Source: PDMO, AllianceDBS Research
Thus, we see a high potential for these five projects to be
open for bidding this year, given their clear source of funding.
Infrastructure loans from Japanese government for
funding the Thai-Japanese railway cooperation. The
Japanese government has played an important role in the Thai
government’s public funding through Japanese funds. For
example, in 2015, the Japanese government funded Bt11bn
for the MRT red line; Bang Sue – Rungsit route, which is now
under construction by Unique Engineering and Construction
(UNIQ TB), through Japan International Cooperation Agency
(JICA). However, for projects that are funded by the Japanese
government, they are required to have the involvement of a
Japanese entity, e.g. a Japanese rolling stock producer, in the
project.
Going forward, financial help from the Japanese government
is expected to continue. On 27 May 2015, the Thai and
Japanese governments signed a memorandum of cooperation
(MOC) to invest in a high-speed train project (Bangkok-
Chiang Mai), worth Bt546bn. This project is still in the
feasibility study phase, given its huge investment amount with
low IRR.
Apparently, the Japanese government is also interested in
investing in a 575km East-West corridor rail project in
Thailand, consisting of the Karnchanaburi – Laem Chabung*
route and the Bangkok – Aranyaprathet route, which is still in
the feasibility study phase. This route will link Bangkok with
eastern and western provinces, which means that this rail
project would play a crucial role in logistics services for
ASEAN.
Cancellation on Thai-China railway cooperation. The Chinese government also offers infrastructure loans to the Thai government. The Chinese government is interested in a high speed train project connecting southern China through landlocked Laos to Thailand’s industrial eastern coast. However, given the lack of a final deal, General Prayuth Chan-ocha, Thailand’s prime minister, has announced the cancellation of this cooperation between Thai and China. This is because of the inability to agree on the investment-sharing and loan structure.
Public-Private partnership (PPP) scheme to become more
crucial. Private financing needs to play a bigger role in order
to keep the public debt ratio below the 60% threshold.
Currently, the government has put five projects, worth
Bt334bn, under the PPP scheme since November 2015.
The five projects are (i) MRT pink line, (ii) MRT yellow line, (iii)
MRT blue line extension, (iv) Motorway project: Bang Pa In**
– Nakhon Ratchasima, and (v) Motorway project: Bangyai –
Kanchanaburi.**
Additionally, there would be a proposal made to include the
two high-speed rail projects, the Bangkok-Rayong, worth
Bt153m, and Bangkok Huahin routes, Bt95m, into the Public-
private partnership scheme in July 2016.
** PPP contract cover only the right to manage the motorway and
share of toll fee while the government funds civil construction costs
But PPP still fraught with issues. According to our channel
checks, contractors prefer to wait for the full Term of
References (TORs) of the PPP project before deciding on
whether they will participate in the bid.
We expect the bidding process for the MRT pink and yellow
line projects to finally take place within 2016. We think that
the PPP terms for these two projects should form the master
reference PPP term of other subsequent projects. Additionally,
Asian Insights SparX
Asean Construction
Page 30
if the bidding for these two projects is successful, this could
lower the private sector’s concerns over the return on
investment through PPP projects.
Infrastructure fund; government’s new source of
funding. “Thailand Future Fund (TFF)” may be launched this
year after obtaining cabinet approval in 2015. This Bt100bn
infrastructure fund is to be raised by the private sector and
targets the overseas market. Note that this infrastructure fund
is allowed to invest in greenfield projects.
Asian Insights SparX
Asean Construction
Page 31
EARNINGS MOMENTUM AND CONSENSUS CHANGE
Overall, we have seen more cut in earnings as opposed to
upgrades across all countries. The steepest cuts in earnings
have come from Indonesia, largely due to the slower-than-
expected rollout of government contracts. For Malaysia, it has
been from specific capital raising issues as well as the poorer
performance of other divisions given the more diversified
nature of contractors. For Thailand, the cuts have been more
on company specific issues.
Of the three countries, we found that there is the highest
correlation between earnings changes and share prices for
Malaysia and Indonesia (but for upgrades only) while in
Thailand it appears to matter the least.
MALAYSIAMALAYSIAMALAYSIAMALAYSIA –––– POSITIVE CORRELATION FOR UPGRADESPOSITIVE CORRELATION FOR UPGRADESPOSITIVE CORRELATION FOR UPGRADESPOSITIVE CORRELATION FOR UPGRADES
Consensus earnings for FY16F and FY17F are on average down
by 10% and 4%, respectively, over the past one year. On
average, our universe of construction stocks is up by 11% for
the corresponding period. We think this implies some
optimism has been priced in for 2016.
We have also seen the strongest share price performance for
Sunway Construction and Kimlun which also has the best
earnings delivery, coupled with upgrades in consensus earnings.
The correlation coefficient and R-Squared between Sunway
Construction’s change in consensus earnings and share price for
the past one year has been 0.87 and 76%, while for Kimlun it
was 0.92 and 85% respectively. Hence, we are now seeing a
higher correlation between share prices and consensus earnings
change but only in terms of earnings upgrades. We think this will
be more crucial once the majority of key projects are rolled out
this year, implying that execution is the next important milestone
to monitor.
For Gamuda, the cuts in earnings for FY16-17F have largely been
from the dilution of the warrants issue; given that the company
had long forewarned that FY16F (Y/E July) net profit was
expected to be lower y-o-y. Similarly, the cuts for WCT for FY16-
FY17F have also factored in the dilution from the warrants but
this is also coupled with its poor earnings delivery so far from
lacklustre property sales while its higher-margin infrastructure
projects have yet to contribute.
Note that our forecast earnings are generally in line with
consensus, apart from IJM. We think there could be more
downgrades for IJM given its recent weak 4QFY16 (Y/E March)
results.
Summary of EPS revisions and DBSV vs consensus for 1Summary of EPS revisions and DBSV vs consensus for 1Summary of EPS revisions and DBSV vs consensus for 1Summary of EPS revisions and DBSV vs consensus for 1----yearyearyearyear
GAMGAMGAMGAM IJMIJMIJMIJM WCTHGWCTHGWCTHGWCTHG SCGBSCGBSCGBSCGB MUHIMUHIMUHIMUHI KICBKICBKICBKICB
-25.9% - -34.3% 18.5% -13.4% 25.9%
-20.6% -29.5% -24.6% 38.0% -9.6% 19.5%
-9.8% -27.1%
98.1% - 107.8% 101.6% 95.0% 102.2%
94.1% 82.0% 94.0% 89.9% 102.6% 105.2%
89.9% 77.1% 92.7% 97.4% 103.0% 114.0%
FY16 EPS Revision
FY17 EPS Revision
DBSV vs. consensus (FY16)
DBSV vs. consensus (FY17)
FY18 EPS Revision
DBSV vs. consensus (FY18) Source: Bloomberg Finance LP. AllianceDBS, DBS Vickers.
INDONESIAINDONESIAINDONESIAINDONESIA –––– POSITIVE CORRELATION FOR UPGRADESPOSITIVE CORRELATION FOR UPGRADESPOSITIVE CORRELATION FOR UPGRADESPOSITIVE CORRELATION FOR UPGRADES
Positive earnings momentum was only noted for WSKT, which
saw its consensus EPS forecast being upgraded significantly by
38% in the past 12 months. Consensus FY16F net profit is
now on par with management’s guidance of Rp1.5tr.
There was only a mild change in PTPP’s EPS forecast.
Meanwhile, WIKA, ADHI and WTON’s EPS saw a series of
downgrades in the past months mainly due to choppy project
execution.
Our FY16 earnings forecasts for WSKT and PTPP are in line
with consensus. Our FY17 earnings forecast for WSKT is 14%
below consensus as we have assumed some start-up losses to
be generated by WSKT’s two toll roads. We believe there is
downside risk to consensus’ FY17F net profit forecast as it has
yet to factor in potential start-up losses from WSKT’s toll roads
operations. As for WIKA, we are more cautious on this year’s
earnings outlook as we believe that it largely hinges on the
capital injection plan and the progress of Jakarta-Bandung HSR
construction work. We think there could be significant upside
for WTON’s EPS if the Jakarta-Bandung HSR makes even slight
progress as consensus has yet to incorporate the potential
earnings contribution from the HSR project into FY16F EPS.
Summary of EPS forecast revisions in the past 12 months
WSKTWSKTWSKTWSKT WIKAWIKAWIKAWIKA PTPPPTPPPTPPPTPP ADHIADHIADHIADHI WTONWTONWTONWTON FY16F EPS 37.9% -17.0% -0.2% -23.3% -35.1% FY17F EPS 36.7% -17.1% -3.2% -25.2% -16.9% FY18F EPS -7.1% -3.5% 1.6% -18.6% -16.9%
Source: Bloomberg Finance L.P, AllianceDBS, DBS Vickers
Asian Insights SparX
Asean Construction
Page 32
DBSV vs. consensus’ earnings forecast
WSKTWSKTWSKTWSKT WIKAWIKAWIKAWIKA PTPPPTPPPTPPPTPP WTONWTONWTONWTON FY16F EPS 1.02 0.93 0.96 1.18 FY17F EPS 0.86 0.98 0.97 0.99
Source: Bloomberg Finance L.P, AllianceDBS, DBS Vickers
Summary of CORREL and RSQ between consensus earnings
change and share price in the past 12 months
CORRELCORRELCORRELCORREL RSQRSQRSQRSQ WSKT 0.92 0.85 WIKA 0.49 0.24 PTPP -0.18 0.03 ADHI -0.81 0.66 WTON 0.42 0.18
Source: Bloomberg Finance L.P, AllianceDBS, DBS Vickers
It is worth noting that while we have seen a stronger correlation
between share price and consensus earnings change in the past
12 months, particularly for WSKT, earnings revision is not the
only key driver of the share price as reflected in the low degree
of correlation (please refer to the table above). We believe that
order book replenishment and announcement of potential large-
size win are the other key factors driving share price
performance. A case in point is ADHI (not rated) whose share
price rallied after being appointed as the contractor of the
Greater Jakarta LRT – whose construction contract up to the time
of writing has yet to be awarded or contribute earnings to the
company.
THAILANDTHAILANDTHAILANDTHAILAND –––– DRIVEN MORE BY NEWSFLOWDRIVEN MORE BY NEWSFLOWDRIVEN MORE BY NEWSFLOWDRIVEN MORE BY NEWSFLOW
CKCKCKCK’s consensus earnings for FY16F were revised up by 4%
while consensus lowered FY17F by 23% over the past one
year. The main reason for the upward revision in FY16F
earnings is the company’s announcement on the additional
work for its Xayaburi project. Surprisingly, the correlation
between CK’s share price and its FY16F and FY17F consensus
earnings is low with a correlation coefficient of 0.13 and 0.19
respectively.
Our earnings forecasts for CK are significantly higher than
consensus, given that consensus appears to have ignored the
equity income contribution from BEM, its subsidiary. Stripping
out the contribution from BEM, our FY16F earnings would be
15% higher than consensus.
STECSTECSTECSTEC’s consensus earnings for FY16F and FY17F were lowered
by 21% and 29%, respectively, over the past one year. The
main reason for the earnings cut is the loss-making new
parliament building project. However, STEC’s stock price rose
2% in the corresponding period. Additionally, like CK, we
found only a weak positive relationship between STEC’s share
prices and its FY16F and FY17F consensus earnings, with a
correlation coefficient of 0.29 and 0.31 respectively.
Our earnings forecasts for STEC are lower than the consensus,
given that we have imputed lower revenue. However, we
believe that there could be downward revision in earnings,
given the lower-than-expected revenue recognition this year
from its dual track railway and the new parliament project.
High correlHigh correlHigh correlHigh correlation between share price and newsflow, rather ation between share price and newsflow, rather ation between share price and newsflow, rather ation between share price and newsflow, rather
than earnings. than earnings. than earnings. than earnings. The low correlation between stock prices and
consensus earnings affirmed our belief that the sector is driven
more by newsflow. For example, in March 2016, there was a
lack of newsflow in the sector and rumours on the cabinet
reshuffle. Thus, we saw a significant drop in share price for
both CK and STEC in the same period. Summary of EPS revisions and DBSV vs consensus for 1-year
CKCKCKCK STECSTECSTECSTEC
FY16 EPS Revision 17% -23%
FY17 EPS Revision -6% -27%
DBSV vs consensus (FY16) 77% -11%
DBSV vs consensus (FY17) 41% -8%
Source: Bloomberg Finance LP., AllianceDBS Research
Asian Insights SparX
Asean Construction
Page 33
VALUATION AND REGIONAL SECTOR COMPARISON
Sector Sector Sector Sector ccccomparisonomparisonomparisonomparison
Market CapMarket CapMarket CapMarket Cap Rec.Rec.Rec.Rec. T PTPTPTP
Market Market Market Market
cap/order cap/order cap/order cap/order
book (x)book (x)book (x)book (x)
(USDm)(USDm)(USDm)(USDm) (Local currency )(Local currency )(Local currency )(Local currency ) CY15CY15CY15CY15 CY16CY16CY16CY16 CY17CY17CY17CY17 CY15CY15CY15CY15 CY16CY16CY16CY16 CY17CY17CY17CY17 CY15CY15CY15CY15 CY16CY16CY16CY16 CY17CY17CY17CY17 CY15CY15CY15CY15 CY16CY16CY16CY16 CY17CY17CY17CY17
Malay siaMalay siaMalay siaMalay sia
Gamuda 2,819.1 BUY 5.80 18.7 20.8 19.0 1.9 1.9 1.8 1.9 1.9 1.9 10.7 9.6 9.8 -1% 1.4
IJM 3,053.4 HOLD 3.30 17.5 19.1 19.8 1.4 1.4 1.3 2.4 2.1 2.1 8.4 7.2 6.7 -6% 1.5
WCT 473.5 HOLD 1.55 11.6 16.6 15.6 0.7 0.9 0.9 2.2 2.2 2.2 9.0 5.8 5.9 -14% 0.4
Muhibbah Eng 251.5 BUY 3.10 12.0 10.6 9.7 1.2 1.1 1.1 1.8 1.9 2.1 11.7 11.2 11.6 11% 0.5
Kimlun 129.3 BUY 2.38 10.0 9.8 8.5 1.2 1.0 1.0 2.1 2.0 2.3 14.8 13.4 13.8 9% 0.3
SunCon 525.0 BUY 1.92 16.1 14.3 13.9 4.5 3.8 3.8 2.5 2.6 2.7 33.2 28.7 25.0 7% 0.4
Simple A v erageSimple A v erageSimple A v erageSimple A v erage 14.314.314.314.3 15.215.215.215.2 14.414.414.414.4 1.81.81.81.8 1.71.71.71.7 1.71.71.71.7 2.12.12.12.1 2.12.12.12.1 2.22.22.22.2 14.614.614.614.6 12.712.712.712.7 12.112.112.112.1 1%1%1%1% 0.80.80.80.8
IndonesiaIndonesiaIndonesiaIndonesia
Waskita Karya 2,496.6 HOLD 2700.00 32.1 22.4 21.7 13.2 8.8 6.7 0.6 0.9 0.9 17.0 14.7 13.5 21.6% 0.8
PTPP 1,313.0 BUY 4600.00 24.2 20.2 15.9 4.1 3.5 3.0 0.8 1.0 1.3 22.0 18.7 20.2 23.5% 0.4
Wijaya Karya 1,081.5 HOLD 2550.00 23.6 20.9 15.2 3.4 3.0 2.6 0.9 0.9 1.0 15.1 15.1 18.1 24.7% 0.4
Wijaya Karya Beton 584.4 HOLD 1000.00 45.9 22.9 16.6 3.6 3.2 2.8 1.2 0.7 1.3 8.0 14.8 17.8 66.0% 3.6
Simple av erageSimple av erageSimple av erageSimple av erage 31.431.431.431.4 21.621.621.621.6 17.417.417.417.4 6.16.16.16.1 4.64.64.64.6 3.73.73.73.7 0.90.90.90.9 0.80.80.80.8 1.11.11.11.1 15.615.615.615.6 15.815.815.815.8 17.417.417.417.4 34%34%34%34% 1.31.31.31.3
T hailandThailandThailandThailand
Ch. Karnchang 1208 BUY 35 19.2 17.0 22.3 2.1 1.9 1.8 1.6 1.3 1.6 11.1 11.5 8.1 -7% 0.6
Sino-Thai Engineering 981 BUY 26 23.0 32.1 26.6 3.8 3.6 3.6 1.5 1.9 1.5 17.3 11.5 13.1 -7% 0.6
Simple av erageSimple av erageSimple av erageSimple av erage 21.121.121.121.1 24.524.524.524.5 24.424.424.424.4 2.92.92.92.9 2.72.72.72.7 2.72.72.72.7 1.61.61.61.6 1.61.61.61.6 1.61.61.61.6 14.214.214.214.2 11.511.511.511.5 10.610.610.610.6 -7%-7%-7%-7% 0.60.60.60.6
Diluted PE (x )Diluted PE (x )Diluted PE (x )Diluted PE (x ) P/NTA (x)P/NTA (x)P/NTA (x)P/NTA (x) Net Div Y ield (%)Net Div Y ield (%)Net Div Y ield (%)Net Div Y ield (%) ROE (%)ROE (%)ROE (%)ROE (%)
CY15-CY15-CY15-CY15-
CY17 EPS CY17 EPS CY17 EPS CY17 EPS
CAGRCAGRCAGRCAGR
Source: DBS Vickers, AllianceDBS, Bloomberg
RegRegRegRegional ional ional ional comparison comparison comparison comparison –––– PE CY16 (x)PE CY16 (x)PE CY16 (x)PE CY16 (x)
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
Source: AllianceDBS, DBS Vickers, Bloomberg
Regional Regional Regional Regional ccccomparison omparison omparison omparison –––– P/NTA CY16 (x)P/NTA CY16 (x)P/NTA CY16 (x)P/NTA CY16 (x)
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
Source: AllianceDBS, DBS Vickers, Bloomberg
Regional Regional Regional Regional comparison comparison comparison comparison –––– ROE CY16 (%)ROE CY16 (%)ROE CY16 (%)ROE CY16 (%)
0
5
10
15
20
25
30
35
Source: AllianceDBS, DBS Vickers, Bloomberg
RegionalRegionalRegionalRegional ccccomparison omparison omparison omparison –––– 2222----year EPS CAGR (%)year EPS CAGR (%)year EPS CAGR (%)year EPS CAGR (%)
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
Source: AllianceDBS, DBS Vickers, Bloomberg
Asian Insights SparX
Asean Construction
Page 34
Regional sector Regional sector Regional sector Regional sector ccccomparisonomparisonomparisonomparison
From a valuation stand point, Malaysia appears to be cheapest
at 15x CY16 EPS followed by Indonesia at 22x and Thailand at
25x. However, stripping out the smaller cap names in Malaysia,
the larger cap names like Gamuda and IJM trade at 19-21x
CY16 EPS.
While Indonesia’s valuations amay ppear expensive at 22x
CY16F EPS, this falls to 17x in CY17F and is also backed by
superior ROEs of 16-17% and stronger 2-year EPS CAGR of
34%. At these levels, it is also at 0.5SD above mean.
Additionally, it is the market which offers the most potential in
terms of contract flows given the country’s relatively
underdeveloped infrastructure.
MALAYSIAMALAYSIAMALAYSIAMALAYSIA –––– POTENTIAL POTENTIAL POTENTIAL POTENTIAL TO TRADE HIGHERTO TRADE HIGHERTO TRADE HIGHERTO TRADE HIGHER
DBSV KL Construction DBSV KL Construction DBSV KL Construction DBSV KL Construction –––– PE trading rangesPE trading rangesPE trading rangesPE trading ranges
-2SD
-1SD
Mean
+1SD
+2SD
10.0
12.0
14.0
16.0
18.0
20.0
22.0
24.0
2-Jan-09
2-Jul-09
2-Jan-10
2-Jul-10
2-Jan-11
2-Jul-11
2-Jan-12
2-Jul-12
2-Jan-13
2-Jul-13
2-Jan-14
2-Jul-14
2-Jan-15
2-Jul-15
2-Jan-16
PE (x)
Source: AllianceDBS, DBS Vickers, Bloomberg
DBSV KL Construction DBSV KL Construction DBSV KL Construction DBSV KL Construction –––– P/BV trading rangesP/BV trading rangesP/BV trading rangesP/BV trading ranges
-2SD
-1SD
Mean
+1SD
+2SD
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
2-Jan-09
2-Jul-09
2-Jan-10
2-Jul-10
2-Jan-11
2-Jul-11
2-Jan-12
2-Jul-12
2-Jan-13
2-Jul-13
2-Jan-14
2-Jul-14
2-Jan-15
2-Jul-15
2-Jan-16
PBV (x)
Source: AllianceDBS, DBS Vickers, Bloomberg
Our construction universe is now trading at 1-year forward PE
of 15x and P/BV of 1.7x. This is roughly at mean to +1SD
levels.
The sector also commanded premium valuations during periods
of more aggressive contract flows and pump-priming such as
the 9MP and 10MP. During the onset of the 10MP in 2011,
the sector traded at a high of >+2SD above mean or 23x PE
and 3.3x P/NTA. But it subsequently de-rated to -1SD in late
2011 due to an overall soft equity market. Similarly, from
January 2007 to September 2008, when the 9MP projects
were rolled out, the sector traded at up to 24x PE and 2.2x
P/NTA.
Moving to the start of the 11MP, we believe there is a
probability that the sector will command higher valuations
given that it is at just at mean to +1SD valuations. But we think
this need to be also balanced by Malaysia’s less-than-
favourable fiscal position given the still low oil and CPO prices.
In 2015, we already saw the appointment of PDP roles for key
projects like MRT Line 2, LRT 3, Penang Transport Master Plan
and KL 118, and a slew of projects for RAPID and TRX. We
think the timely rollout and award of these projects and
stronger earnings delivery will see further valuation expansion.
Revenue Revenue Revenue Revenue vvvvisibility isibility isibility isibility
Malaysia Malaysia Malaysia Malaysia –––– rrrrevenue visibility (evenue visibility (evenue visibility (evenue visibility (oooorderbook/historical constructiorderbook/historical constructiorderbook/historical constructiorderbook/historical constructionnnn revenuerevenuerevenuerevenue (x) (x) (x) (x) ))))
1.9 1.9 1.9
2.62.7
2.9
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
KICB MUHI WCTHG SCGB IJM GAM Source: AllianceDBS, DBS Vickers
Based on the chart above, the large-cap contractors of
Gamuda and IJM have the best revenue visibility at 2.9x and
2.7x respectively. This is followed closely by Sunway
Construction at 2.6x. In our view, all three companies have
also the least earnings risk given their strong execution track
record and higher-margin orders that comprise infrastructure-
related and design-and-build projects.
Asian Insights SparX
Asean Construction
Page 35
Gamuda’s RM8.3bn comprises predominantly the tunnelling
works for MRT Line 2 worth RM7.7bn. We expect pretax
margins to be at least 12-13% similar to MRT Line on a cost
per km basis, MRT Line 2’s total contract value of RM15.47bn
is 30% higher than MRT Line 1. We understand Gamuda has
factored in a generous yearly increase in steel cost over a five-
year period.
IJM’s RM8.5bn orderbook comprises largely two key projects
which are the recently won V203 package for MRT Line 2
worth RM1.47bn and the RM2.8bn WCE contract. This
package, V203, is 79% higher on a RMbn/km basis as
compared to IJM’s MRT Line 1 V5 package. We understand
this is because the element of structural works is higher.
Sunway Construction’s orderbook now stands at RM5bn
which is at its peak. The largest projects are Putrajaya Parcel F
and MRT Line 2, V201 package which forms 53% of this. We
think pretax margins for these two key projects will also be at
least 7-8%. For the Putrajaya Parcel F, SCG has already locked
in 50% of the steel requirements at an average price of
roughly RM1,800 to RM2,000/tonne. This is a design and build
project where it was also a criterion to be VDC-enabled,
implying there is room to achieve higher margins. For MRT Line
2, V201 package, pricing is 30% higher on a per km basis as
compared to its V4 package for MRT Line 1, while all raw
material requirements are borne by the government. Works
are anticipated to start in June/July.
INDONESIAINDONESIAINDONESIAINDONESIA –––– A MORE IDEAL ENTRY POINTA MORE IDEAL ENTRY POINTA MORE IDEAL ENTRY POINTA MORE IDEAL ENTRY POINT
Our construction universe now trades at +0.5SD above the
average PE since 2012 (the year when infrastructure theme
started to play out in Indonesia). Valuations have corrected to
a more reasonable level now, in our view, trading at 21x
forward PE vs. the peak of 29x in Feb 2015. We see room for
the sector to trade higher as the Joko Widodo-led government
accelerates project execution.
Construction sector’s 12-month forward PE
5
10
15
20
25
30
35
Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16
+2sd
+1sd
-1sd
-2sd
Avg.
Source: AllianceDBS, DBS Vickers
Construction companies’ PE valuation range since 2012 (x)
5
15
25
35
45
55
65
75
WSKT PTPP WIKA WTON
Source: AllianceDBS, DBS Vickers
Source: Companies, AllianceDBS, DBS Vickers
Revenue visibility (x)
24.0 20.1 17.2 4.2
40.6 43.8
35.0
2.4
1.7
2.2 2.0
0.6
-
0.5
1.0
1.5
2.0
2.5
-
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
50.0
WSKT* PTPP WIKA WTON
Rp tn
FY16F Revenue 5M16 outstanding order book 4M16 outs. order book to FY16F revenue (LHS)
*based on 4M16 order book
Source: Companies, AllianceDBS, DBS Vickers
Asian Insights SparX
Asean Construction
Page 36
Share price performance
8%
-1%
49%
25%
11%
5%
6%
8%
53%
47%
-10%
-2%
-20% -10% 0% 10% 20% 30% 40% 50% 60%
WIKA
PTPP
WSKT
ADHI
WTON
JCI
y-o-y YTD
Source: Bloomberg Finance L.P, AllianceDBS, DBS Vickers
THAILANDTHAILANDTHAILANDTHAILAND –––– AT HIGHER END OF RANGEAT HIGHER END OF RANGEAT HIGHER END OF RANGEAT HIGHER END OF RANGE
DBSV TH Construction – PE trading ranges
-
5.0
10.0
15.0
20.0
25.0
30.0
35.0
11 12 13 14 15 16
(x)
-2 sd
-1 sd
Mean
+1 sd
+2 sd
Source: Bloomberg Finance LP., AllianceDBS Research
DBSV TH Construction – P/BV trading range
-
0.5
1.0
1.5
2.0
2.5
3.0
3.5
11 12 13 14 15 16
(x)
-2 sd
-1 sd
Mean
+1 sd
+2 sd
Source: Bloomberg Finance LP., AllianceDBS Research
Our infrastructure-related construction universe is now trading
at a 1-year forward PE of 24x and P/BV of 2.7x. This is
equivalent to +1SD levels.
Given the volatile nature of CK earnings, we prefer to use P/BV
for our analysis. The construction stocks normally command
premium valuations in the period of high positive newsflow.
For example, the sector traded at +2SD level when the cabinet
announced the Bt2trn infrastructure spending bill in 2013.
However, it subsequently de-rated to the -0.5SD level when
the bill was ruled unconstitutional by the charter court in
2014.
Given the upcoming supercycle of infrastructure spending in
Thailand, we believe that the sector will be able to trade at
+2SD level again. However, it needs to be supported by the
strong positive newsflow in the sector like the contract awards
of MRT orange, pink and yellow line projects as well as
another four routes of dual track railway.
Additionally, the potential jump in earnings for Thai
contractors next year, driven by the strong growth in revenue
recognition from projects awarded this year, should lead to the
further re-rating of the sector.
Asian Insights SparX
Asean Construction
Page 37
Thailand – revenue visibility (orderbook/historical construction revenue)
2.82.9
2.3
1.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
CK STEC UNIQ ITD
Source: CK, STEC, UNIQ, ITD, AllianceDBS Research
Based on the chart above STEC has the best earnings visibility
at 2.9x, followed closely by CK at 2.8x. We believe that these
two companies have lower earnings volatility, compared to the
other two major contractors, thanks to their strong expertise
and track record in project execution.
CK’s orderbook stands at Bt97bn, anchored mainly by the
Xayaburi dam and Sirat expressway projects (both are projects
of its subsidiaries) and the double track railway – the Jira
Junction-Khon Kaen section. We believe that CK could
maintain its gross profit margin (GPM) within its target range
of 8-10%, given the mixture of projects and its hedging policy
in construction materials.
STEC’s orderbook of Bt53bn comprises mainly 12 small
power plant projects, new parliament building and double
track railway, i.e. Chachoengsao – Klong 19 –Kaengkoi. We
expect STEC to maintain its GPM within its target range of 8-
9%, given the contributions from the power plant project,
which offers higher profitability, and its net cash position,
which allows STEC to enjoy better trading and hedging terms
for its construction materials.
Asian Insights SparX
Asean Construction
Page 38
STRATEGY AND STOCK PICKS
Ranking based on Ranking based on Ranking based on Ranking based on fivefivefivefive key criteriakey criteriakey criteriakey criteria
GCI Rank ingGCI Rank ingGCI Rank ingGCI Rank ing Earnings Risk sEarnings Risk sEarnings Risk sEarnings Risk s V aluat ions V aluat ions V aluat ions V aluat ions Polit ical mot iv at ion Polit ical mot iv at ion Polit ical mot iv at ion Polit ical mot iv at ion Cross borderCross borderCross borderCross border Simple av erageSimple av erageSimple av erageSimple av erage
IndonesiaIndonesiaIndonesiaIndonesia 1 1 1 2 3 1.6
Malay siaMalay siaMalay siaMalay sia 3 2 2 1 1 1.8
ThailandThailandThailandThailand 2 3 3 3 2 2.6
Source: AllianceDBS, DBS Vickers
Strategy and stock picksStrategy and stock picksStrategy and stock picksStrategy and stock picks
We use five criteria to rank the order of preference for
infrastructure exposure to the three ASEAN countries.
1) The Global Competitiveness Index Ranking for
Infrastructure
2) Earnings risk
3) Valuations
4) Political motivation to pump prime and political stability
5) Readiness for cross-border opportunities
Overall, we rank Indonesia as the number one market for
infrastructure exposure, followed by Malaysia and then
Thailand.
The details of our methodology for ranking are as follows:
1) The Global Competitiveness Index Ranking for 1) The Global Competitiveness Index Ranking for 1) The Global Competitiveness Index Ranking for 1) The Global Competitiveness Index Ranking for
Infrastructure Infrastructure Infrastructure Infrastructure
For 1, we deem a lower GCI score more attractive as it
indicates that there will be more job flows in the years to
come.
Hence, we rank Indonesia 1, Thailand 2 and Malaysia 3.
2) Earnings risk 2) Earnings risk 2) Earnings risk 2) Earnings risk
For 2, we take into account revenue visibility (average for
our universe by country) which is also balanced by the
execution track record and the ability to pass on higher raw
material costs. We also take into account consensus
earnings change and potential for upgrades.
All countries exhibit similar revenue visibility of between 2x
and 3x for the larger contractors. Indonesian contractors
have the highest ability to pass on the higher cost of raw
materials given that multi-year government contracts have
this clause. For Malaysia, only the MRT aboveground works
have this clause, where fluctuations in steel bar prices are
borne by the government. For public sector projects in Thailand, the contractor needs to absorb gains/losses for the
first 4% before the government can be held responsible for
the cost variation.
For all markets, we do not see any meaningful upgrades at
least for 2016.
Hence, we rank Indonesia 1, Malaysia 2 and Thailand 3.
3) Valuations 3) Valuations 3) Valuations 3) Valuations
For 3, we look at the valuation in each country relative to
the historical trading range as well as the absolute valuation
relative to the other countries. We also take into account
the 2-year EPS CAGR and ROEs.
The Malaysian contractors trade at the cheapest valuations
of 15x CY16 EPS while Indonesia and Thailand players at
22-23x. However, this is also due to the presence of our
smaller cap coverage for the Malaysian contractors. The
larger contractors like IJM and Gamuda trade at 19-21x
CY16 EPS. In terms of earnings growth (2-year EPS CAGR
for CY15-CY17), the most muted growth stems from
Thailand with an average of -3%, followed by Malaysia at
+3%, while the best is from Indonesia with an average
growth of +33%. ROE-wise, Indonesia is the best with an
average ROE of 17% for CY17, followed by Malaysia‘s 12%
and Thailand’s 11%.
Hence, we rank Indonesia 1, Malaysia 2 and Thailand 3.
4)4)4)4) Political motivation to pump prime and political stabilityPolitical motivation to pump prime and political stabilityPolitical motivation to pump prime and political stabilityPolitical motivation to pump prime and political stability
For 4, we assess if there is any political motivation to pump
prime the economy via additional project flows, taking into
account elections or other events as a barometer. We also
factor in the political stability of the country.
Asian Insights SparX
Asean Construction
Page 39
For Malaysia, the ruling government needs to call for
elections by August 2018 while for Thailand it is in 2017
and Indonesia by 2019. As for political stability, for Thailand
and Indonesia, this shows up as a top 5 reason as most
problematic for doing business in the country but not for
Malaysia. This is according to the GCI survey. We also factor
in the fact that Thailand is under military rule.
Hence, we rank Malaysia 1, Indonesia 2 and Thailand 3.
5) Readiness for 5) Readiness for 5) Readiness for 5) Readiness for crosscrosscrosscross----border opportunitiesborder opportunitiesborder opportunitiesborder opportunities
For 5, we try to determine if contractors in each country are
deemed more ready to take on cross-border opportunities.
Based on the section on Cross-border Opportunities, we
rank Malaysia 1, Thailand 2 and Indonesia 3.
Malaysia Stock PicksMalaysia Stock PicksMalaysia Stock PicksMalaysia Stock Picks
We have BUY ratings on Gamuda, Sunway Construction,
Muhibbah and Kimlun
Gamuda (BUY, TP RM5.80) – Best Best Best Best ttttransportation proxyransportation proxyransportation proxyransportation proxy
Gamuda is our top large cap pick in the sector, as it is the best
proxy to a slew of upcoming transportation-related projects.
Its strong reputation for MRT Line 1 and PDP appointment for
Penang Transport Master Plan (PTMP) provide it with leverage
for other large-multiplier projects such as LRT 3, Gemas-JB
double tracking, Pan Borneo Highway and High Speed Rail.
Suncon – (BUY, TP RM1.92) – Malaysia’s leading pure Malaysia’s leading pure Malaysia’s leading pure Malaysia’s leading pure
construction plconstruction plconstruction plconstruction playerayerayerayer
Sunway Construction Group (SCG) is the largest listed pure
play construction player in Malaysia. Given its strong track
record with MRT, LRT and BRT jobs previously, we are of the
view that SCG is on a strong footing to bag several key
infrastructure packages such as LRT3 and BRT as well as other
major highway projects like SUKE, DUKE and Pan-Borneo
Highway. SCG has also established itself as the only
construction specialist to be involved in all three Rapid Line
infra projects (MRT, LRT and BRT). This makes the group one
of the strongest contenders to win the pipeline of 11MP
projects.
Muhibbah (BUY, TP RM3.10) – Scarcity premiumScarcity premiumScarcity premiumScarcity premium
Muhibbah is an ideal proxy to the 11th Malaysian Plan given
its expertise in three core areas: i) civil engineering; ii) marine-
based construction, and iii) offshore and onshore fabrication
works, where its Petronas licence offers an advantage. Other
contractors do not have this combination to vie in the
competitive civil engineering space. Its Cambodian airport
concession is a strong cash cow. Siam Reap and Phnom Penh
airports have doubled their capacity to 12m passengers.
Passenger arrivals grew 13% to 6.5m passengers in FY15.
Kimlun (BUY, TP RM2.38) – SmallSmallSmallSmall----cap MRT proxycap MRT proxycap MRT proxycap MRT proxy
Within our construction universe, Kimlun stands out as the
most direct small cap proxy to MRT projects. In spite of the 3-
year EPS CAGR of 30% and decent yields of c.2-2.3% with
stronger order replenishment ahead, Kimlun is currently
trading at a bargain valuation.
Indonesia Stock PicksIndonesia Stock PicksIndonesia Stock PicksIndonesia Stock Picks
PTPP (BUY, TP Rp4500). Given its experience and expertise
in sea port construction, the ASEAN maritime connectivity
initiative, government’s sea toll road programme and
China’s Maritime Silk Road initiative may put PTPPPTPPPTPPPTPP in
something of a sweet spot. We like the company for its
good execution track record and niche in port construction.
PTPP now trades at 20.8x FY16F EPS, a 16%/6% discount
to WIKA/WSKT. We see the potential for PTPP to re-rate
upwards as new contract wins pick up or if the
government’s capital injection plan goes through.
Meanwhile, the parliament’s recent approval of the
Rp2.25tr capital injection would support earnings growth
from 2017 onwards.
WSKT (HOLD, TP Rp2700). WSKT WSKT WSKT WSKT is the best proxy to toll
road build-out. While we like WSKT due to its relatively
assured contract wins coming from Palembang LRT and its
high-margin in-house toll road projects, its share price has
gained 43% since we upgraded our call to BUY back in Feb
2016. We now see limited upside potential for its share
price as we believe the positives have largely been priced in,
while cash flow generation has continued to deteriorate on
the back of rising revenue contribution from turnkey and in-
house toll road projects. Therefore, we downgraded WSKT
to a HOLD.
WIKA (HOLD, TP Rp2550). We have a HOLD call on WIKAWIKAWIKAWIKA.
The approval of the capital injection plan would be a
positive catalyst for WIKA’s share price in the near term.
Nonetheless, its earnings outlook also largely hinges on its
Asian Insights SparX
Asean Construction
Page 40
signature Jakarta-Bandung HSR project which has been
progressing slower than expected, pending the issuance of
the construction permit and financial close with China
Development Bank.
WTON (HOLD, TP Rp1000). WTONWTONWTONWTON will likely be the
biggest beneficiary of the Jakarta-Bandung high-speed
railway, in our view. The project would boost WTON’s
earnings visibility in the next two years. The company
expects to clinch Rp6tr–9tr new order book from HSR,
which is equivalent to 1.4x-2.2x our FY16F revenue.
Nonetheless, we maintain our HOLD call on the stock for
now as we do not see much upside for earnings and
valuation. We would turn more positive on the stock if there
is significant progress for the Jakarta-Bandung HSR project.
Thailand Stock Picks
CK (BUY, TP Bt35.0) – A well-diversified contractor play
Ch. Karnchang PCL (CK) is our top pick in the sector, as it is
the prime beneficiary of the upcoming supercycle of public
transport-related infrastructure projects. This is on the back
of (i) CK’s strong reputation in MRT construction, especially
for underground works, which should allow CK to secure at
least one underground construction contract from the
upcoming MRT orange line project, and (ii) its transport
related subsidiary, BEM,* could supply transportation-
related construction works to CK in the long run.
*The current operator of MRT blue line and purple line and
expressway in Bangkok
STEC (BUY, TP Bt26.0) – Thailand’s largest pure
construction play
Sino-Thai Engineering & Construction PCL (STEC) is
Thailand’s largest pure construction play. Thus, STEC stands
a good chance of benefiting from the government’s
infrastructure spending in the upcoming cycle. Given its
strong track record in constructing, good relationship with
the public sector and its net cash position, we are convinced
that STEC has low earnings volatility, compared to the other
contractors. STEC has also established itself as the power
plant construction specialist. This could boost STEC’s GPM
as power plant projects normally offer higher profitability.
Asian Insights SparX
Asean Construction
Page 41
Appendix: Company GuidesAppendix: Company GuidesAppendix: Company GuidesAppendix: Company Guides
ASIAN INSIGHTS VICKERS SECURITIES
ed: CK / sa:TP
BUYBUYBUYBUYLast Traded Price: Last Traded Price: Last Traded Price: Last Traded Price: Bt24.50 (SETSETSETSET : : : : 1,385.86) Price Target :Price Target :Price Target :Price Target : Bt35.00 (43% upside) (Prev Bt33.00) Potential Catalyst: Potential Catalyst: Potential Catalyst: Potential Catalyst: Sharp surge of 2016 revenue
Where we differ:Where we differ:Where we differ:Where we differ: We are in line with consensus Analyst Apichaya KETRUTTANABORVORN +66 2657 7823 apichayak@th.dbsvickers.com
What’s New • To realise Bt14bn from Bt19bn additional work for
Xayaburi project in FY16
• Reversal of previously booked finance costs on
additional work portion of Xayaburi project last
year, which will be reduced FY16F finance cost by
Bt1bn; The finance cost will then be capitalized
• Maintain BUY with a higher TP of Bt35, based on
SOP valuation
Price Relative
Forecasts and Valuation FY FY FY FY DecDecDecDec ((((BtBtBtBt m) m) m) m) 2014201420142014AAAA 2015201520152015AAAA 2016201620162016FFFF 2017201720172017FFFF Revenue 32,951 34,912 51,611 40,478 EBITDA 3,776 3,178 5,767 6,302 Pre-tax Profit 2,700 2,719 3,589 2,517 Net Profit 2,296 2,193 3,014 2,211 Net Pft (Pre Ex.) 992 182 3,014 2,211 Net Pft Gth (Pre-ex) (%) nm (81.7) 1,559.2 (26.6) EPS (Bt) 1.36 1.29 1.78 1.31 EPS Pre Ex. (Bt) 0.59 0.11 1.78 1.31 EPS Gth Pre Ex (%) nm (82) 1,559 (27) Diluted EPS (Bt) 1.39 1.33 1.82 1.34 Net DPS (Bt) 0.35 0.40 0.53 0.39 BV Per Share (Bt) 11.3 12.1 13.7 14.5 PE (X) 18.1 18.9 13.8 18.8 PE Pre Ex. (X) 41.8 228.5 13.8 18.8 P/Cash Flow (X) 38.2 nm nm 6.2 EV/EBITDA (X) 20.8 28.6 18.8 16.7 Net Div Yield (%) 1.4 1.6 2.2 1.6 P/Book Value (X) 2.2 2.0 1.8 1.7 Net Debt/Equity (X) 1.9 2.3 2.8 2.5 ROAE (%) 12.9 11.1 13.8 9.3
Earnings Rev (%):Earnings Rev (%):Earnings Rev (%):Earnings Rev (%): 65 (8) Consensus EPS Consensus EPS Consensus EPS Consensus EPS (BtBtBtBt):::: 0.81 0.94 Other Broker Recs:Other Broker Recs:Other Broker Recs:Other Broker Recs: B: 16 S: 2 H: 1 Corporate Governance CG Rating Anti-corruption Progress Indicator
Level 3:Established (3B: Established by Internal Commitment and Policy)
Source of all data: Company, DBS Vickers, Bloomberg Finance L.P
To create new records this year Maintain BUY with Maintain BUY with Maintain BUY with Maintain BUY with SOPSOPSOPSOP----based based based based TP TP TP TP of of of of Bt35.00. Bt35.00. Bt35.00. Bt35.00. We like CK for
its rich expertise in construction, high potential to secure more
infrastructure contracts, ability to benefit from the group
amalgamation programme and attractive valuation of only
13.8x FY16F PE. Thus, it is our top pick in the contractor space.
To rTo rTo rTo realiseealiseealiseealise Bt14bn additional revenues and reduction of Bt1bn Bt14bn additional revenues and reduction of Bt1bn Bt14bn additional revenues and reduction of Bt1bn Bt14bn additional revenues and reduction of Bt1bn
interest expense from Xayaburi project in 2016. interest expense from Xayaburi project in 2016. interest expense from Xayaburi project in 2016. interest expense from Xayaburi project in 2016. CK expects to
sign the official contract award of Bt19bn additional work for
the Xayaburi project, worth Bt76.6bn initially, in 2Q16 with
the project owner Xayaburi Power Co., Ltd. This Bt19bn
additional work is for environmental purposes, as requested by
the Laos government.
According to management, CK expects to realise the Bt14bn
revenue from the additional work for this project in FY16. It
also expects a decrease of Bt1bn interest expense in FY16, due
to the reversal of finance cost relating to the construction cost
of additional work portion of the Xayaburi project. Note that
CK Power PCL, CK's 30.25%-owned subsidiary, is the major
shareholder of Xayaburi Power Co., Ltd, with a 30% stake.
Beneficiary of BECLBeneficiary of BECLBeneficiary of BECLBeneficiary of BECL----BMCL amalgamation. BMCL amalgamation. BMCL amalgamation. BMCL amalgamation.
After the completion of the merger of BECL and BMCL on 28
December 2015, CK ended up with a 29.05% stake in BEM,
the merged entity. This should benefit CK, which could derive
potentially higher equity income via the new company, driven
by the lower cost of debt and strong outlook for BMCL post-
amalgamation. Moreover, a hike in equity income from BEM
from 1Q16 onwards will help boost CK’s earnings prospects.
Valuation:
We value CK at Bt35.00, based on SOP method, comprising
Bt13 for the construction business and Bt22 for its investment.
Key Risks to Our View:
i) Delay in bidding process from the government, ii) political
instability, and iii) slower-than-expected economic recovery.
At A Glance Issued Capital (m shrs) 1,694
Mkt. Cap (Btm/US$m) 41,500 / 1,164
Major Shareholders (%)
Mahasiri Siam Co Ltd. 20.1
Ch Karnchang Holding 10.4
C K Office Tower Co Ltd 5.5
Free Float (%) 61.2
3m Avg. Daily Val (US$m) 9.4
ICB IndustryICB IndustryICB IndustryICB Industry : Industrials / Construction & Materials
DBS Group Research . Equity 23 May 2016
Thailand Company Guide
Ch. Karnchang Version 3 | Bloomberg: CK TB | Reuters: CK.BK Refer to important disclosures at the end of this report
83
133
183
233
283
333
383
5.9
10.9
15.9
20.9
25.9
30.9
May-12 May-13 May-14 May-15 May-16
Relative IndexBt
Ch. Karnchang (LHS) Relative SET INDEX (RHS)
Page 42
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Ch. Karnchang
WHAT’S NEW
To secure Bt19bn additioTo secure Bt19bn additioTo secure Bt19bn additioTo secure Bt19bn additional works from Xayaburi projectnal works from Xayaburi projectnal works from Xayaburi projectnal works from Xayaburi project* in * in * in * in
2Q16; 2Q16; 2Q16; 2Q16; of which Bt14bn will be recognisof which Bt14bn will be recognisof which Bt14bn will be recognisof which Bt14bn will be recogniseeeedddd in FY16F. in FY16F. in FY16F. in FY16F. CK expects
to sign the official contract of Bt19bn additional work for the
Xayaburi project with Xayaburi Power Co., Ltd, in 2Q16. A
Bt14bn work portion of this project will be recognise this year,
given that CK has already completed this work portion. Note
that CK has already booked Bt2bn of this additional work
portion in 1Q16. The gross profit margin (GPM) from this
additional work should be in line with the company’s target
GPM of 8-10%.
Currently, CK is in talks with its auditor on whether it can book
the whole Bt12bn revenue in 2Q16 or gradually book this
revenue portion throughout FY16F. This will be a major catalyst
for CK’s FY16F earnings, as this leads to a 48% increase in CK’s
total revenue this year.
*The Bt76bn dam and hydro power plant project in Laos
To provide To provide To provide To provide additional loan to Xayaburi Power Co.,additional loan to Xayaburi Power Co.,additional loan to Xayaburi Power Co.,additional loan to Xayaburi Power Co., LtdLtdLtdLtd.**.**.**.** CK announced that it will provide an additional loan of Bt2bn to Xayaburi power Co., Ltd. It already has an existing outstanding loan of Bt11.5bn. The additional loan will be used to fund the additional construction work portion of the Xayaburi Hydroelectric Power Project (to be paid to the contractor***).
We believe that this will not have an adverse impact on CK’s D/E ratio as CK will get the cash inflow from construction revenue back from Xayaburi Power Co., Ltd in a larger proportion than CK’s financial support for the project.
(See additional information on the additional loan on page 3)
** The operator of the Xayaburi Hydroelectric Power Project. Currently, CK indirectly holds a 9% stake in Xayaburi Power Co., Ltd. through CK Power PCL, in which CK has a 30% stake *** CK is the main contractor of the Xayaburi Hydroelectric Power Project
To reverse Bt1bn finance cost in FY16F. To reverse Bt1bn finance cost in FY16F. To reverse Bt1bn finance cost in FY16F. To reverse Bt1bn finance cost in FY16F. According to management, CK’s auditor has allowed the company to gradually reverse CK’s finance costs relating to the construction of the additional work portion for the Xayaburi project which CK has recognised as expenses last year. CK expects the benefit from this reversal transaction to be c.Bt1bn this year. Note that CK has already reversed the previously booked finance cost in 1Q16, which reduced 1Q16 finance cost by c.Bt250m.
In our view, this will improve CK’s FY16F earnings significantly but the benefits in terms of cash flow should be limited.
Expect 2Q16F to be an extraordinary strong quarter. Expect 2Q16F to be an extraordinary strong quarter. Expect 2Q16F to be an extraordinary strong quarter. Expect 2Q16F to be an extraordinary strong quarter. We expect
an extraordinary increase in 2Q16F earnings to be driven by:
(i) The potential surge in revenue recognition of Bt12bn arising
from the additional work portion of the Xayaburi project
(ii) The dividend income from TTW PCL of Bt232m. However,
CK will not book the dividend income from Bangkok
Expressway and Metro (BEM), given that CK uses the equity
method for BEM
(iii) A reversal of c.Bt250m interest cost in 2Q16
Strong backlog and highStrong backlog and highStrong backlog and highStrong backlog and high----potential contracts to drive growth.potential contracts to drive growth.potential contracts to drive growth.potential contracts to drive growth.
CK’s backlog stood at Bt76bn at end-1Q16, which can support
revenues for the next two years. CK also has another Bt44bn
worth of high-potential projects, including (i) the Bt19bn
additional works from the Xayaburi power plant project in
Laos, which CK has already working on it, (ii) the M&E system
and O&M service***** contract for the blue line extension
worth Bt25bn. These would bring CK’s backlog to a record
high Bt130bn.
Additionally, management said that it is starting to see signs of
decreasing steel prices in May 2016. This means a brighter
outlook for CK’s potential backlog, in terms of margins
***** Operations Service and Maintenance (O&M);
Mechanical and Electrical (M&E)
Maintain BUY with a higher TP of Bt35. Maintain BUY with a higher TP of Bt35. Maintain BUY with a higher TP of Bt35. Maintain BUY with a higher TP of Bt35.
We like CK for its experienced management team and expertise
in construction. Given its solid backlog, potential to secure more
infrastructure contracts and ability to benefit from the group
amalgamation programme, CK is our top pick in the contractor
space. After imputing the additional revenue of Bt14bn and a
reduction of Bt1bn in finance costs, we maintain our BUY rating
on CK with a higher SOP-based TP of Bt35. . . .
We value CK’s construction business at Bt13, pegged to 25x
FY17F PE, which is the sector weighted average PE – we used
FY17F EPS as we believe that FY16 earnings would be
somewhat extraordinary. We value its investments at Bt22, with a 20% discount to their market value.
Although the surge in FY16F earnings is an extraordinary
development, we believe that this would act as a positive short-
term catalyst to drive up the share price.
CK: Sum-of-parts valuation
Source of all data: Company, DBS Vickers
Unit : BtmUnit : BtmUnit : BtmUnit : Btm
FY17F Net profit 2,211
Associate income (1,326)
Net profit of core business 885
Assigned PE at 25x 25
Value of CK's const ruct ion businessValue of CK's const ruct ion businessValue of CK's const ruct ion businessValue of CK's const ruct ion business 22,13322,13322,13322,133
Bangkok Expressway and Metro PCL (29.05% stake) 27,530
TTW PCL (19.40% stake) 7,977
CK Power PCL (30.25% stake) 732
36,23936,23936,23936,239
Total 58,372
No. of shares (m) 1,653
Sum-of-part s per share (Bt ) Sum-of-part s per share (Bt ) Sum-of-part s per share (Bt ) Sum-of-part s per share (Bt ) 35.035.035.035.0
Value of CKValue of CKValue of CKValue of CK''''s investment s s investment s s investment s s investment s ((((with with with with 20202020% % % % discount to their discount to their discount to their discount to their
market va luemarket va luemarket va luemarket va lue ))))
Page 43
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Ch. Karnchang
CRITICAL DATA POINTS TO WATCH
Earnings Drivers:
Strong exposure to Laos.Strong exposure to Laos.Strong exposure to Laos.Strong exposure to Laos. CK is constructing a run-off river
hydropower dam or Xayaburi project, worth Bt76bn in Laos,
excluding the additional work portion. The project accounts for
38% of the company’s total backlog. Moreover, CK will be
awarded the Bt19bn additional works (environmental related)
for the Xayaburi project by 2Q16.
In addition, there are 13,000-MW hydro power plant and dam
projects to bid for in Laos. We believe that this should present
a huge opportunity to CK, given its strong track record in Laos.
Bt19bn additional works from Xayaburi project; a key earnings Bt19bn additional works from Xayaburi project; a key earnings Bt19bn additional works from Xayaburi project; a key earnings Bt19bn additional works from Xayaburi project; a key earnings
driver in FY16F. driver in FY16F. driver in FY16F. driver in FY16F. The Xayaburi Power Co., Ltd, project owner of
the Xayaburi project, will have to invest an additional Bt19bn for
environmental purposes, as requested by the Laos government.
This Bt19bn additional works will be awarded to CK, which CK
expects to be awarded the official contract in 2Q16.
The areas for the additional works include (i) navigation lock, (ii)
design change for sediment management, (iii) dam safety, and
(iv) fish-passing facilities. Management has guided that the GPM
of the additional works should be at the same level with the
original work scope range of 8-10%. The method of funding for
this additional investment of Xayaburi Power Co., Ltd. is to get
the financial support through loans from its shareholders.
However, the Laos government will subsidise this additional
investment in the form of tax privileges, lower revenue sharing,
concession period extension, etc. Management has also guided
that this additional work will have a mild effect on the IRR of the
Xayaburi project. The IRR of this project is expected to be c.13%
(vs. 12-15% target range previously).
High potential to secure at least one contract from the MRT High potential to secure at least one contract from the MRT High potential to secure at least one contract from the MRT High potential to secure at least one contract from the MRT
Orange line.Orange line.Orange line.Orange line. At least three mass transit lines will be opened for
bidding this year. These include Orange, Pink, and Yellow lines.
The MRT Orange line will comprise three underground
contracts, one aboveground works contract, one depo &
parking building contract and one rail system contract. These
projects are worth Bt91bn in total. As there are three
underground work contracts, there are only two Thai
contractors including CK and ITD, which have a track record
for underground works, have a good chance of winning at
least one such contract.
Declining finance costs.Declining finance costs.Declining finance costs.Declining finance costs. CK has refinanced its debt (with
c.4.85% cost of debt) with Bt5.5bn worth of debentures that
carry 2.19% to 3.36% interest rates. Thus, CK‘s current
average cost of funds drops to 4.15%.
Details on CK’s loan to Xayaburi Power Company Limited
Loan amountLoan amountLoan amountLoan amount Bt13.5bn (including the additional loan of Bt2bn)
Interest rate during Interest rate during Interest rate during Interest rate during constructionconstructionconstructionconstruction
Not more than the MLR plus 0.25 percent per annum
Interest rate after the Interest rate after the Interest rate after the Interest rate after the project's Commercial project's Commercial project's Commercial project's Commercial Operation Date (COD), by Operation Date (COD), by Operation Date (COD), by Operation Date (COD), by 2019201920192019
Not more than the MLR
Estimated total interest Estimated total interest Estimated total interest Estimated total interest until 2031until 2031until 2031until 2031
Bt10bn
Projects to bid for in 2016
Client breakdown by sector
Normal earnings vs extra gain(mainly from realizing gains from investments)
Source: Company, DBS Vickers
ProjectProjectProjectProject Descript ionDescript ionDescript ionDescript ion
V alue V alue V alue V alue
(Btbn)(Btbn)(Btbn)(Btbn) ProgressProgressProgressProgress
Mass Rapid T ransit A uthorit y of Thailand : MRTAMass Rapid T ransit A uthorit y of Thailand : MRTAMass Rapid T ransit A uthorit y of Thailand : MRTAMass Rapid T ransit A uthorit y of Thailand : MRTA
Orange line Thailand Cultural Centre - Min Buri 91
Pink line (Monorail) Khae Rai - Minburi 27
Yellow line (Monorail) Lat proa - Samrong 32
Purple Line (Southern Extension) Tao Poon - Ratboorana 72
Awaiting for EIA
process & under
feasibility approval
Department of Highway : DOHDepartment of Highway : DOHDepartment of Highway : DOHDepartment of Highway : DOH
Pattaya - Map Ta Phut 14
Awaiting for the
E-Auction process
of Toll Collection
Bang Pa In - Nakhon Ratchasima 85
State Railway of Thailand : SRTState Railway of Thailand : SRTState Railway of Thailand : SRTState Railway of Thailand : SRT
Prachuab Khiri Khan - Chumpon 17
Map Kabao - Thanon Chira 29
Nakhon Pathom - Hua Hin 19
Lopburi - Paknampo 24
A irports of T hailand Public Company Limit ed : AOTA irports of T hailand Public Company Limit ed : AOTA irports of T hailand Public Company Limit ed : AOTA irports of T hailand Public Company Limit ed : AOT
Suvarnabhumi Airport : Phase IIExtension of building, terminal and
utilities49 TOR announced
TotalTotalTotalTotal 514514514514
Bangyai - Karnchanaburi
Under the E-
auction bidding
process
Motorway
Waiting for the
cabinet approval
Cabinet approved
Double-track rail
56
Cabinet approved
74% 79% 84%
69% 67%
25%21% 16%
31% 33%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2012A 2013A 2014A 2015A 1Q16A
Public CK group
-2,000
-1,000
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2011A 2012A 2013A 2014A 2015A 1Q16A
Btm
Normalized earnings Extra gains
Page 44
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Ch. Karnchang
Balance Sheet:
CK’s debt-to-equity ratio as at FY15 was 2.3x. We expect this
ratio to rise to 2.8x in FY16, given its potentially high backlog
growth in FY16.
Currently, c.57% of its debt is for financing the company’s
investments while the remaining 43% is for its working capital.
Share Price Drivers:
Acceleration of public infrastructure projects.Acceleration of public infrastructure projects.Acceleration of public infrastructure projects.Acceleration of public infrastructure projects. Thailand’s
construction sector has been supported by positive news flows
on infrastructure investments. The government’s concrete
actions for its eight-year (2015-2022) infrastructure plan, which
kicked off in 4Q15, could be a share price catalyst for CK.
Key Risks:
Political instability Political instability Political instability Political instability
• Political instability could cause further delays in the
government's infrastructure spending programme.
Further delays in mega infrastructure projectsFurther delays in mega infrastructure projectsFurther delays in mega infrastructure projectsFurther delays in mega infrastructure projects
• This would cap new contract wins..
High earnings volatilityHigh earnings volatilityHigh earnings volatilityHigh earnings volatility
• The extra ordinary earnings of CK, mainly from gains
on its investment, have played a major role to bottom
line in the past years. Realizing gains from investment
is probably the norm or life saver of CK after all.
High exposure to Lao projectHigh exposure to Lao projectHigh exposure to Lao projectHigh exposure to Lao project
• CK has done the additional work portion on Xayaburi
project before getting the contract awarded by
Xayaburi Power Co., Ltd. We view this as significant
risk for CK especially in case of the project owner is
unable to pay for the completed works.
Company Background
CH. Karnchang PCL (CK) is one of Thailand's leading general
contractors and basic infrastructure developers. It is involved in
the construction of large-scale infrastructure, building
construction, and general civil works, and invests in
government concession projects in order to expand operations
and generate long-term recurring income.
CK’s major project backlog as of 31 March 2016
ProjectProjectProjectProject
Contract Contract Contract Contract Value Value Value Value (Btbn)(Btbn)(Btbn)(Btbn)
ProgressProgressProgressProgress
MRT Purple LineMRT Purple LineMRT Purple LineMRT Purple Line
- Elevated structure, contract 1 14.8 99.9%
- Supply and Installation of M&E system 20.0 58.0%
MRT Blue LineMRT Blue LineMRT Blue LineMRT Blue Line - Underground Civil (Sanam Chai - Tha Phra), contract 2 10.0 92.5%
- Trackwork, Contract 5 4.7 71.4%
MRT Green LineMRT Green LineMRT Green LineMRT Green Line
- Elevated Structure and Depot, Contract 1 13.2 82.0%
- Tracework, Contract 2 2.2 69.0%
Xayaburi : A runXayaburi : A runXayaburi : A runXayaburi : A run----offoffoffoff----river Hydro projectriver Hydro projectriver Hydro projectriver Hydro project 76.6 76.6 76.6 76.6 62.0%62.0%62.0%62.0%
Si Rat (Sector B+) ExpresswaySi Rat (Sector B+) ExpresswaySi Rat (Sector B+) ExpresswaySi Rat (Sector B+) Expressway 22.5 22.5 22.5 22.5 84.0%84.0%84.0%84.0%
SRT Double Track Railroad : Chira Junction SRT Double Track Railroad : Chira Junction SRT Double Track Railroad : Chira Junction SRT Double Track Railroad : Chira Junction ---- Khon Kaen Section*Khon Kaen Section*Khon Kaen Section*Khon Kaen Section* 21.9 21.9 21.9 21.9 1.7%1.7%1.7%1.7%
* Joint-venture project between CK and Ch.Tawee Construction
Leverage & Asset Turnover (x)
Capital Expenditure
ROE (%)
Forward PE Band (x)
PB Band (x)
Source: Company, DBS Vickers
0.3
0.4
0.4
0.5
0.5
0.6
0.6
0.00
0.50
1.00
1.50
2.00
2.50
2013A 2014A 2015A 2016F 2017F
Gross Debt to Equity (LHS) Asset Turnover (RHS)
0.0
500.0
1,000.0
1,500.0
2,000.0
2,500.0
3,000.0
3,500.0
4,000.0
2013A 2014A 2015A 2016F 2017F
Capital Expenditure (-)
Btm
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
2013A 2014A 2015A 2016F 2017F
Avg: 31.1x
+1sd: 49x
+2sd: 66.9x
-1sd: 13.3x
-4.1
5.9
15.9
25.9
35.9
45.9
55.9
65.9
75.9
85.9
May-12 May-13 May-14 May-15
(x)
Avg: 2.28x
+1sd: 2.94x
+2sd: 3.59x
-1sd: 1.63x
-2sd: 0.98x0.8
1.3
1.8
2.3
2.8
3.3
3.8
4.3
4.8
May-12 May-13 May-14 May-15
(x)
Page 45
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Ch. Karnchang
Key Assumptions
FY FY FY FY DecDecDecDec 2013201320132013AAAA 2014201420142014AAAA 2015201520152015AAAA 2016201620162016FFFF 2017201720172017FFFF
Beginning backlog 109,087 95,300 95,530 83,551 91,725
New projects signed (Btm) 19,001 33,181 22,933 45,785 40,000
Realized (Btm) 32,788 32,951 34,912 37,611 40,478
Ending backlog (Btm) 95,300 95,530 83,551 91,725 91,247
Income Statement (Btm)
FY FY FY FY DecDecDecDec 2013201320132013AAAA 2014201420142014AAAA 2015201520152015AAAA 2016201620162016FFFF 2017201720172017FFFF
Revenue 32,788 32,951 34,912 51,611 40,478
Cost of Goods Sold (29,233) (29,827) (31,986) (47,298) (36,912)
Gross ProfitGross ProfitGross ProfitGross Profit 3,5553,5553,5553,555 3,1243,1243,1243,124 2,9262,9262,9262,926 4,3134,3134,3134,313 3,5663,5663,5663,566 Other Opng (Exp)/Inc (609) (362) (710) (878) (253)
Operating ProfitOperating ProfitOperating ProfitOperating Profit 2,9452,9452,9452,945 2,7622,7622,7622,762 2,2162,2162,2162,216 3,4353,4353,4353,435 3,3133,3133,3133,313 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0
Associates & JV Inc (489) 26.8 (19.4) 1,054 1,326
Net Interest (Exp)/Inc (958) (1,393) (1,488) (900) (2,121)
Exceptional Gain/(Loss) 7,746 1,304 2,011 0.0 0.0
PrePrePrePre----tax Profittax Profittax Profittax Profit 9,2459,2459,2459,245 2,7002,7002,7002,700 2,7192,7192,7192,719 3,5893,5893,5893,589 2,5172,5172,5172,517 Tax (1,533) (342) (459) (507) (238)
Minority Interest (38.1) (60.8) (67.8) (67.8) (67.8)
Preference Dividend 0.0 0.0 0.0 0.0 0.0
Net ProfitNet ProfitNet ProfitNet Profit 7,6747,6747,6747,674 2,2962,2962,2962,296 2,1932,1932,1932,193 3,0143,0143,0143,014 2,2112,2112,2112,211 Net Profit before Except. (72.4) 992 182 3,014 2,211
EBITDA 3,154 3,776 3,178 5,767 6,302
Growth Revenue Gth (%) 56.9 0.5 6.0 47.8 (21.6)
EBITDA Gth (%) 68.9 19.7 (15.8) 81.5 9.3
Opg Profit Gth (%) 156.3 (6.2) (19.8) 55.0 (3.6)
Net Profit Gth (Pre-ex) (%) nm nm (81.7) 1,559.2 (26.6)
Margins & Ratio Gross Margins (%) 10.8 9.5 8.4 8.4 8.8
Opg Profit Margin (%) 9.0 8.4 6.3 6.7 8.2
Net Profit Margin (%) 23.4 7.0 6.3 5.8 5.5
ROAE (%) 62.0 12.9 11.1 13.8 9.3
ROA (%) 12.5 3.0 2.5 2.8 1.8
ROCE (%) 6.0 4.6 2.9 3.7 3.4
Div Payout Ratio (%) 8.7 25.8 30.9 30.0 30.0
Net Interest Cover (x) 3.1 2.0 1.5 3.8 1.6
Source: Company, DBS Vickers
Page 46
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Ch. Karnchang
Quarterly / Interim Income Statement (Btm)
FY FY FY FY DecDecDecDec 1Q1Q1Q1Q2015201520152015 2Q2Q2Q2Q2015201520152015 3Q3Q3Q3Q2015201520152015 4Q4Q4Q4Q2015201520152015 1Q1Q1Q1Q2016201620162016
Revenue 8,544 8,511 8,752 9,105 9,003
Cost of Goods Sold (7,835) (7,780) (8,014) (8,357) (8,204)
Gross ProfitGross ProfitGross ProfitGross Profit 708708708708 731731731731 738738738738 749749749749 799799799799 Other Oper. (Exp)/Inc (91.4) (68.8) 4.71 (555) (394)
Operating ProfitOperating ProfitOperating ProfitOperating Profit 617617617617 662662662662 743743743743 194194194194 405405405405 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0
Associates & JV Inc 3.17 9.77 (27.2) (5.2) 149
Net Interest (Exp)/Inc (360) (372) (395) (361) (230)
Exceptional Gain/(Loss) 315 1,657 38.9 0.0 53.5
PrePrePrePre----tax Profittax Profittax Profittax Profit 575575575575 1,9571,9571,9571,957 359359359359 (173)(173)(173)(173) 377377377377 Tax (120) (281) (60.1) 1.93 (52.5)
Minority Interest (18.3) (27.4) (15.3) (6.8) (20.2)
Net ProfitNet ProfitNet ProfitNet Profit 437437437437 1,6491,6491,6491,649 284284284284 (178)(178)(178)(178) 305305305305 Net profit bef Except. 188 230 252 (178) 259
EBITDA 871 921 980 441 787
Growth Revenue Gth (%) 14.0 (0.4) 2.8 4.0 (1.1)
EBITDA Gth (%) 1.7 5.7 6.5 (55.0) 78.4
Opg Profit Gth (%) 24.1 7.4 12.1 (73.9) 109.0
Net Profit Gth (Pre-ex) (%) (6.0) 22.2 9.5 nm nm
Margins Gross Margins (%) 8.3 8.6 8.4 8.2 8.9
Opg Profit Margins (%) 7.2 7.8 8.5 2.1 4.5
Net Profit Margins (%) 5.1 19.4 3.2 (2.0) 3.4
Balance Sheet (Btm)
FY FY FY FY DecDecDecDec 2013201320132013AAAA 2014201420142014AAAA 2015201520152015AAAA 2016201620162016FFFF 2017201720172017FFFF
Net Fixed Assets 7,518 6,962 7,330 8,211 9,047
Invts in Associates & JVs 19,177 21,205 25,267 26,320 27,646
Other LT Assets 4,204 8,726 15,429 15,429 15,429
Cash & ST Invts 3,913 5,265 4,667 1,125 3,485
Inventory 2,496 8,562 12,787 18,979 16,537
Debtors 4,288 5,337 6,174 8,754 10,778
Other Current Assets 30,438 24,815 21,413 44,664 35,029
Total AssetsTotal AssetsTotal AssetsTotal Assets 72,03472,03472,03472,034 80,87280,87280,87280,872 93,06693,06693,06693,066 123,482123,482123,482123,482 117,952117,952117,952117,952
ST Debt 13,353 12,844 15,291 22,605 19,729
Creditor 6,846 5,904 6,602 9,799 7,506
Other Current Liab 9,352 10,856 8,663 19,074 15,406
LT Debt 22,886 29,027 38,247 45,000 47,000
Other LT Liabilities 2,757 2,770 3,408 3,408 3,408
Shareholder’s Equity 16,551 19,125 20,457 23,199 24,506
Minority Interests 290 346 398 398 398
Total Cap. & Liab.Total Cap. & Liab.Total Cap. & Liab.Total Cap. & Liab. 72,03472,03472,03472,034 80,87280,87280,87280,872 93,06693,06693,06693,066 123,482123,482123,482123,482 117,952117,952117,952117,952
Non-Cash Wkg. Capital 21,025 21,953 25,109 43,524 39,433
Net Cash/(Debt) (32,326) (36,606) (48,871) (66,480) (63,244)
Debtors Turn (avg days) 53.5 53.3 60.2 52.8 88.1
Creditors Turn (avg days) 77.1 79.7 72.0 63.8 89.0
Inventory Turn (avg days) 23.7 67.7 121.8 122.6 175.6
Asset Turnover (x) 0.5 0.4 0.4 0.5 0.3
Current Ratio (x) 1.4 1.5 1.5 1.4 1.5
Quick Ratio (x) 1.3 1.2 1.1 1.1 1.2
Net Debt/Equity (X) 1.9 1.9 2.3 2.8 2.5
Net Debt/Equity ex MI (X) 2.0 1.9 2.4 2.9 2.6
Capex to Debt (%) 9.7 1.0 2.5 3.2 3.7
Z-Score (X) 1.3 1.3 1.3 1.3 1.4
Source: Company, DBS Vickers
Page 47
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Ch. Karnchang
Cash Flow Statement (Btm)
FY FY FY FY DecDecDecDec 2013201320132013AAAA 2014201420142014AAAA 2015201520152015AAAA 2016201620162016FFFF 2017201720172017FFFF
Pre-Tax Profit 9,245 2,700 2,719 3,589 2,517
Dep. & Amort. 697 988 981 1,279 1,664
Tax Paid (1,908) (772) (759) (692) (667)
Assoc. & JV Inc/(loss) 489 (26.8) 19.4 (1,054) (1,326)
Chg in Wkg.Cap. (13,143) (929) (12,175) (18,010) 4,091
Other Operating CF 374 (1,375) (1,711) 185 429
Net Operating CFNet Operating CFNet Operating CFNet Operating CF (11,992)(11,992)(11,992)(11,992) 1,0851,0851,0851,085 (10,925)(10,925)(10,925)(10,925) (14,703)(14,703)(14,703)(14,703) 6,7086,7086,7086,708 Capital Exp.(net) (3,514) (432) (1,349) (2,160) (2,500)
Other Invts.(net) 7,121 1,218 2,011 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 0.0 0.0 0.0
Net Investing CFNet Investing CFNet Investing CFNet Investing CF 3,6063,6063,6063,606 786786786786 662662662662 (2,160)(2,160)(2,160)(2,160) (2,500)(2,500)(2,500)(2,500) Div Paid (578) (666) (593) (678) (904)
Chg in Gross Debt 8,285 5,631 11,667 14,067 (876)
Capital Issues 0.0 41.3 0.0 0.0 0.0
Other Financing CF 1,591 (1,662) 122 (67.8) (67.8)
Net Financing CFNet Financing CFNet Financing CFNet Financing CF 9,2979,2979,2979,297 3,3453,3453,3453,345 11,19711,19711,19711,197 13,32113,32113,32113,321 (1,848)(1,848)(1,848)(1,848)
Currency Adjustments 233 35.6 0.0 0.0 0.0
Chg in Cash 1,144 5,252 934 (3,542) 2,360
Opg CFPS (Bt) 0.70 1.19 0.74 1.95 1.54
Free CFPS (Bt) (9.4) 0.39 (7.2) (10.0) 2.48
Source: Company, DBS Vickers
Target Price & Ratings History
Source: DBS Vickers
ScoreScoreScoreScore Range Number of LogoRange Number of LogoRange Number of LogoRange Number of Logo DescriptionDescriptionDescriptionDescription
90-100 Excellent
80-89 Very Good
70-79 Good
60-69 Satisfactory
50-59 Pass
<50 No logo given N/A
S.No.S.No.S.No.S.No. DateDateDateDateClosing Closing Closing Closing
PricePricePricePrice
Target Target Target Target
PricePricePricePriceRat ing Rat ing Rat ing Rat ing
1: 18 Aug 15 24.70 33.00 BUY
2: 21 Aug 15 26.25 33.00 BUY
3: 16 Nov 15 27.75 33.00 BUY
4: 25 Nov 15 28.00 33.00 BUY
5: 29 Feb 16 22.60 33.00 BUY
6: 09 Mar 16 24.60 33.00 BUY
7: 29 Mar 16 25.25 33.00 BUY
8: 17 May 16 24.70 33.00 BUY
Note Note Note Note : Share price and Target price are adjusted for corporate actions.
1
23
4
5
6
7
8
21.47
22.47
23.47
24.47
25.47
26.47
27.47
28.47
29.47
May-15 Sep-15 Jan-16
BtBtBtBt
Page 48
ASIAN INSIGHTS VICKERS SECURITIES
ed:CK / sa:BC
BUYBUYBUYBUYLast Traded Price: Last Traded Price: Last Traded Price: Last Traded Price: RM4.81 (KLCIKLCIKLCIKLCI : : : : 1,642.2) Price Target :Price Target :Price Target :Price Target : RM5.80 (21% upside) (Prev RM5.80) PPPPotential Catalyst: otential Catalyst: otential Catalyst: otential Catalyst: Other 11MP wins, sale of Splash
Where we differ:Where we differ:Where we differ:Where we differ: Our preference is Gamuda for our large-cap pick Analyst Chong Tjen-San,CFA +60 3 26043972 tjensan@alliancedbs.com
What’s New • In-line 3QFY16 results, growth to resume in FY17F
• Expect strong 4Q for property, led by Singapore
• Next imminent award is Pan Borneo Highway
• Reiterate BUY, TP RM5.80
Price Relative
Forecasts and Valuation FY FY FY FY JulJulJulJul ((((RMRMRMRM m) m) m) m) 2015201520152015AAAA 2016201620162016FFFF 2017201720172017FFFF 2018201820182018FFFF
Revenue 2,400 1,862 4,071 5,122 EBITDA 590 558 664 718 Pre-tax Profit 858 824 921 963 Net Profit 682 616 694 727 Net Pft (Pre Ex.) 682 616 694 727 Net Pft Gth (Pre-ex) (%) (5.2) (9.7) 12.7 4.8 EPS (sen) 28.4 21.9 24.7 25.9 EPS Pre Ex. (sen) 28.4 21.9 24.7 25.9 EPS Gth Pre Ex (%) (8) (23) 13 5 Diluted EPS (sen) 28.4 21.9 24.7 25.9 Net DPS (sen) 8.88 8.88 8.88 8.88 BV Per Share (sen) 263 240 258 276 PE (X) 17.0 21.9 19.5 18.6 PE Pre Ex. (X) 17.0 21.9 19.5 18.6 P/Cash Flow (X) 19.2 61.7 46.8 42.6 EV/EBITDA (X) 24.8 29.8 25.1 23.1 Net Div Yield (%) 1.8 1.8 1.8 1.8 P/Book Value (X) 1.8 2.0 1.9 1.7 Net Debt/Equity (X) 0.4 0.4 0.4 0.3 ROAE (%) 11.6 9.4 9.9 9.7
Earnings Rev (%):Earnings Rev (%):Earnings Rev (%):Earnings Rev (%): 0 0 0 Consensus EPS Consensus EPS Consensus EPS Consensus EPS (sensensensen):::: 25.5 29.7 32.3 Other Broker Recs:Other Broker Recs:Other Broker Recs:Other Broker Recs: B: 15 S: 2 H: 6
Source of all data: Company, AllianceDBS Research, Bloomberg Finance L.P
Best transport infra proxy Best proxy to transportation infrastructureBest proxy to transportation infrastructureBest proxy to transportation infrastructureBest proxy to transportation infrastructure
Gamuda is our top large cap pick in the sector, as it is the best
proxy to a slew of upcoming transportation-related projects. Its
strong reputation for MRT Line 1 and PDP appointment for
Penang Transport Master Plan (PTMP) provide it with leverage
for other large-multiplier projects such as LRT 3, Gemas-JB
double tracking, Pan Borneo Highway and High Speed Rail.
LLLLaaaarrrrggggeeee mmmmuuuullllttttiiii----yyyyeeeeaaaarrrr pppprrrroooojjjjeeeeccccttttssss eeeennnnssssuuuurrrreeee ssssttttrrrroooonnnngggg eeeeaaaarrrrnnnniiiinnnnggggssss vvvviiiissssiiiibbbbiiiilllliiiittttyyyy
Gamuda’s outstanding orderbook now stands at RM8.2bn
which does not include the PDP fees for MRT Line 2
aboveground works. The final contract value for the whole
project will only be known once all the packages are awarded
which will likely be about RM30bn. Earnings will shrink in
FY16F due to the timing of recognition for MRT Line 2, but this
has been priced in by the market. Construction works for MRT
Line 2 are scheduled to start in mid-2016, which suggests
earnings recognition only in FY17F. Gamuda is also vying for
other large scale projects such as Pan Borneo Highway (with JV
partner Naim), LRT 3 and Gemas-JB double tracking.
Swapping oneSwapping oneSwapping oneSwapping one----off dividend for longoff dividend for longoff dividend for longoff dividend for long----term growthterm growthterm growthterm growth
There are expectations for the Splash deal to be concluded in
2016 at close to the book value of RM2.8bn. We do not
expect special dividends as the proceeds will likely be used for
the Penang Transport Master Plan project; this will be positive
as Gamuda could secure long-term construction earnings and
a firm footing in Penang’s property market.
Valuation:
We maintain our BUY rating and SOP-derived TP of RM5.80.
We have accounted for the dilution of warrants and
corresponding increase in cash raised from full conversion
while also assuming some marginal wins outside of MRT 2.
Key Risks to Our View:
High raw material price.High raw material price.High raw material price.High raw material price. The tunnelling portion of MRT Line 2
is its largest project and is susceptible to fluctuations of raw
material prices, particularly for steel. Nonetheless, we think this
is partly mitigated by the higher contract value on a per km
basis.At A Glance Issued Capital (m shrs) 2,416
Mkt. Cap (RMm/US$m) 11,621 / 2,866
Major Shareholders (%)
EPF 9.8
KWAP 6.8
Free Float (%) 78.8
3m Avg. Daily Val (US$m) 3.4
ICB IndustryICB IndustryICB IndustryICB Industry : Industrials / Construction & Materials
DBS Group Research . Equity 30 Jun 2016
Malaysia Company Guide
Gamuda Version 5 | Bloomberg: GAM MK | Reuters: GAMU.KL Refer to important disclosures at the end of this report
42
92
142
192
242
3.0
3.5
4.0
4.5
5.0
5.5
Jun-12 Jun-13 Jun-14 Jun-15 Jun-16
Relative IndexRM
Gamuda (LHS) Relative VIX Index (RHS)
Page 49
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Gamuda
WHAT’S NEW
In-line results, expect stronger property sales in 4Q
No surprises.No surprises.No surprises.No surprises. It posted a 3QFY16 net profit of RM153m (-5% y-o-y, -5% q-o-q), bringing 9MFY16 net profit to RM474m (-10% y-o-y) – in line with our and consensus estimates. 3QFY16 construction pretax profit dropped by 10% q-o-q and 33% y-o-y to RM42m, as MRT Line 1 civil works are at its tail- end with just remaining orders of RM0.5bn. The 9MFY16 construction margin was 7.1% vs 8.6% in 9MFY15. KV MRT Line 1 is on track for full completion in July 2017, with cumulative progress at 85% (87% underground and 82% elevated) with no significant cost overruns.
Slower quarter for property but expect a surge for 4QFY16Slower quarter for property but expect a surge for 4QFY16Slower quarter for property but expect a surge for 4QFY16Slower quarter for property but expect a surge for 4QFY16.... 3QFY16 property presales came in at RM190m (-32% y-o-y) bringing 9MY16 to RM575m (-29% y-o-y). Contrary to earlier expectations of cutting FY16F property presales of RM1.33bn by about 20-30%, Gamuda actually raised the forecast slightly to RM1.4bn. This is because of the strong showing for its Gem Residences in Singapore (Gamuda has a 50% stake). This project was launched end-May 2016 at an average price of S$1,450 psf and so far take up rates has reached 55% with the smaller units being mostly sold. Hence, Gamuda expects RM500m in total presales in 4QFY16 from this project.
9MFY16 pretax profit for its property division fell 23% y-o-y to RM175m but margins remained relatively stable at 23%. Unbilled sales now stand at RM1.0bn, giving earnings visibility of less than two years.
Progress of MRT Line 2 awardsProgress of MRT Line 2 awardsProgress of MRT Line 2 awardsProgress of MRT Line 2 awards. . . . So far, 18 work packages for MRT line 2 worth RM23bn have been awarded including the tunnelling package of RM15.47bn. Assuming a total project value of RM30bn, this implies that 76% of the total project has been awarded. So far, four viaduct packages have been awarded and the remaining six will be awarded by 2QCY17.
Next imminent award likely Pan Borneo HighwayNext imminent award likely Pan Borneo HighwayNext imminent award likely Pan Borneo HighwayNext imminent award likely Pan Borneo Highway. . . . Similar to the last quarter, Gamuda reiterated that it is still eyeing other local jobs such as Pan Borneo Highway, LRT 3 and Southern double tracking. The most imminent award will likely be Pan Borneo Highway which should be in the next two to three months.
Quarterly / Interim Income Statement (RMm)
FY FY FY FY JulJulJulJul 3Q3Q3Q3Q2015201520152015 2Q2Q2Q2Q2016201620162016 3Q3Q3Q3Q2016201620162016 % chg yoy % chg yoy % chg yoy % chg yoy % chg qoq% chg qoq% chg qoq% chg qoq
Revenue 554 527 467 (15.6) (11.4)
Cost of Goods Sold (429) (454) (377) (12.0) (16.8)
Gross ProfitGross ProfitGross ProfitGross Profit 125125125125 73.973.973.973.9 89.989.989.989.9 (27.9)(27.9)(27.9)(27.9) 21.621.621.621.6
Other Oper. (Exp)/Inc 22.6 35.6 16.8 (25.7) (52.8)
Operating ProfitOperating ProfitOperating ProfitOperating Profit 147147147147 110110110110 107107107107 (27.6)(27.6)(27.6)(27.6) (2.6)(2.6)(2.6)(2.6)
Other Non Opg (Exp)/Inc 0.0 0.0 0.0 nm nm
Associates & JV Inc 86.2 112 109 26.3 (2.7)
Net Interest (Exp)/Inc (24.5) (29.2) (29.7) (21.4) (1.7)
Exceptional Gain/(Loss) 0.0 0.0 0.0 nm nm
PrePrePrePre----tax Profittax Profittax Profittax Profit 209209209209 192192192192 186186186186 (11.1)(11.1)(11.1)(11.1) (3.3)(3.3)(3.3)(3.3)
Tax (31.8) (22.2) (20.7) (35.0) (6.8)
Minority Interest (16.8) (9.9) (12.5) (25.9) 25.7
Net ProfitNet ProfitNet ProfitNet Profit 160160160160 160160160160 153153153153 (4.8)(4.8)(4.8)(4.8) (4.6)(4.6)(4.6)(4.6)
Net profit bef Except. 160 160 153 (4.8) (4.6)
EBITDA 233 221 215 (7.7) (2.7)
Margins (%)
Gross Margins 22.5 14.0 19.2
Opg Profit Margins 26.6 20.8 22.8
Net Profit Margins 29.0 30.4 32.7
Source of all data: Company, AllianceDBS Research
Page 50
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Gamuda
CRITICAL DATA POINTS TO WATCH
Earnings Drivers:
On track for next earnings upcycle.On track for next earnings upcycle.On track for next earnings upcycle.On track for next earnings upcycle. We think the market has
priced in the expected earnings decline in FY16F. The decline is
because MRT Line 1 is largely completed and MRT Line 2 will
only contribute in FY17F.
MRT Line 2 to contribute in FY17.MRT Line 2 to contribute in FY17.MRT Line 2 to contribute in FY17.MRT Line 2 to contribute in FY17. There is low risk of the
project being delayed or shelved because it is deemed a high-
multiplier and top priority ETP project. The PDP fee remains at
6%, similar to MRT Line 1. The only difference is MRT Co. has
introduced three additional KPIs (safety, quality and public
response) which will constitute half a percentage point out of
the 6%. The MMC-Gamuda JV has returned as the tunnelling
contractor with a total contract value of RM15.47bn or
RM7.7bn per contractor. A few viaduct packages for the
aboveground works have been awarded and all should be
awarded within the next one year.
Sale of Splash.Sale of Splash.Sale of Splash.Sale of Splash. The sale of Splash remains the biggest overhang
for Gamuda. It remains optimistic about concluding the deal by
end-2016 with pricing likely at a book value of about RM2.8bn.
Given that it is actively pursuing the Penang Integrated
Transport System project which requires higher upfront capex,
there may not be special dividends from the sale.
Awaiting approvals for Penang Transport Master Plan (Awaiting approvals for Penang Transport Master Plan (Awaiting approvals for Penang Transport Master Plan (Awaiting approvals for Penang Transport Master Plan (PTMP).PTMP).PTMP).PTMP).
Gamuda has received a Letter of Award (LOA) – via SRS
Consortium – from the Penang State Government to be the PDP
for the Roads and Public Transport Projects in Penang (Penang
Transport Master Plan Strategy 2013-2030). The key hurdle for
this project is obtaining the federal government’s approval for
land reclamation and for the LRT. Gamuda is hoping to have
two bites of the cherry – PDP, and also as turnkey contractor for
some key components – but these are uncertain at this stage.
The two main components of the project are LRT from George
Town to Bayan Lepas and the Pan Island Link highway. The
railway scheme has been submitted to SPAD while the
environmental and social impact assessment studies are
ongoing. In our view, this project will only take off post the next
general elections.
Property sales driven by overseas projects.Property sales driven by overseas projects.Property sales driven by overseas projects.Property sales driven by overseas projects. Gamuda has raised
its property presales for FY16F slightly to RM1.4bn largely for
the strong showing of its Gem Residences project in Singapore.
Its FY17F property sales target is RM1.8bn with two key
launches Gamuda Gardens and Kundang Estates.
Construction margins
Property launches Malaysia
Construction profit contribution
Property profit contribution
New order wins
Source: Company, AllianceDBS Research
8.7
7.68.2
9.5
11.1
0.0
1.6
3.2
4.8
6.4
8.0
9.6
11.2
2014A 2015A 2016F 2017F 2018F
1,700
950 900 850 850
0
347
694
1,040
1,387
1,734
2014A 2015A 2016F 2017F 2018F
32
24.7 24.1
2728.2
0.0
6.5
13.0
19.6
26.1
32.6
2014A 2015A 2016F 2017F 2018F
26.1
29.5 28.9 29.1 29.6
0.0
6.0
11.9
17.9
23.9
29.8
2014A 2015A 2016F 2017F 2018F
7,735
0
2,000
0
1,562
3,125
4,687
6,250
7,812
2016F 2017F 2018F
Page 51
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Gamuda
Balance Sheet:
Manageable net gearing.Manageable net gearing.Manageable net gearing.Manageable net gearing. Net gearing remained manageable at
0.49x as at 30 April 2016, but has inched up from 0.43x as at
31 July 2015 largely due to land banking over the past two
years. More recent land bank purchases include its maiden
project in Toa Payoh, Singapore for S$345.9m (Gamuda has a
50% share), a small parcel of freehold land in Melbourne for
AUD40m, an 18-acre land in Kota Kinabalu for RM100m, and a
257-acre parcel located just 2km from Kota Kemuning for
RM392m.
Further land banking could raise gearing.Further land banking could raise gearing.Further land banking could raise gearing.Further land banking could raise gearing. Gamuda is still
seeking to land bank further in choice locations despite the
softening property market. But it will be more selective now
given its aggressive land banking over the past year or so.
Share Price Drivers:
Proxy to transportationProxy to transportationProxy to transportationProxy to transportation----related related related related projects. projects. projects. projects. Besides having a strong
reputation, it also has ample capacity and the technical know-
how to bid for large upcoming transport-related projects such
as MRT Line 2, LRT 3, PTMP, and High Speed Rail. Thus far,
execution for MRT Line 1 has been smooth. Gamuda has also
expressed interest in bidding for LRT 3 civil works, Pan Borneo
Highway and also the Gemas-JB double tracking. It is making a
concerted effort to beef up its orderbook and to diversify its
project risk.
Resolution for Splash.Resolution for Splash.Resolution for Splash.Resolution for Splash. A successful resolution for Splash would
remove the overhang on the stock. Investors could welcome
potential earnings prospects from the Penang Integrated
Transport project at the expense of a one-off special dividend.
Key Risks:
Macroeconomic factors. Macroeconomic factors. Macroeconomic factors. Macroeconomic factors. Generally, an economic slowdown
could adversely affect the group because this could defer or
halt some projects, especially infrastructure projects. This could
result in slower order book replenishment.
Slowdown in property market. Slowdown in property market. Slowdown in property market. Slowdown in property market. The various tightening policies
for the Malaysian property sector could reduce the demand for
property (i.e. residential and commercial) in the near future.
Company Background
Gamuda's core businesses focus on three segments which are
engineering & construction, infrastructure concessions, and
property development.
Leverage & Asset Turnover (x)
Capital Expenditure
ROE (%)
Forward PE Band (x)
PB Band (x)
Source: Company, AllianceDBS Research
0.1
0.2
0.2
0.3
0.3
0.4
0.4
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
2014A 2015A 2016F 2017F 2018F
Gross Debt to Equity (LHS) Asset Turnover (RHS)
0.0
20.0
40.0
60.0
80.0
100.0
120.0
2014A 2015A 2016F 2017F 2018F
Capital Expenditure (-)
RMm
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
2014A 2015A 2016F 2017F 2018F
Avg: 17.4x
+1sd: 20.1x
+2sd: 22.8x
-1sd: 14.6x
-2sd: 11.9x
10.7
12.7
14.7
16.7
18.7
20.7
22.7
24.7
Jun-12 Jun-13 Jun-14 Jun-15 Jun-16
(x)
Avg: 1.96x
+1sd: 2.11x
+2sd: 2.27x
-1sd: 1.8x
-2sd: 1.64x
1.3
1.5
1.7
1.9
2.1
2.3
2.5
Jun-12 Jun-13 Jun-14 Jun-15 Jun-16
(x)
Page 52
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Gamuda
Key Assumptions
FY FY FY FY JulJulJulJul 2014201420142014AAAA 2015201520152015AAAA 2016201620162016FFFF 2017201720172017FFFF 2018201820182018FFFF
Construction margins 8.70 7.60 8.15 9.54 11.1 Property launches Malaysia
1,700 950 900 850 850 Construction profit contribution
32.0 24.7 24.1 27.0 28.2 Property profit contribution
26.1 29.5 28.9 29.1 29.6
New order wins 7,735 0.0 2,000
Segmental Breakdown
FY FY FY FY JulJulJulJul 2014201420142014AAAA 2015201520152015AAAA 2016201620162016FFFF 2017201720172017FFFF 2018201820182018FFFF
Revenues (RMm) Construction 1,180 1,158 333 2,365 3,297
Property development 895 842 685 660 600
Infrastructure 154 401 409 417 425
Others 0.0 0.0 435 630 800
TotalTotalTotalTotal 2,2302,2302,2302,230 2,4002,4002,4002,400 1,8621,8621,8621,862 4,0714,0714,0714,071 5,1225,1225,1225,122
Pretax profit (RMm) Construction 294 242 233 291 319
Property development 239 289 192 196 196
Infrastructure 385 450 455 473 477
Others 0.0 0.0 87.0 117 138
Int Expense (66.4) (124) (143) (155) (168)
TotalTotalTotalTotal 852852852852 858858858858 824824824824 921921921921 963963963963
Income Statement (RMm)
FY FY FY FY JulJulJulJul 2014201420142014AAAA 2015201520152015AAAA 2016201620162016FFFF 2017201720172017FFFF 2018201820182018FFFF
Revenue 2,230 2,400 1,862 4,071 5,122
Cost of Goods Sold (1,741) (1,820) (1,343) (3,351) (4,306)
Gross ProfitGross ProfitGross ProfitGross Profit 488488488488 580580580580 519519519519 720720720720 816816816816 Other Opng (Exp)/Inc (28.2) (10.4) 17.5 (81.6) (127)
Operating ProfitOperating ProfitOperating ProfitOperating Profit 460460460460 570570570570 536536536536 639639639639 689689689689
Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0
Associates & JV Inc 430 375 379 382 386
Net Interest (Exp)/Inc (38.0) (86.6) (91.0) (99.8) (112)
Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0
PrePrePrePre----tax Profittax Profittax Profittax Profit 852852852852 858858858858 824824824824 921921921921 963963963963 Tax (117) (133) (165) (184) (193)
Minority Interest (15.7) (43.3) (43.3) (43.3) (43.3)
Preference Dividend 0.0 0.0 0.0 0.0 0.0
Net ProfitNet ProfitNet ProfitNet Profit 719719719719 682682682682 616616616616 694694694694 727727727727 Net Profit before Except. 719 682 616 694 727
EBITDA 481 590 558 664 718
Growth
Revenue Gth (%) (42.6) 7.6 (22.4) 118.7 25.8
EBITDA Gth (%) 42.7 22.7 (5.5) 19.1 8.2
Opg Profit Gth (%) 47.4 23.9 (5.9) 19.1 7.9
Net Profit Gth (Pre-ex) (%) 33.0 (5.2) (9.7) 12.7 4.8
Margins & Ratio Gross Margins (%) 21.9 24.2 27.8 17.7 15.9
Opg Profit Margin (%) 20.6 23.7 28.8 15.7 13.4
Net Profit Margin (%) 32.3 28.4 33.1 17.0 14.2
ROAE (%) 13.9 11.6 9.4 9.9 9.7
ROA (%) 7.7 5.8 4.4 4.6 4.5
ROCE (%) 4.8 4.6 3.6 3.9 4.0
Div Payout Ratio (%) 28.7 31.3 40.5 35.9 34.3
Net Interest Cover (x) 12.1 6.6 5.9 6.4 6.1
Source: Company, AllianceDBS Research
Page 53
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Gamuda
Quarterly / Interim Income Statement (RMm)
FY FY FY FY JulJulJulJul 3Q3Q3Q3Q2015201520152015 4Q4Q4Q4Q2015201520152015 1Q1Q1Q1Q2016201620162016 2Q2Q2Q2Q2016201620162016 3Q3Q3Q3Q2016201620162016
Revenue 554 623 513 527 467
Cost of Goods Sold (429) (531) (428) (454) (377)
Gross ProfitGross ProfitGross ProfitGross Profit 125125125125 91.891.891.891.8 84.984.984.984.9 73.973.973.973.9 89.989.989.989.9 Other Oper. (Exp)/Inc 22.6 43.0 24.2 35.6 16.8
Operating ProfitOperating ProfitOperating ProfitOperating Profit 147147147147 135135135135 109109109109 110110110110 107107107107 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0
Associates & JV Inc 86.2 99.3 114 112 109
Net Interest (Exp)/Inc (24.5) (43.6) (30.2) (29.2) (29.7)
Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0
PrePrePrePre----tax Profittax Profittax Profittax Profit 209209209209 191191191191 193193193193 192192192192 186186186186 Tax (31.8) (35.5) (19.7) (22.2) (20.7)
Minority Interest (16.8) (1.3) (11.6) (9.9) (12.5)
Net ProfitNet ProfitNet ProfitNet Profit 160160160160 154154154154 161161161161 160160160160 153153153153 Net profit bef Except. 160 154 161 160 153
EBITDA 233 234 223 221 215
Growth Revenue Gth (%) (15.2) 12.5 (17.7) 2.9 (11.4)
EBITDA Gth (%) (9.7) 0.3 (4.9) (0.6) (2.7)
Opg Profit Gth (%) (13.3) (8.5) (19.0) 0.4 (2.6)
Net Profit Gth (Pre-ex) (%) (11.9) (4.2) 4.9 (0.7) (4.6)
Margins Gross Margins (%) 22.5 14.7 16.6 14.0 19.2
Opg Profit Margins (%) 26.6 21.6 21.3 20.8 22.8
Net Profit Margins (%) 29.0 24.7 31.4 30.4 32.7
Balance Sheet (RMm)
FY FY FY FY JulJulJulJul 2014201420142014AAAA 2015201520152015AAAA 2016201620162016FFFF 2017201720172017FFFF 2018201820182018FFFF
Net Fixed Assets 285 312 391 465 535
Invts in Associates & JVs 1,234 2,621 2,999 3,382 3,768
Other LT Assets 3,125 5,163 5,163 5,163 5,163
Cash & ST Invts 920 1,438 1,801 2,237 2,702
Inventory 295 186 213 245 282
Debtors 1,716 1,377 1,583 1,821 2,094
Other Current Assets 2,778 2,230 2,230 2,230 2,230
Total AssetsTotal AssetsTotal AssetsTotal Assets 10,35310,35310,35310,353 13,32613,32613,32613,326 14,38014,38014,38014,380 15,54315,54315,54315,543 16,77416,77416,77416,774
ST Debt 792 777 1,177 1,577 1,977
Creditor 881 1,355 1,558 1,792 2,061
Other Current Liab 126 327 327 327 327
LT Debt 1,739 3,358 3,358 3,358 3,358
Other LT Liabilities 653 815 815 815 815
Shareholder’s Equity 5,474 6,337 6,745 7,231 7,750
Minority Interests 687 356 399 443 486
Total Cap. & Liab.Total Cap. & Liab.Total Cap. & Liab.Total Cap. & Liab. 10,35310,35310,35310,353 13,32613,32613,32613,326 14,38014,38014,38014,380 15,54315,54315,54315,543 16,77416,77416,77416,774
Non-Cash Wkg. Capital 3,783 2,110 2,141 2,177 2,218
Net Cash/(Debt) (1,611) (2,698) (2,735) (2,698) (2,634)
Debtors Turn (avg days) 212.6 235.2 290.2 152.6 139.5
Creditors Turn (avg days) 195.5 226.8 402.3 183.9 164.4
Inventory Turn (avg days) 41.4 48.7 55.1 25.2 22.5
Asset Turnover (x) 0.2 0.2 0.1 0.3 0.3
Current Ratio (x) 3.2 2.1 1.9 1.8 1.7
Quick Ratio (x) 1.5 1.1 1.1 1.1 1.1
Net Debt/Equity (X) 0.3 0.4 0.4 0.4 0.3
Net Debt/Equity ex MI (X) 0.3 0.4 0.4 0.4 0.3
Capex to Debt (%) 0.7 0.6 2.2 2.0 1.9
Z-Score (X) 2.7 1.9 1.9 2.0 1.9
Source: Company, AllianceDBS Research
Page 54
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Gamuda
Cash Flow Statement (RMm)
FY FY FY FY JulJulJulJul 2014201420142014AAAA 2015201520152015AAAA 2016201620162016FFFF 2017201720172017FFFF 2018201820182018FFFF
Pre-Tax Profit 852 858 824 921 963
Dep. & Amort. 20.9 20.2 21.6 25.7 29.6
Tax Paid (72.9) (882) (165) (184) (193)
Assoc. & JV Inc/(loss) (430) (375) (379) (382) (386)
Chg in Wkg.Cap. (712) 164 (31.1) (35.8) (41.1)
Other Operating CF (83.7) 818 (51.9) (55.6) (55.6)
Net Operating CFNet Operating CFNet Operating CFNet Operating CF (426)(426)(426)(426) 604604604604 219219219219 289289289289 317317317317 Capital Exp.(net) (16.6) (24.3) (100.0) (100.0) (100.0)
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 123 83.5 0.0 0.0 0.0
Other Investing CF 88.1 (1,473) 51.9 55.6 55.6
Net Investing CFNet Investing CFNet Investing CFNet Investing CF 195195195195 (1,413)(1,413)(1,413)(1,413) (48.1)(48.1)(48.1)(48.1) (44.4)(44.4)(44.4)(44.4) (44.4)(44.4)(44.4)(44.4) Div Paid (277) (285) (208) (208) (208)
Chg in Gross Debt 354 1,561 400 400 400
Capital Issues 142 219 0.0 0.0 0.0
Other Financing CF (374) (167) 0.0 0.0 0.0
Net Financing CFNet Financing CFNet Financing CFNet Financing CF (155)(155)(155)(155) 1,3281,3281,3281,328 192192192192 192192192192 192192192192
Currency Adjustments 0.0 0.0 0.0 0.0 0.0
Chg in Cash (386) 518 363 437 464
Opg CFPS (sen) 12.3 18.3 8.91 11.6 12.7
Free CFPS (sen) (19.0) 24.1 4.24 6.72 7.72
Source: Company, AllianceDBS Research
Target Price & Ratings History
Source: AllianceDBS Research
S.No.S.No.S.No.S.No. DateDateDateDateClosing Closing Closing Closing
PricePricePricePrice
Target Target Target Target
PricePricePricePriceRat ing Rat ing Rat ing Rat ing
1: 30 Jun 15 4.67 6.00 BUY
2: 17 Aug 15 4.15 6.00 BUY
3: 15 Dec 15 4.38 5.60 BUY
4: 17 Dec 15 4.40 5.60 BUY
5: 02 Mar 16 4.66 5.60 BUY
6: 25 Mar 16 4.93 5.80 BUY
7: 01 Apr 16 4.85 5.80 BUY
8: 04 Apr 16 4.88 5.80 BUY
9: 04 May 16 4.75 5.80 BUY
10: 17 May 16 4.72 5.80 BUY
11: 03 Jun 16 4.86 5.80 BUY
12: 24 Jun 16 4.82 5.80 BUY
Note Note Note Note : Share price and Target price are adjusted for corporate actions.
1
2 3
45
6
7
8
9
10
11
12
3.65
3.85
4.05
4.25
4.45
4.65
4.85
5.05
Jun-15 Oct-15 Feb-16
RMRMRMRM
Page 55
ASIAN INSIGHTS VICKERS SECURITIES ed:CK / sa: WMT
HOLDHOLDHOLDHOLD Last Traded Price: Last Traded Price: Last Traded Price: Last Traded Price: RM3.44 (KLCIKLCIKLCIKLCI : : : : 1,631.09) Price Target :Price Target :Price Target :Price Target : RM3.30 (-4% downside) Potential Catalyst: Potential Catalyst: Potential Catalyst: Potential Catalyst: Higher margin new wins, stronger property sales
Where we differ:Where we differ:Where we differ:Where we differ: We prefer Gamuda given its positioning as the most
complete transportation infrastructure proxy Analyst Chong Tjen-San +60 3 26043972 tjensan@alliancedbs.com
What’s New • 4QFY16 below, special dividend of 3 sen declared
• Bright spots were infrastructure & manufacturing
• Cutting FY17-18F earnings by 10-11%
• HOLD, TP RM3.30 based on SOP
Price Relative
Forecasts and Valuation FY FY FY FY MarMarMarMar ((((RMRMRMRM m) m) m) m) 2015201520152015AAAA 2016201620162016AAAA 2017201720172017FFFF 2018201820182018FFFF
Revenue 5,448 5,128 7,197 7,404 EBITDA 1,470 1,166 1,299 1,408 Pre-tax Profit 1,019 1,156 893 952 Net Profit 481 794 609 639 Net Pft (Pre Ex.) 481 492 609 639 Net Pft Gth (Pre-ex) (%) (42.0) 2.2 23.8 5.0 EPS (sen) 13.4 22.1 17.0 17.8 EPS Pre Ex. (sen) 13.4 13.7 17.0 17.8 EPS Gth Pre Ex (%) (42) 2 24 5 Diluted EPS (sen) 13.4 22.1 17.0 17.8 Net DPS (sen) 11.1 7.40 7.40 7.40 BV Per Share (sen) 235 252 261 272 PE (X) 25.6 15.5 20.3 19.3 PE Pre Ex. (X) 25.6 25.1 20.3 19.3 P/Cash Flow (X) 22.4 16.3 14.4 13.6 EV/EBITDA (X) 12.0 14.8 13.7 12.9 Net Div Yield (%) 3.2 2.2 2.2 2.2 P/Book Value (X) 1.5 1.4 1.3 1.3 Net Debt/Equity (X) 0.4 0.4 0.4 0.4 ROAE (%) 6.3 9.1 6.6 6.7 Earnings Rev (%):Earnings Rev (%):Earnings Rev (%):Earnings Rev (%): (11) (10) Consensus EPS Consensus EPS Consensus EPS Consensus EPS (sensensensen):::: 17.9 20.3 23.9 Other Broker Recs:Other Broker Recs:Other Broker Recs:Other Broker Recs: B: 17 S: 1 H: 5
Source of all data: Company, AllianceDBS Research, Bloomberg Finance L.P
Execution of peak orderbook is key Eroding Eroding Eroding Eroding defensive proxy to the sector.defensive proxy to the sector.defensive proxy to the sector.defensive proxy to the sector. IJM’s appeal as a construction proxy has always been its strong execution track record. This, coupled with its now record orderbook, makes it a defensive proxy to the sector. Nonetheless, this defensive positioning may be somewhat eroded over the near term as it now owns 24.4% of the Scomi Group post the conversion of the bonds. Peak orderbook but will continue to grow marginally.Peak orderbook but will continue to grow marginally.Peak orderbook but will continue to grow marginally.Peak orderbook but will continue to grow marginally. Its peak quality orderbook of RM8.5bn incorporates the MRT Line 2, V203 package and can provide solid earnings visibility over the next 2-3 years; but this also limits the group’s ability to take on other large-scale projects. Given that it can be selective now with its peak orderbook, we expect incremental wins from here to be margin-enhancing. The company’s diversified and defensive nature also makes it a less attractive bet to potentially capitalise on more contract flows with the rollout of the 11MP. We estimate every RM1bn increase in new contract wins (vs our base case) would only raise FY17F EPS by <2% Headwinds ahead forHeadwinds ahead forHeadwinds ahead forHeadwinds ahead for property.property.property.property. IJM Land’s FY16 pretax profit fell 68% to RM159m. It still has unbilled sales of RM1.7bn, which implies decent visibility over the next 1-2 years. FY16 property sales came in at RM1.45bn (vs RM1.7bn in FY15), implying 4QFY16 property sales of RM450m (+28% q-o-q). There is no sales guidance for FY17 but it hopes to beat FY16 with the introduction of various schemes.
Valuation:
Our valuation for IJM is based on sum-of-the-parts valuation
given its diversified business portfolio. We value the
construction business based on a combination of DCF and PE
valuation methodologies, while its property and concession
businesses are valued based on DCF. Key Risks to Our View:
StrongerStrongerStrongerStronger----thanthanthanthan----expected wins. expected wins. expected wins. expected wins. We believe IJM will be more selective when bidding for projects, given its peak orderbook. But IJM remains a reputable contractor with a strong execution track record and balance sheet, and may still be present in other projects such as DASH, SUKE and Pan Borneo.
At A Glance Issued Capital (m shrs) 3,588
Mkt. Cap (RMm/US$m) 12,344 / 3,017
Major Shareholders (%)
EPF 11.8
KWAP 5.0
Free Float (%) 70
3m Avg. Daily Val (US$m) 5.0
ICB IndustryICB IndustryICB IndustryICB Industry : Industrials / Construction & Materials
DBS Group Research . Equity
27 May 2016
Malaysia Company Guide
IJM Corp Version 3 | Bloomberg: IJM MK | Reuters: IJMS.KL Refer to important disclosures at the end of this report
75
95
115
135
155
175
195
215
2.0
2.5
3.0
3.5
4.0
May-12 May-13 May-14 May-15 May-16
Relative IndexRM
IJM Corp (LHS) Relative KLCI INDEX (RHS)
Page 56
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
IJM Corp
WHAT’S NEW
Below expectations, bright spots were manufacturing
and Kuantan Port
• Below expectations.Below expectations.Below expectations.Below expectations. IJM’s 4QFY16 headline net profit of
RM44m brought FY16 net profit to RM793m. Stripping out
the one-off exceptional gains of RM302m due to the
disposal and fair value gains on re-measurement of the
remaining equity interests in Jaipur Mahua Tollway and
Swarna Tollway, Its FY16 core net profit of RM492m was
below our expectations. This was due to poorer-than-
expected earnings for construction, property and
plantations. Its infrastructure division performed well
anchored by a strong showing for Kuantan Port. A second
interim dividend of 4 sen was declared and also a 3-sen
special dividend.
• Construction.Construction.Construction.Construction. 4QFY16 construction pretax profit of
RM53m was higher than 3QFY16’s RM35m but was down
25% y-o-y. On a full-year basis, construction pretax profit
for FY16 was down 8% y-o-y to RM171m while margins
were also lower at 10.4% vs 15.1% in FY15. This was due
to the finalisation of accounts for certain projects in FY15.
Its total outstanding orderbook now stands at RM8.5bn (5x
FY16 construction revenue). Of this, 72% comprises road
and other infra-related jobs and the balance 28% building
works. We understand it has bid for certain packages for
DASH and SUKE, and will also bid for certain of the
balance packages for WCE (1,2,6, 7, 10 and 11).
• Property.Property.Property.Property. IJM Land recorded a 4QFY16 pretax profit of just
RM4m (3QFY16 of RM21m and 2QFY16 of RM84m),
bringing FY16 pretax profit to RM159m (-68% y-o-y).
Pretax margins for FY16 fell to 12% from 22% in FY15. It
still has unbilled sales of RM1.7bn, which implies decent
visibility over next 1-2 years. 4QFY16 property sales were
RM450m, bringing FY16 sales to RM1.45bn (vs RM1.7bn
for FY15). There is no sales guidance for FY17F but it
should be better than FY16. It is targeting to launch
RM1.5bn properties for this financial year. We understand
that its township developments such as Seremban 2,
Austin Duta and Rimbayu continue to do well. It is also
exploring various new schemes to boost property sales.
• Manufacturing.Manufacturing.Manufacturing.Manufacturing. Its manufacturing division showed decent
performance for FY16 with revenue rising 6% y-o-y to
RM983m while pretax profit was marginally lower by 1%
to RM124m. Its piles division has a 7½ month orderbook
visibility which is at its peak and it has started to deliver
large diameter piles for the Kuantan Port expansion.
• Infrastructure.Infrastructure.Infrastructure.Infrastructure. Its infrastructure division recorded a pretax
profit of RM555m for FY16 (vs RM42m in FY15) due to
one-off gain from its Indian highways of RM302m. In
particular, Kuantan Port did extremely well with FY16
pretax profit of RM251m (vs RM141m in FY15) due to
higher throughput of 38m FWT. However, we understand
this is not sustainable and will normalise at 25m FWT.
• Cutting earnings.Cutting earnings.Cutting earnings.Cutting earnings. We cut our FY17-FY18F earnings by 10-
11% to largely factor in slightly lower property sales while
also cutting out pretax margins to 16% (from 22%) which
we understand is a more sustainable level.
Page 57
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
IJM Corp
Quarterly / Interim Income Statement (RMm)
FY FY FY FY MarMarMarMar 4Q4Q4Q4Q2015201520152015 3Q3Q3Q3Q2016201620162016 4Q4Q4Q4Q2016201620162016 % chg yoy % chg yoy % chg yoy % chg yoy % chg qoq% chg qoq% chg qoq% chg qoq
Revenue 1,443 1,440 1,167 (19.1) (19.0)
Cost of Goods Sold (1,005) (1,071) (874) (13.0) (18.4)
Gross ProfitGross ProfitGross ProfitGross Profit 438438438438 369369369369 293293293293 (33.1)(33.1)(33.1)(33.1) (20.6)(20.6)(20.6)(20.6)
Other Oper. (Exp)/Inc (118) (87.7) (169) 43.1 92.6
Operating ProfitOperating ProfitOperating ProfitOperating Profit 320320320320 281281281281 124124124124 (61.2)(61.2)(61.2)(61.2) (55.8)(55.8)(55.8)(55.8)
Other Non Opg (Exp)/Inc 0.0 0.0 0.0 nm nm
Associates & JV Inc (22.2) (1.1) 24.6 nm nm
Net Interest (Exp)/Inc (53.1) (40.9) (13.9) 73.8 65.9
Exceptional Gain/(Loss) 0.0 133 0.0 nm nm
PrePrePrePre----tax Profittax Profittax Profittax Profit 245245245245 373373373373 135135135135 (44.9)(44.9)(44.9)(44.9) (63.8)(63.8)(63.8)(63.8)
Tax (93.4) (78.3) (92.9) (0.6) 18.7
Minority Interest (52.9) (38.1) 2.29 (104.3) (106.0)
Net ProfitNet ProfitNet ProfitNet Profit 98.398.398.398.3 256256256256 44.244.244.244.2 (55.0)(55.0)(55.0)(55.0) (82.7)(82.7)(82.7)(82.7)
Net profit bef Except. 98.3 123 44.2 (55.0) (64.0)
EBITDA 298 280 149 (50.0) (46.9)
Margins (%)
Gross Margins 30.4 25.6 25.1
Opg Profit Margins 22.2 19.5 10.6
Net Profit Margins 6.8 17.8 3.8
Source of all data: Company, AllianceDBS Research
Page 58
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
IJM Corp
CRITICAL DATA POINTS TO WATCH
Earnings Drivers:
Construction division never been stronger. Construction division never been stronger. Construction division never been stronger. Construction division never been stronger. IJM’s construction
division has never been stronger. Its current orderbook of
c.RM8.5bn has surpassed its peak of RM6.7bn in 2007 with the
recent MRT V203 win worth RM1.47bn. More importantly, the
quality of its orderbook is solid now with all local jobs and
anchored by the RM2.8bn West Coast Expressway project and
more recently MRT Line 2, V203 package worth RM1.47bn. This
compares to 2007 when half of its orderbook were legacy
overseas projects and raw material costs were also high.
More selective now. More selective now. More selective now. More selective now. We expect IJM to be more selective when
bidding for new projects given its peak orderbook. The
company is still eyeing various projects from the 11MP such as
more specialist works for DASH and SUKE, parts of Pan Borneo
Highway. Tenders for the remaining packages for WCE
(Packages 1, 2, 6, 7, 10 and 11) will commence from early 2016
onwards. It will also try to free capacity by accelerating progress
of works in order to capitalise on more flows and the benign
raw material environment. We also think it may get a decent
portion of works for the Penang Integrated Transport project as
and when it kicks off.
No more minority leakages for IJM Land. The privatisation
of IJM Land was completed in early April 2015. There was some
dilution from the exercise given the new share issuance of
279m shares would offset the minority interest savings. Over
the longer term, the privatisation will likely be accretive to IJM’s
SOP value given it still owns well-located township landbank in
the choice property states of Malaysia.
Manufacturing division to also benefit from surge in project Manufacturing division to also benefit from surge in project Manufacturing division to also benefit from surge in project Manufacturing division to also benefit from surge in project
flows. flows. flows. flows. IJM’s presence in the infrastructure space in Malaysia is
two-fold – construction, and manufacturing via Industrial
Concrete Products. With a 50% market share in the spun piles
market, we expect the latter to also benefit from projects such
as WCE and Kuantan Port.
Scomi overhangScomi overhangScomi overhangScomi overhang. IJM has raised its stake in Scomi via converting
the nominal value of RM110m of convertible redeemable
secured bonds. This brings its stake to 24.4% (RM0.365/Scomi
share) compared to its initial 7.7% stake (RM0.33/share) in late
2012. In our view, the conversion of the bonds to equity does
not represent IJM’s optimism in Scomi but one of lack of choice.
We understand IJM is taking a longer term on its oil and gas
exposure but for now it will have to equity account for its
24.4% stake.
Construction profit contribution
Property profit contribution
Manufacturing profit contribution
Plantations profit contribution
New order wins
Source: Company, AllianceDBS Research
168185
171
226210
0
33
65
98
130
163
196
2014A 2015A 2016A 2017F 2018F
749
495
159217 223
0
153
305
458
611
764
2014A 2015A 2016A 2017F 2018F
146
126 124
143
164
0
33
67
100
134
167
2014A 2015A 2016A 2017F 2018F
109
89
50
171
212
0
43
86
128
171
214
2014A 2015A 2016A 2017F 2018F
238
2,914
950
1,500
2,500
0
589
1,177
1,766
2,355
2,943
2014A 2015A 2016A 2017F 2018F
Page 59
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
IJM Corp
Balance Sheet:
Strong balance sheet. Strong balance sheet. Strong balance sheet. Strong balance sheet. IJM’s net gearing as at 31 March 2016
stood at 0.46x, with net debt of RM4.1bn. While this seems
high, about 81% of the outstanding debt is ring-fenced against
cash flows from its concession assets.
Special dividends? Special dividends? Special dividends? Special dividends? IJM has declared a special dividend of 3 sen
for FY16, bringing its total dividends to 10 sen. It also paid a
special dividend of 10 sen in 4QFY14 when it sold its stake in
Trichy highway, Kuantan Port and Kemaman Port.
Bonus issue. Bonus issue. Bonus issue. Bonus issue. IJM has completed a one-for-one bonus issue of up
to 1,793m shares which was capitalised from its share premium
account. This was completed in 3QCY15.
Share Price Drivers:Share Price Drivers:Share Price Drivers:Share Price Drivers:
Less leveraged bet to surge in project flows. Less leveraged bet to surge in project flows. Less leveraged bet to surge in project flows. Less leveraged bet to surge in project flows. Although IJM is a
conglomerate, its share price exhibits more correlation to news
of new contract wins. But IJM’s peak orderbook and more
diversified earnings base makes it a less leveraged proxy to the
expected surge in contract flows. It stands a good chance of
clinching works for other infra-related works such as LRT 3 but
that is not sufficient to change our view on the stock. We
estimate every RM1bn increase in new contract wins (vs our
base case) would only raise FY16F EPS by <2%.
Also a proxy to IJM Land. With the privatisation of IJM Land,
investors wanting exposure to its property arm will have to be
invested in IJM. Given the lack of listed large cap township
developers, IJM may also appeal when interest returns to the
property market.
Company Background
IJM is a conglomerate involved in construction, property
development, plantations, industrial products, toll concessions
and ports.
Leverage & Asset Turnover (x)
Capital Expenditure
ROE (%)
Forward PE Band (x)
PB Band (x)
Source: Company, AllianceDBS Research
0.2
0.2
0.2
0.3
0.3
0.3
0.3
0.3
0.4
0.4
0.4
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
2014A 2015A 2016A 2017F 2018F
Gross Debt to Equity (LHS) Asset Turnover (RHS)
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
800.0
2014A 2015A 2016A 2017F 2018F
Capital Expenditure (-)
RMm
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
2014A 2015A 2016A 2017F 2018F
Avg: 19.4x
+1sd: 24.1x
+2sd: 28.8x
-1sd: 14.7x
-2sd: 10x8.9
13.9
18.9
23.9
28.9
May-12 May-13 May-14 May-15
(x)
Avg: 1.55x
+1sd: 1.67x
+2sd: 1.8x
-1sd: 1.43x
-2sd: 1.3x
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
2.0
May-12 May-13 May-14 May-15
(x)
Page 60
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
IJM Corp
Key Assumptions
FY FY FY FY MarMarMarMar 2014201420142014AAAA 2015201520152015AAAA 2016201620162016AAAA 2017201720172017FFFF 2018201820182018FFFF
Construction profit contribution
168 185 171 226 210 Property profit contribution
749 495 159 217 223 Manufacturing profit contribution
146 126 124 143 164 Plantations profit contribution
109 89.4 50.4 171 212
New order wins 238 2,914 950 1,500 2,500
Segmental Breakdown
FY FY FY FY MarMarMarMar 2014201420142014AAAA 2015201520152015AAAA 2016201620162016AAAA 2017201720172017FFFF 2018201820182018FFFF
Revenues (RMm) Construction 1,802 950 1,414 2,823 2,644
Property 2,076 2,116 1,185 1,355 1,395
Manufacturing & quarry 884 922 980 1,078 1,186
Plantation 647 668 558 851 980
Others 598 792 992 1,091 1,200
TotalTotalTotalTotal 6,0066,0066,0066,006 5,4485,4485,4485,448 5,1285,1285,1285,128 7,1977,1977,1977,197 7,4047,4047,4047,404
PBT (RMm) Construction 168 185 171 226 210
Property 749 495 159 217 223
Manufacturing & quarry 146 126 124 143 164
Plantation 109 89.4 50.4 171 212
Others 244 125 651 136 143
TotalTotalTotalTotal 1,4161,4161,4161,416 1,0191,0191,0191,019 1,1561,1561,1561,156 893893893893 952952952952
PBT Margins (%) Construction 9.3 19.5 12.1 8.0 7.9
Property 36.1 23.4 13.4 16.0 16.0
Manufacturing & quarry 16.5 13.6 12.7 13.2 13.8
Plantation 16.9 13.4 9.0 20.1 21.6
Others 40.8 15.8 65.7 12.5 11.9
TotalTotalTotalTotal 23.623.623.623.6 18.718.718.718.7 22.522.522.522.5 12.412.412.412.4 12.912.912.912.9
Income Statement (RMm)
FY FY FY FY MarMarMarMar 2014201420142014AAAA 2015201520152015AAAA 2016201620162016AAAA 2017201720172017FFFF 2018201820182018FFFF
Revenue 6,006 5,448 5,128 7,197 7,404
Cost of Goods Sold (4,346) (3,767) (3,695) (5,385) (5,487)
Gross ProfitGross ProfitGross ProfitGross Profit 1,6601,6601,6601,660 1,6811,6811,6811,681 1,4341,4341,4341,434 1,8121,8121,8121,812 1,9171,9171,9171,917
Other Opng (Exp)/Inc 128 (389) (434) (689) (715)
Operating ProfitOperating ProfitOperating ProfitOperating Profit 1,7881,7881,7881,788 1,2921,2921,2921,292 999999999999 1,1231,1231,1231,123 1,2021,2021,2021,202 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0
Associates & JV Inc (140) (30.3) 23.6 24.8 26.0
Net Interest (Exp)/Inc (231) (243) (169) (255) (276)
Exceptional Gain/(Loss) 0.0 0.0 302 0.0 0.0
PrePrePrePre----tax Profittax Profittax Profittax Profit 1,4161,4161,4161,416 1,0191,0191,0191,019 1,1561,1561,1561,156 893893893893 952952952952 Tax (341) (306) (274) (223) (238)
Minority Interest (246) (232) (88.0) (60.7) (75.0)
Preference Dividend 0.0 0.0 0.0 0.0 0.0
Net ProfitNet ProfitNet ProfitNet Profit 830830830830 481481481481 794794794794 609609609609 639639639639 Net Profit before Except. 830 481 492 609 639
EBITDA 1,942 1,470 1,166 1,299 1,408
Growth Revenue Gth (%) 28.8 (9.3) (5.9) 40.3 2.9
EBITDA Gth (%) 64.7 (24.3) (20.7) 11.4 8.3
Opg Profit Gth (%) 75.4 (27.7) (22.7) 12.3 7.1
Net Profit Gth (Pre-ex) (%) 97.1 (42.0) 2.2 23.8 5.0
Margins & Ratio Gross Margins (%) 27.6 30.9 28.0 25.2 25.9
Opg Profit Margin (%) 29.8 23.7 19.5 15.6 16.2
Net Profit Margin (%) 13.8 8.8 15.5 8.5 8.6
ROAE (%) 13.4 6.3 9.1 6.6 6.7
ROA (%) 4.9 2.5 4.0 3.0 3.0
ROCE (%) 9.3 5.4 4.4 4.7 4.9
Div Payout Ratio (%) 80.0 82.7 33.4 43.6 41.5
Net Interest Cover (x) 7.7 5.3 5.9 4.4 4.4
Source: Company, AllianceDBS Research
Page 61
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
IJM Corp
Quarterly / Interim Income Statement (RMm)
FY FY FY FY MarMarMarMar 4Q4Q4Q4Q2015201520152015 1Q1Q1Q1Q2016201620162016 2Q2Q2Q2Q2016201620162016 3Q3Q3Q3Q2016201620162016 4Q4Q4Q4Q2016201620162016
Revenue 1,443 1,182 1,339 1,440 1,167
Cost of Goods Sold (1,005) (811) (938) (1,071) (874)
Gross ProfitGross ProfitGross ProfitGross Profit 438438438438 371371371371 401401401401 369369369369 293293293293 Other Oper. (Exp)/Inc (118) (60.3) (117) (87.7) (169)
Operating ProfitOperating ProfitOperating ProfitOperating Profit 320320320320 311311311311 283283283283 281281281281 124124124124 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0
Associates & JV Inc (22.2) 0.62 (0.5) (1.1) 24.6
Net Interest (Exp)/Inc (53.1) (53.4) (61.1) (40.9) (13.9)
Exceptional Gain/(Loss) 0.0 169 0.0 133 0.0
PrePrePrePre----tax Profittax Profittax Profittax Profit 245245245245 427427427427 222222222222 373373373373 135135135135 Tax (93.4) (56.1) (47.0) (78.3) (92.9)
Minority Interest (52.9) (33.7) (18.4) (38.1) 2.29
Net ProfitNet ProfitNet ProfitNet Profit 98.398.398.398.3 337337337337 156156156156 256256256256 44.244.244.244.2 Net profit bef Except. 98.3 168 156 123 44.2
EBITDA 298 311 283 280 149
Growth Revenue Gth (%) 7.7 (18.1) 13.3 7.5 (19.0)
EBITDA Gth (%) (11.9) 4.6 (9.1) (1.0) (46.9)
Opg Profit Gth (%) (3.1) (2.9) (8.8) (0.8) (55.8)
Net Profit Gth (Pre-ex) (%) (28.7) 71.1 (7.0) (21.5) (64.0)
Margins Gross Margins (%) 30.4 31.4 29.9 25.6 25.1
Opg Profit Margins (%) 22.2 26.3 21.2 19.5 10.6
Net Profit Margins (%) 6.8 28.5 11.7 17.8 3.8
Balance Sheet (RMm)
FY FY FY FY MarMarMarMar 2014201420142014AAAA 2015201520152015AAAA 2016201620162016AAAA 2017201720172017FFFF 2018201820182018FFFF
Net Fixed Assets 1,590 1,727 1,813 2,255 2,668
Invts in Associates & JVs 1,496 1,268 1,550 1,575 1,601
Other LT Assets 5,952 5,552 5,252 5,384 5,516
Cash & ST Invts 2,257 2,034 2,087 1,821 1,583
Inventory 593 784 1,092 1,311 1,573
Debtors 2,319 2,428 2,256 2,708 3,249
Other Current Assets 4,192 5,937 5,785 5,785 5,785
Total AssetsTotal AssetsTotal AssetsTotal Assets 18,39818,39818,39818,398 19,73119,73119,73119,731 19,83619,83619,83619,836 20,83820,83820,83820,838 21,97521,97521,97521,975
ST Debt 2,333 1,989 1,477 1,477 1,477
Creditor 2,095 2,020 2,258 2,710 3,252
Other Current Liab 127 291 35.0 35.0 35.0
LT Debt 3,274 4,158 4,334 4,484 4,634
Other LT Liabilities 1,620 1,697 1,495 1,495 1,495
Shareholder’s Equity 6,739 8,430 9,028 9,368 9,738
Minority Interests 2,211 1,146 1,208 1,269 1,344
Total Cap. & Liab.Total Cap. & Liab.Total Cap. & Liab.Total Cap. & Liab. 18,39818,39818,39818,398 19,73119,73119,73119,731 19,83619,83619,83619,836 20,83820,83820,83820,838 21,97521,97521,97521,975
Non-Cash Wkg. Capital 4,882 6,839 6,841 7,059 7,320
Net Cash/(Debt) (3,350) (4,114) (3,725) (4,140) (4,528)
Debtors Turn (avg days) 126.4 159.0 166.7 125.9 146.8
Creditors Turn (avg days) 177.9 209.2 221.3 174.1 206.0
Inventory Turn (avg days) 46.8 70.0 97.1 84.2 99.6
Asset Turnover (x) 0.4 0.3 0.3 0.4 0.3
Current Ratio (x) 2.1 2.6 3.0 2.8 2.6
Quick Ratio (x) 1.0 1.0 1.2 1.1 1.0
Net Debt/Equity (X) 0.4 0.4 0.4 0.4 0.4
Net Debt/Equity ex MI (X) 0.5 0.5 0.4 0.4 0.5
Capex to Debt (%) N/A 8.8 N/A 12.6 12.3
Z-Score (X) 2.0 1.8 1.8 1.8 1.7
Source: Company, AllianceDBS Research
Page 62
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
IJM Corp
Cash Flow Statement (RMm)
FY FY FY FY MarMarMarMar 2014201420142014AAAA 2015201520152015AAAA 2016201620162016AAAA 2017201720172017FFFF 2018201820182018FFFF
Pre-Tax Profit 1,416 1,019 1,156 893 952
Dep. & Amort. 154 178 166 176 205
Tax Paid (341) (306) (274) (223) (238)
Assoc. & JV Inc/(loss) 140 30.3 (23.6) (24.8) (26.0)
Chg in Wkg.Cap. (485) (376) 102 (218) (262)
Other Operating CF (569) 4.87 (368) 255 276
Net Operating CFNet Operating CFNet Operating CFNet Operating CF 316316316316 550550550550 758758758758 858858858858 908908908908 Capital Exp.(net) 530 (542) 458 (750) (750)
Other Invts.(net) (647) (236) (563) 0.0 0.0
Invts in Assoc. & JV (325) (149) 43.7 0.0 0.0
Div from Assoc & JV 16.5 11.2 8.76 0.0 0.0
Other Investing CF 89.8 99.4 (128) 0.0 0.0
Net Investing CFNet Investing CFNet Investing CFNet Investing CF (336)(336)(336)(336) (816)(816)(816)(816) (180)(180)(180)(180) (750)(750)(750)(750) (750)(750)(750)(750) Div Paid (234) (430) (328) (269) (269)
Chg in Gross Debt 1.39 625 (418) (105) (126)
Capital Issues 179 298 49.4 0.0 0.0
Other Financing CF 314 (417) (20.9) 0.0 0.0
Net Financing CFNet Financing CFNet Financing CFNet Financing CF 261261261261 76.576.576.576.5 (718)(718)(718)(718) (374)(374)(374)(374) (395)(395)(395)(395)
Currency Adjustments 0.0 0.0 0.0 0.0 0.0
Chg in Cash 242 (189) (139) (266) (237)
Opg CFPS (sen) 22.3 25.8 18.3 30.0 32.6
Free CFPS (sen) 23.6 0.23 33.9 3.01 4.40
Source: Company, AllianceDBS Research
Target Price & Ratings History
Source: AllianceDBS Research
S.No.S.No.S.No.S.No. DateDateDateDateClosing Closing Closing Closing
PricePricePricePrice
Target Target Target Target
PricePricePricePriceRat ing Rat ing Rat ing Rat ing
1: 27 May 15 3.51 3.88 HOLD
2: 10 Aug 15 3.28 3.88 HOLD
3: 26 Aug 15 3.05 3.13 HOLD
4: 25 Nov 15 3.35 3.30 HOLD
5: 26 Feb 16 3.40 3.30 HOLD
6: 13 May 16 3.55 3.30 HOLD
Note Note Note Note : Share price and Target price are adjusted for corporate actions.
1
2
3
4
5
6
2.85
2.95
3.05
3.15
3.25
3.35
3.45
3.55
3.65
3.75
May-15 Sep-15 Jan-16 May-16
RMRMRMRM
Page 63
ASIAN INSIGHTS VICKERS SECURITIES ed: TH / sa: BC
BUYLast Traded Price: RM1.79 (KLCI : 1,639.98) Price Target : RM2.38 (33% upside) (Prev RM2.38)
Potential Catalyst: Higher proportion if infra-related projects Where we differ: We are more optimistic premised on better orderbook replenishment and execution
Analyst Chong Tjen-San, CFA +60 3 26043972 tjensan@alliancedbs.com
Price Relative
Forecasts and Valuation FY Dec (RMm) 2015A 2016F 2017F 2018F Revenue 1,054 1,105 1,130 1,068 EBITDA 124 116 130 139 Pre-tax Profit 86.4 85.7 98.9 107 Net Profit 63.8 65.2 75.2 81.2 Net Pft (Pre Ex.) 70.7 65.2 75.2 81.2 Net Pft Gth (Pre-ex) (%) 56.8 (7.9) 15.4 7.9 EPS (sen) 21.2 21.7 25.0 27.0 EPS Pre Ex. (sen) 23.5 21.7 25.0 27.0 EPS Gth Pre Ex (%) 57 (8) 15 8 Diluted EPS (sen) 17.7 18.1 20.8 22.5 Net DPS (sen) 3.80 3.47 4.00 4.32 BV Per Share (sen) 153 171 192 215 PE (X) 8.4 8.3 7.2 6.6 PE Pre Ex. (X) 7.6 8.3 7.2 6.6 P/Cash Flow (X) 17.2 20.9 6.1 4.5 EV/EBITDA (X) 4.9 5.3 4.3 3.5 Net Div Yield (%) 2.1 1.9 2.2 2.4 P/Book Value (X) 1.2 1.0 0.9 0.8 Net Debt/Equity (X) 0.1 0.2 0.0 CASH ROAE (%) 14.8 13.4 13.8 13.3 Earnings Rev (%): 0 0 0 Consensus EPS (sen): 20.4 22.7 21.0 Other Broker Recs: B: 6 S: 0 H: 1
Source of all data: Company, AllianceDBS Research, Bloomberg Finance L.P
Gunning for more infra projects Cheapest infra stock to buy. Within our construction universe, Kimlun stands out as the most direct small cap proxy to MRT projects. Despite the strong earnings delivery and decent yields of c.1.9-2.4% with stronger order replenishment ahead, Kimlun is currently trading at a bargain valuation of 8.3x FY16F EPS.
Pan Borneo Highway contract award. We estimate its construction orderbook stands at RM1.48bn, inclusive of YTD wins of c.RM972m and the recent Pan Borneo Highway (PBH) contract. Its total orderbook including manufacturing is RM1.8bn. Of the RM1.48bn construction orderbook, we estimate about one-third is infra-related. We believe its exposure to the property market in Johor will be partially offset by more infra-related contract wins. Moreover, clinching the PBH contract worth RM1.46bn further validates its ability to potentially win more infra-related jobs. The contract was awarded for the development and upgrading work of the Serian to Pantu Junction roundabout, slated to complete by year 2020. Together with its JV partner Zecon Bhd, Kimlun will hold a 30% stake, implying its share is worth RM438m.
Most direct proxy to MRT. Kimlun has won a RM199m Segmental Box Girder (SBG) for MRT Line 2. We remain confident that it will clinch the Tunnel Lining Segment (TLS) works for MRT Line 2 whose contract value would be higher than those for MRT Line 1 of RM49m, as the tunnel is longer. MRT Line 1 is 51km long, of which 9.5km will be underground, while MRT Line 2 is 52.2km in length, of which 10.2km will be underground.
Valuation:
We maintain our target price of RM2.38, based on 11x FY16F PE. This is a tad below +1SD of its historical mean of 11.5x and 15% discount to the sector average. We think this is justified given its impeccable earnings delivery and its positioning as a direct MRT proxy.
Key Risks to Our View:
Low-margin wins. The biggest risk is its perceived overreliance on projects in Johor. We think this is mitigated by its stringent bidding process where it only accepts projects from strong clients while also judging the saleability of the project.
At A Glance
Issued Capital (m shrs) 301 Mkt. Cap (RMm/US$m) 538 / 136 Major Shareholders (%) Phin Sdn Bhd 29.1 Tin Pang 6.3
Free Float (%) 64.6 3m Avg. Daily Val (US$m) 0.23 ICB Industry : Industrials / Construction & Materials
DBS Group Research . Equity 24 Jun 2016
Malaysia Company Guide
Kimlun Corp Version 5 | Bloomberg: KICB MK | Reuters: KICB.KL Refer to important disclosures at the end of this report
69
89
109
129
149
169
189
209
1.0
1.2
1.4
1.6
1.8
2.0
2.2
2.4
Jun-12 Jun-13 Jun-14 Jun-15 Jun-16
Relative IndexRM
Kimlun Corp (LHS) Relative KLCI INDEX (RHS)
Page 64
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Kimlun Corp
CRITICAL DATA POINTS TO WATCH
Earnings Drivers:
Construction segment remains a key earnings driver. Kimlun’s construction arm made up 80-92% of revenue in FY07-FY15. It was the largest earnings contributor in FY11, peaking at 85% of the group’s gross profit. Group GP margins, however, hit a low of 9.5% in FY14 as margins had been declining over the years due to a larger share of Johor high-rise residential projects in the orderbook. Note that these projects have higher M&E portion, on which Kimlun only earns minimal margins.
More selective on jobs. Kimlun will be more selective on jobs in order to be less reliant on high-rise developments in Johor, which is currently seeing a surplus. The group is raising its exposure to the non-residential projects and will be bidding aggressively for more infrastructure projects. Given that it has a strong niche in TLS and SBG works in MRT projects, the group has won the SBG works for MRT2 and should win its portion of the TLS soon. Previously, for MRT1, it had secured c.50% market share based on overall contracts of RM272m (RM223: SBG and RM49m: TLS).
Manufacturing generates higher margins. Kimlun operates two manufacturing plants – in Ulu Choh in Johor, and a newer plant in Senawang, Seremban. It manufactures concrete products such as segmental box girders and other reinforced precast concrete products for the infrastructure and building sectors in Malaysia and Singapore. FY15 manufacturing segment margins recorded strong margins of 26%, buoyed by larger sales orders for jacking pipes and better TLS margins.
Property launches on the back burner. Kimlun launched a small property project in Pontian (GDV RM50m) comprising 131 units. Sales at its maiden property project called the Hyve in Cyberjaya (SOHO and offices; GDV RM235m) have achieved 82% take-up rate with RM6.7m worth of unbilled sales. The softening property market has prompted the group to defer the launch of its residential projects in Iskandar Medini (GDV RM447m) comprising 865 SOHO and retail units. It has also expanded its land bank with the recent purchase being Kota Tinggi Land (currently registered as agriculture land). This was purchased at just RM5psf before land conversion and spans some 141 acres.
Construction revenue
Concrete products revenue
Construction margins
Concrete products margins
Property margins
Source: Company, AllianceDBS Research
925857
905855
715
0
134
267
401
534
668
801
2014A 2015A 2016F 2017F 2018F
193 192 196
271
333
0
68
136
204
272
2014A 2015A 2016F 2017F 2018F
5.97
8.438 8 8
0.00
1.72
3.44
5.16
6.87
8.59
2014A 2015A 2016F 2017F 2018F
16.4
26.1
20 20 20
0.0
5.3
10.5
15.8
21.1
26.4
2014A 2015A 2016F 2017F 2018F
28.4
14
1110 10
0.0
5.7
11.5
17.2
22.9
28.6
2014A 2015A 2016F 2017F 2018F
Page 65
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Kimlun Corp
Balance Sheet:
As at 31 March 2016, the company had RM76m net debt, translating into 0.2x net gearing. There is minimal capex requirement going forward, with the completion of the Senawang plant. We estimate annual capex requirement at RM25m over the next few years. The company completed a one-for-four rights issue in March 2014.
Share Price Drivers:
MRT Line 2. Kimlun has already won a RM199m contract for SBG for MRT Line 2. It is expected to clinch its fair share of TLS where the contract value could be higher than that for MRT Line 1 as the rail is longer. MRT Line 1 is 51km long, of which 9.5km is underground, while MRT Line 2 is 52.2km in length, of which 10.2km will be underground. Kimlun has an outstanding order book of c.RM1.8bn (RM1.48bn construction, RM0.34bn manufacturing).
Capitalising on other infra-related projects. Its ability to win the PBH contract validates its potential to clinch more infra projects going forward. It has submitted the tender bid for Central Spine Road, both as a main and sub-contractor thus far. Apart from that, it is also tendering for DASH and SUKE highways for eight work packages in total. Kimlun is also raising its exposure to bid for non-residential projects, potentially venturing into the affordable residential jobs segment to ride on government initiatives to construct 1m units of affordable houses in the next five years.
Key Risks:
Rising material prices. A surge in raw material prices like cement and steel would potentially lead to margin erosion.
Delays in the award of contract. Any delay of government projects under the 11MP would possibly have an adverse impact on the group’s earnings performance.
Softening property market. A softening property market in Johor would slow down contract awards.
Company Background
Kimlun is primarily involved in construction and the manufacture of concrete products. Its construction division is mainly involved in building jobs for property developments in Johor, while its concrete products are mainly used in the construction of MRT lines.
Leverage & Asset Turnover (x)
Capital Expenditure
ROE (%)
Forward PE Band (x)
PB Band (x)
Source: Company, AllianceDBS Research
0.9
1.0
1.1
1.2
1.3
1.4
0.00
0.10
0.20
0.30
0.40
0.50
2014A 2015A 2016F 2017F 2018F
Gross Debt to Equity (LHS) Asset Turnover (RHS)
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
2014A 2015A 2016F 2017F 2018F
Capital Expenditure (-)
RMm
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
2014A 2015A 2016F 2017F 2018F
Avg: 8.7x
+1sd: 11.4x
+2sd: 14x
‐1sd: 6x
‐2sd: 3.4x3.0
5.0
7.0
9.0
11.0
13.0
15.0
17.0
Jun-12 Jun-13 Jun-14 Jun-15
(x)
Avg: 1.31x
+1sd: 1.66x
+2sd: 2.02x
‐1sd: 0.96x
‐2sd: 0.6x0.5
1.0
1.5
2.0
2.5
Jun-12 Jun-13 Jun-14 Jun-15
(x)
Page 66
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Kimlun Corp
Key Assumptions
FY Dec 2014A 2015A 2016F 2017F 2018F
Construction revenue 925 857 905 855 715 Concrete products revenue 193 192 196 271 333 Construction margins 5.97 8.43 8.00 8.00 8.00 Concrete products margins 16.4 26.1 20.0 20.0 20.0 Property margins 28.4 14.0 11.0 10.0 10.0
Segmental Breakdown
FY Dec 2014A 2015A 2016F 2017F 2018F
Revenues (RMm)
Construction 925 857 905 855 715 Concrete products 193 192 196 271 333 Property 101 4.67 4.00 4.00 20.0 Investment 0.27 0.25 0.0 0.0 0.0 Total 1,220 1,054 1,105 1,130 1,068 Operating profit (RMm)
Construction 55.2 72.2 72.4 68.4 57.2 Concrete products 31.6 50.1 39.3 54.1 66.6 Property 28.7 0.65 0.44 0.40 2.00 Investment 0.27 0.25 0.0 0.0 0.0 Total 116 123 112 123 126 Operating profit Margins
Construction 6.0 8.4 8.0 8.0 8.0 Concrete products 16.4 26.1 20.0 20.0 20.0 Property 28.4 14.0 11.0 10.0 10.0 Investment 100.0 100.0 N/A N/A N/A Total 9.5 11.7 10.1 10.9 11.8
Income Statement (RMm)
FY Dec 2014A 2015A 2016F 2017F 2018F
Revenue 1,220 1,054 1,105 1,130 1,068 Cost of Goods Sold (1,104) (931) (993) (1,007) (942) Gross Profit 115 123 112 123 126 Other Opng (Exp)/Inc (37.6) (20.1) (20.9) (21.7) (22.5) Operating Profit 77.8 103 91.3 101 103 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc 0.0 0.0 3.78 7.56 13.9 Net Interest (Exp)/Inc (12.6) (9.5) (9.3) (9.9) (10.4) Exceptional Gain/(Loss) (10.8) (6.9) 0.0 0.0 0.0 Pre-tax Profit 54.4 86.4 85.7 98.9 107 Tax (16.1) (22.7) (20.6) (23.7) (25.6) Minority Interest (4.1) 0.0 0.0 0.0 0.0 Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 34.3 63.8 65.2 75.2 81.2 Net Profit before Except. 45.1 70.7 65.2 75.2 81.2 EBITDA 102 124 116 130 139 Growth
Revenue Gth (%) 28.8 (13.6) 4.9 2.2 (5.5) EBITDA Gth (%) 49.3 20.7 (6.0) 12.2 6.7 Opg Profit Gth (%) 56.7 32.1 (11.2) 10.9 2.1 Net Profit Gth (Pre-ex) (%) 26.3 56.8 (7.9) 15.4 7.9 Margins & Ratio
Gross Margins (%) 9.5 11.7 10.1 10.9 11.8 Opg Profit Margin (%) 6.4 9.8 8.3 9.0 9.7 Net Profit Margin (%) 2.8 6.1 5.9 6.7 7.6 ROAE (%) 9.8 14.8 13.4 13.8 13.3 ROA (%) 3.9 6.8 6.7 7.5 7.5 ROCE (%) 5.8 10.1 8.5 9.0 8.8 Div Payout Ratio (%) 26.3 17.9 16.0 16.0 16.0 Net Interest Cover (x) 6.2 10.9 9.8 10.3 9.9
Source: Company, AllianceDBS Research
Page 67
ASIAN INSIGHTS VICKERS SECURITIES Page 5
Company Guide
Kimlun Corp
Quarterly / Interim Income Statement (RMm)
FY Dec 1Q2015 2Q2015 3Q2015 4Q2015 1Q2016
Revenue 322 258 241 232 235 Cost of Goods Sold (292) (231) (210) (197) (199) Gross Profit 30.2 27.5 30.8 34.5 35.9 Other Oper. (Exp)/Inc (8.5) (4.4) (1.7) (5.5) (11.0) Operating Profit 21.7 23.1 29.1 29.0 24.9 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc (2.5) (2.3) (2.5) (2.3) (2.2) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 19.3 20.8 26.6 26.7 22.7 Tax (5.1) (5.2) (7.0) (5.3) (5.6) Minority Interest 0.0 0.0 0.0 0.0 0.0 Net Profit 14.1 15.6 19.6 21.4 17.1 Net profit bef Except. 14.1 15.6 19.6 21.4 17.1 EBITDA 27.7 28.2 39.9 39.0 29.8
Growth
Revenue Gth (%) 14.9 (19.8) (6.7) (3.8) 1.2 EBITDA Gth (%) 18.9 1.9 41.5 (2.1) (23.7) Opg Profit Gth (%) 27.9 6.1 26.1 (0.3) (14.1) Net Profit Gth (Pre-ex) (%) 54.2 10.5 25.8 9.2 (20.1) Margins
Gross Margins (%) 9.4 10.6 12.8 14.9 15.3 Opg Profit Margins (%) 6.7 8.9 12.1 12.5 10.6 Net Profit Margins (%) 4.4 6.0 8.1 9.2 7.3
Balance Sheet (RMm)
FY Dec 2014A 2015A 2016F 2017F 2018F
Net Fixed Assets 161 152 156 159 162 Invts in Associates & JVs 0.0 10.1 10.1 10.1 10.1 Other LT Assets 6.36 2.95 2.95 2.95 2.95 Cash & ST Invts 86.1 96.8 97.1 158 249 Inventory 21.1 21.5 21.8 22.1 20.7 Debtors 596 585 575 588 556 Other Current Assets 44.2 105 105 105 105 Total Assets 915 973 968 1,045 1,106
ST Debt 111 102 105 111 117 Creditor 325 342 272 276 258 Other Current Liab 6.75 7.05 7.05 7.05 7.05 LT Debt 67.8 62.7 69.8 73.8 77.8 Other LT Liabilities 0.0 0.0 0.0 0.0 0.0 Shareholder’s Equity 400 460 514 578 646 Minority Interests 4.19 0.0 0.0 0.0 0.0 Total Cap. & Liab. 915 973 968 1,045 1,106
Non-Cash Wkg. Capital 330 362 423 432 416 Net Cash/(Debt) (93.0) (67.7) (77.4) (26.8) 54.2 Debtors Turn (avg days) 175.8 204.6 191.6 188.0 195.5 Creditors Turn (avg days) 108.3 133.8 115.3 101.5 105.9 Inventory Turn (avg days) 6.4 8.5 8.1 8.1 8.5 Asset Turnover (x) 1.4 1.1 1.1 1.1 1.0 Current Ratio (x) 1.7 1.8 2.1 2.2 2.4 Quick Ratio (x) 1.5 1.5 1.8 1.9 2.1 Net Debt/Equity (X) 0.2 0.1 0.2 0.0 CASH Net Debt/Equity ex MI (X) 0.2 0.1 0.2 0.0 CASH Capex to Debt (%) 16.1 7.1 14.3 13.6 12.9 Z-Score (X) 2.9 2.8 3.1 3.1 3.1
Source: Company, AllianceDBS Research
Page 68
ASIAN INSIGHTS VICKERS SECURITIES Page 6
Company Guide
Kimlun Corp
Cash Flow Statement (RMm)
FY Dec 2014A 2015A 2016F 2017F 2018F
Pre-Tax Profit 65.2 93.4 85.7 98.9 107 Dep. & Amort. 24.7 20.9 21.2 21.7 22.1 Tax Paid (16.1) (22.7) (20.6) (23.7) (25.6) Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0 Chg in Wkg.Cap. (12.2) 27.8 (60.7) (9.3) 15.8 Other Operating CF 21.1 (88.0) 0.0 0.0 0.0 Net Operating CF 82.7 31.4 25.7 87.6 119 Capital Exp.(net) (28.9) (11.7) (25.0) (25.0) (25.0) 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 10.7 0.03 0.0 0.0 0.0 Net Investing CF (18.1) (11.7) (25.0) (25.0) (25.0) Div Paid (9.0) (11.4) (10.4) (12.0) (13.0) Chg in Gross Debt (56.1) (14.6) 10.0 10.0 10.0 Capital Issues 30.1 0.0 0.0 0.0 0.0 Other Financing CF 24.4 17.1 0.0 0.0 0.0 Net Financing CF (10.6) (8.9) (0.4) (2.0) (3.0) Currency Adjustments 0.0 0.0 0.0 0.0 0.0 Chg in Cash 54.0 10.8 0.28 60.6 91.1 Opg CFPS (sen) 31.6 1.17 28.7 32.2 34.3 Free CFPS (sen) 17.9 6.53 0.23 20.8 31.3
Source: Company, AllianceDBS Research
Target Price & Ratings History
Source: AllianceDBS Research
S.No. DateClosing
PriceTarget Price
Rat ing
1: 20 Jul 15 1.39 2.05 BUY
2: 28 Aug 15 1.16 2.05 BUY
3: 25 Sep 15 1.22 2.05 BUY
4: 27 Nov 15 1.33 2.05 BUY
5: 15 Dec 15 1.40 2.05 BUY
6: 29 Feb 16 1.53 2.26 BUY
7: 02 Mar 16 1.59 2.26 BUY
8: 14 Mar 16 1.71 2.38 BUY
9: 30 Mar 16 1.83 2.38 BUY
10: 04 Apr 16 1.82 2.38 BUY
11: 04 May 16 1.79 2.38 BUY12: 31 May 16 1.77 2.38 BUY13: 03 Jun 16 1.78 2.38 BUY
Note : Share price and Target price are adjusted for corporate actions.
1
2
3
45
6
7
8 9
10
11
12
13
1.00
1.20
1.40
1.60
1.80
2.00
Jun-15 Oct-15 Feb-16 Jun-16
RM
Page 69
ASIAN INSIGHTS VICKERS SECURITIES
ed: TH / sa: BC
BUYBUYBUYBUYLast Traded Price: Last Traded Price: Last Traded Price: Last Traded Price: RM2.20 (KLCIKLCIKLCIKLCI : : : : 1,639.98) Price Target :Price Target :Price Target :Price Target : RM3.10 (41% upside)
Potential Catalyst: Potential Catalyst: Potential Catalyst: Potential Catalyst: Chunkier higher-margin wins
Where we differWhere we differWhere we differWhere we differ:::: Our earnings are below consensus as we have
factored in the potential private placement
Analyst Chong Tjen-San, CFA +60 3 26043972 tjensan@alliancedbs.com
Price Relative
Forecasts and Valuation FY FY FY FY DecDecDecDec ((((RMRMRMRMmmmm) ) ) ) 2015201520152015AAAA 2016201620162016FFFF 2017201720172017FFFF 2018201820182018FFFF
Revenue 1,605 1,754 1,781 1,707 EBITDA 251 225 251 267 Pre-tax Profit 165 149 177 195 Net Profit 86.0 99.8 117 128 Net Pft (Pre Ex.) 86.0 99.8 117 128 Net Pft Gth (Pre-ex) (%) 5.4 16.1 17.1 9.7 EPS (sen) 18.2 20.7 22.6 24.7 EPS Pre Ex. (sen) 18.2 20.7 22.6 24.7 EPS Gth Pre Ex (%) 5 13 9 10 Diluted EPS (sen) 18.2 20.7 22.6 24.7 Net DPS (sen) 3.98 4.13 4.51 4.95 BV Per Share (sen) 175 199 204 224 PE (X) 12.1 10.6 9.8 8.9 PE Pre Ex. (X) 12.1 10.6 9.8 8.9 P/Cash Flow (X) 33.7 13.7 9.4 7.1 EV/EBITDA (X) 7.9 9.0 8.3 7.6 Net Div Yield (%) 1.8 1.9 2.1 2.2 P/Book Value (X) 1.3 1.1 1.1 1.0 Net Debt/Equity (X) 0.6 0.5 0.4 0.3 ROAE (%) 11.7 11.2 11.6 11.6
Earnings Rev (%):Earnings Rev (%):Earnings Rev (%):Earnings Rev (%): 0 0 0 Consensus EPS Consensus EPS Consensus EPS Consensus EPS (sen):::: 22.0 25.3 29.5
Other Broker Recs:Other Broker Recs:Other Broker Recs:Other Broker Recs: B: 6 S: 0 H: 0
Source of all data: Company, AllianceDBS Research, Bloomberg Finance L.P
Scarcity premium infra proxy Scarcity premiumScarcity premiumScarcity premiumScarcity premium. Muhibbah is an ideal proxy to the 11th
Malaysian Plan given its expertise in three core areas: i) civil
engineering; ii) marine-based construction, and iii) offshore
and onshore fabrication works, where its Petronas licence
offers an advantage. Other contractors do not have this
combination to vie in the competitive civil engineering space.
Cash cow: Cambodia airport concession.Cash cow: Cambodia airport concession.Cash cow: Cambodia airport concession.Cash cow: Cambodia airport concession. Siam Reap and
Phnom Penh airports have doubled their capacity to 12m
passengers. Passenger arrivals grew 13% to 6.5m in FY15. We
estimate its 21% stake in the Cambodia airport concession is
worth RM677m (DCF, WACC 10%, RM/USD 4.15, and
average passenger traffic growth of 5% p.a. until 2040),
which is already 63% of the stock’s market capitalisation.
Revenues are also in USD which is a boost to its earnings given
the weak MYR.
Good start for 2016Good start for 2016Good start for 2016Good start for 2016. Contract flows so far for 2016 have been
promising. For its infrastructure division, it has won two
contracts, a RM137m building contract from PETRONAS
Carigali, in which it has a 70% stake, implying a contract value
of RM96m and a smallish contract for the Phnom Penh airport
expansion. For its shipyard division, it clinched a RM92m
contact win from the Ministry of Transport to undertake the
design and construction of a multi-purpose vessel for the
Malaysia Marine Department. Its total outstanding orderbook
is now RM2.1bn, of which RM1.4bn comes from
infrastructure.
Valuation:
Muhibbah is a BUY with a SOP-derived TP of RM3.10. We
value the stock based on SOP as we think this better reflects its
diversified business while also capturing its cash-generating
Cambodian concession.
Key Risks to Our View:
Delays in project flows and sudden spikes in raw material costs
could dampen its earnings outlook.
At A Glance Issued Capital (m shrs) 472
Mkt. Cap (RMm/US$m) 1,039 / 263
Major Shareholders (%)
Mac Ngan Boon 22.1
Lembaga Tabung Haji 9.6
Free Float (%) 60.7
3m Avg. Daily Val (US$m) 0.21
ICB IndustryICB IndustryICB IndustryICB Industry : Industrials / Construction & Materials
DBS Group Research . Equity 24 Jun 2016
Malaysia Company Guide
Muhibbah Engineering Version 5 | Bloomberg: MUHI MK | Reuters: MUHI.KL Refer to important disclosures at the end of this report
57
107
157
207
257
0.7
1.2
1.7
2.2
2.7
3.2
3.7
Jun-12 Jun-13 Jun-14 Jun-15 Jun-16
Relative IndexRM
Muhibbah Engineering (LHS) Relative KLCI INDEX (RHS)
Page 70
ASIAN INSIGHTS VICKERS SECURITIES
Page 2
Company Guide
Muhibbah Engineering
CRITICAL DATA POINTS TO WATCH
Earnings Drivers:
Stronger earnings growth ahead.Stronger earnings growth ahead.Stronger earnings growth ahead.Stronger earnings growth ahead. We expect Muhibbah to deliver
stronger earnings growth in FY16. With its Petronas licence and
marine-based expertise, Muhibbah is poised to clinch more RAPID
contracts in 2016. Within our construction universe, Muhibbah
stands out as an excellent proxy to the 11MP projects. Given that
we are at the start of an upswing for construction awards, we
expect new job wins to kick in significantly in 2H16. Overall
orderbook stood at RM2.1bn (as at May 2016). We believe this will
grow further on the back of its strong execution track record while
also anchored by its ability to replenish its orderbook.
Infrastructure division most promising.Infrastructure division most promising.Infrastructure division most promising.Infrastructure division most promising. Muhibbah believes the
infrastructure sector is on a multi-year upcycle with potentially
RM153bn worth of projects up for grabs (RM100bn RAPID,
RM50bn Infrastructure Construction and RM3bn Marine/Ports).
Muhibbah will be bidding for major projects such as RAPID, MRT
Line 2 and WCE, and is quietly confident of clinching other marine-
based projects. So far, 2016 has gotten off to a decent start with
two wins – one from Petronas Carigali and the other for Phnom
Penh airport expansion.
Cambodia airports to double capacity.Cambodia airports to double capacity.Cambodia airports to double capacity.Cambodia airports to double capacity. Effective July, the Siam Reap
and Phnom Penh airports will double their existing capacity to 12m
passengers. The US$85m capex has been financed by only one year
of operating cashflow, which suggests the airports are cash cows.
Passenger arrivals reached 6.5m in 2015 (+13 % y-o-y), led by the
recovery in Chinese tourists. We estimate its 21% stake is worth
RM677m (DCF, WACC 10%, RM/USD 4.15, and average passenger
growth of 5% p.a. until 2040).
Favco capitalising on other revenue streams.Favco capitalising on other revenue streams.Favco capitalising on other revenue streams.Favco capitalising on other revenue streams. Total outstanding
orderbook now stands at RM604m (as at May 2016) which is
sufficient for earnings visibility until early 2017. Out of this amount,
84% is still from offshore cranes (vs peak of 95%). The slowdown
in offshore crane demand is expected to be partly compensated by
an increase in demand for tower cranes. Locally, Favelle Favco has
won a RM30m contract from UEM-Samsung to build KL 118. Note
that Favelle Favco's cranes have been used to build 12 out of the
14 tallest buildings in the world. We understand there may be M&A
opportunities given its strong balance sheet with net cash of
RM270m as at 31 December 2015.
Construction revenue contribution
Cranes revenue contribution
Shipyard revenue contribution
New orders for construction
New orders for cranes
Source: Company, AllianceDBS Research
1,082
1,330
1,2031,161
1,025
0
192
384
576
768
959
1,151
1,343
2014A 2015A 2016F 2017F 2018F
798 792
358
443 460
0
163
326
488
651
814
2014A 2015A 2016F 2017F 2018F
223
51
193178
223
0
45
91
136
182
227
2014A 2015A 2016F 2017F 2018F
539
1,267
772850
1000
0
256
512
768
1,024
1,280
2014A 2015A 2016F 2017F 2018F
435
139
250
400
450
0
91
182
273
364
455
2014A 2015A 2016F 2017F 2018F
Page 71
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Muhibbah Engineering
Balance Sheet:
Needs bigger balance sheet. Needs bigger balance sheet. Needs bigger balance sheet. Needs bigger balance sheet. Muhibbah’s shareholder’s funds as at
31 March 2016 stood at RM1.1bn (including minority interest). The
proposed private placement of up to 10% of new shares will help
Muhibbah strengthen its capital base. This will help bring net
gearing down to c.0.5x from 0.6x as at December 2015, while its
cash-generating Cambodia airport concession should provide
adequate cash flow. Based on the minimum and maximum
scenario, this is expected to raise up to RM109-112m. The majority
of the proceeds amounting to RM75m will be used to pare down
borrowings while the balance will be for working capital purposes.
Share Price Drivers:
Complete proxy to Malaysia infrastructure. Complete proxy to Malaysia infrastructure. Complete proxy to Malaysia infrastructure. Complete proxy to Malaysia infrastructure. Muhibbah is a complete
proxy to the Malaysian infrastructure space because of its
experience in bread-and-butter civil engineering works, as well as
niche marine infrastructure, and onshore and offshore fabrication
works. Hence, we expect it to clinch works from RAPID, MRT Line
2, LRT 3, highway and port projects.
Premium for recurring base.Premium for recurring base.Premium for recurring base.Premium for recurring base. In our view, the market continues to
discount the strong cash flow of its concession business, particularly
the Cambodian airport concession. Contractors which have a
higher degree of relatively assured income such as IJM and
Gamuda, which own sizeable toll portfolios, should command
premium valuations.
CapitaliCapitaliCapitaliCapitalising on Petronas Fabrication Licensing on Petronas Fabrication Licensing on Petronas Fabrication Licensing on Petronas Fabrication Licencccce.e.e.e. Muhibbah was
awarded the much sought-after Petronas licence to take on
offshore facility construction and major onshore fabrication works.
This suggests better opportunities to bag more Petronas-related
jobs (downstream works). It has a 57-acre fabrication yard with a
total capacity of 25,000 MT per year, making it the third largest
among Petronas-licensed fabricators.
Completed landmark projects. Completed landmark projects. Completed landmark projects. Completed landmark projects. Muhibbah has an impressive track
record, having completed a list of landmark projects locally and
abroad. Of significance is the LNG Regasification project for
Petronas Gas in Melaka and South Klang Valley Expressway.
Key Risks:
Delays in project flows and sudden spikes in raw material costs
could dampen its earnings outlook.
Company Background
Muhibbah is primarily involved in construction, fabrication of cranes
and shipbuilding. These three core divisions cater largely for the
O&G sector. It also holds a 21% associate stake in two concessions,
namely the Cambodian airports and Federal road maintenance in
Malaysia.
Leverage & Asset Turnover (x)
Capital Expenditure
ROE (%)
Forward PE Band (x)
PB Band (x)
Source: Company, AllianceDBS Research
0.4
0.4
0.4
0.5
0.5
0.5
0.5
0.5
0.6
0.6
0.6
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
2014A 2015A 2016F 2017F 2018F
Gross Debt to Equity (LHS) Asset Turnover (RHS)
0.0
10.0
20.0
30.0
40.0
50.0
60.0
2014A 2015A 2016F 2017F 2018F
Capital Expenditure (-)
RMm
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
2014A 2015A 2016F 2017F 2018F
Avg: 11x
+1sd: 15.1x
+2sd: 19.2x
-1sd: 6.9x
-2sd: 2.8x2.5
4.5
6.5
8.5
10.5
12.5
14.5
16.5
18.5
20.5
Jun-12 Jun-13 Jun-14 Jun-15
(x)
Avg: 1.56x
+1sd: 2.06x
+2sd: 2.57x
-1sd: 1.05x
-2sd: 0.54x0.4
0.9
1.4
1.9
2.4
2.9
Jun-12 Jun-13 Jun-14 Jun-15
(x)
Page 72
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Muhibbah Engineering
Key Assumptions
FY FY FY FY DecDecDecDec 2014201420142014AAAA 2015201520152015AAAA 2016201620162016FFFF 2017201720172017FFFF 2018201820182018FFFF
Construction revenue contribution
1,082 1,330 1,203 1,161 1,025
Cranes revenue contribution 798 792 358 443 460
Shipyard revenue contribution 223 50.5 193 178 223
New orders for construction 539 1,267 772 850 1,000
New orders for cranes 435 139 250 400 450
Segmental Breakdown
FY FY FY FY DecDecDecDec 2014201420142014AAAA 2015201520152015AAAA 2016201620162016FFFF 2017201720172017FFFF 2018201820182018FFFF
Revenues (RMm) Construction 1,082 1,330 1,203 1,161 1,025
Cranes 798 792 358 443 460
Ships 223 50.5 193 178 223
Inter-segment (369) (568) 0.0 0.0 0.0
TotalTotalTotalTotal 1,7341,7341,7341,734 1,6051,6051,6051,605 1,7541,7541,7541,754 1,7811,7811,7811,781 1,7071,7071,7071,707
Income Statement (RMm)
FY FY FY FY DecDecDecDec 2014201420142014AAAA 2015201520152015AAAA 2016201620162016FFFF 2017201720172017FFFF 2018201820182018FFFF
Revenue 1,734 1,605 1,754 1,781 1,707
Cost of Goods Sold (1,479) (1,343) (1,522) (1,523) (1,441)
Gross ProfitGross ProfitGross ProfitGross Profit 254254254254 262262262262 231231231231 258258258258 266266266266 Other Opng (Exp)/Inc (131) (138) (135) (146) (147)
Operating ProfitOperating ProfitOperating ProfitOperating Profit 123123123123 124124124124 96.396.396.396.3 113113113113 120120120120 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0
Associates & JV Inc 49.2 62.2 65.3 73.1 79.7
Net Interest (Exp)/Inc (28.5) (20.7) (12.6) (8.6) (4.3)
Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0
PrePrePrePre----tax Profittax Profittax Profittax Profit 144144144144 165165165165 149149149149 177177177177 195195195195 Tax (24.8) (27.8) (20.9) (26.0) (28.9)
Minority Interest (37.3) (51.3) (28.2) (34.4) (38.1)
Preference Dividend 0.0 0.0 0.0 0.0 0.0
Net ProfitNet ProfitNet ProfitNet Profit 81.681.681.681.6 86.086.086.086.0 99.899.899.899.8 117117117117 128128128128 Net Profit before Except. 81.6 86.0 99.8 117 128
EBITDA 228 251 225 251 267
Growth Revenue Gth (%) (10.5) (7.4) 9.3 1.6 (4.2)
EBITDA Gth (%) 10.9 10.1 (10.3) 11.6 6.1
Opg Profit Gth (%) 17.2 0.5 (22.1) 17.1 6.3
Net Profit Gth (Pre-ex) (%) (5.6) 5.4 16.1 17.1 9.7
Margins & Ratio Gross Margins (%) 14.7 16.3 13.2 14.5 15.6
Opg Profit Margin (%) 7.1 7.7 5.5 6.3 7.0
Net Profit Margin (%) 4.7 5.4 5.7 6.6 7.5
ROAE (%) 13.5 11.7 11.2 11.6 11.6
ROA (%) 2.8 2.5 2.8 3.4 3.6
ROCE (%) 2.8 2.8 3.5 4.2 4.6
Div Payout Ratio (%) 23.4 21.8 20.0 20.0 20.0
Net Interest Cover (x) 4.3 6.0 7.6 13.2 28.0
Source: Company, AllianceDBS Research
Page 73
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Muhibbah Engineering
Quarterly / Interim Income Statement (RMm)
FY FY FY FY DecDecDecDec 1Q1Q1Q1Q2015201520152015 2Q2Q2Q2Q2015201520152015 3Q3Q3Q3Q2015201520152015 4Q4Q4Q4Q2015201520152015 1Q1Q1Q1Q2016201620162016
Revenue 363 410 394 432 482
Other Oper. (Exp)/Inc (337) (378) (354) (403) (464)
Operating ProfitOperating ProfitOperating ProfitOperating Profit 26.326.326.326.3 32.232.232.232.2 39.539.539.539.5 29.029.029.029.0 18.118.118.118.1 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0
Associates & JV Inc 16.3 11.4 14.4 20.0 18.3
Net Interest (Exp)/Inc (3.0) (6.3) (3.5) (8.0) (2.5)
Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0
PrePrePrePre----tax Profittax Profittax Profittax Profit 39.639.639.639.6 37.437.437.437.4 50.550.550.550.5 41.041.041.041.0 34.034.034.034.0 Tax (7.6) (11.2) (11.1) (1.5) (8.1)
Minority Interest (8.7) (6.8) (16.3) (19.4) (2.1)
Net ProfitNet ProfitNet ProfitNet Profit 23.323.323.323.3 19.319.319.319.3 23.023.023.023.0 20.120.120.120.1 23.823.823.823.8 Net profit bef Except. 23.3 19.3 23.0 20.1 23.8
EBITDA 59.7 56.4 65.9 62.9 36.5
Growth Revenue Gth (%) (20.4) 13.0 (4.1) 9.7 11.6
EBITDA Gth (%) (12.3) (5.6) 16.8 (4.6) (42.0)
Opg Profit Gth (%) (19.3) 22.5 22.8 (26.6) (37.5)
Net Profit Gth (Pre-ex) (%) 15.3 (17.3) 19.4 (12.8) 18.3
Margins Opg Profit Margins (%) 7.2 7.8 10.0 6.7 3.8
Net Profit Margins (%) 6.4 4.7 5.8 4.6 4.9
Balance Sheet (RMm)
FY FY FY FY DecDecDecDec 2014201420142014AAAA 2015201520152015AAAA 2016201620162016FFFF 2017201720172017FFFF 2018201820182018FFFF
Net Fixed Assets 725 785 819 798 776
Invts in Associates & JVs 236 257 318 386 461
Other LT Assets 31.0 52.8 52.8 52.8 52.8
Cash & ST Invts 601 578 522 583 681
Inventory 226 301 250 250 257
Debtors 1,334 1,601 1,441 1,464 1,403
Other Current Assets 12.5 18.1 18.1 18.1 18.1
Total AssetsTotal AssetsTotal AssetsTotal Assets 3,1653,1653,1653,165 3,5943,5943,5943,594 3,4213,4213,4213,421 3,5533,5533,5533,553 3,6493,6493,6493,649
ST Debt 1,168 1,221 1,146 1,146 1,146
Creditor 966 1,136 876 876 829
Other Current Liab 38.8 33.6 33.6 33.6 33.6
LT Debt 69.3 48.9 48.9 48.9 48.9
Other LT Liabilities 61.9 64.2 64.2 64.2 64.2
Shareholder’s Equity 644 826 960 1,056 1,161
Minority Interests 217 265 293 328 366
Total Cap. & Liab.Total Cap. & Liab.Total Cap. & Liab.Total Cap. & Liab. 3,1653,1653,1653,165 3,5943,5943,5943,594 3,4213,4213,4213,421 3,5533,5533,5533,553 3,6493,6493,6493,649
Non-Cash Wkg. Capital 567 751 800 823 815
Net Cash/(Debt) (636) (692) (673) (612) (514)
Debtors Turn (avg days) 253.7 333.8 316.6 297.7 306.5
Creditors Turn (avg days) 245.4 300.2 251.7 219.4 226.6
Inventory Turn (avg days) 55.5 75.3 69.0 62.7 67.4
Asset Turnover (x) 0.6 0.5 0.5 0.5 0.5
Current Ratio (x) 1.0 1.0 1.1 1.1 1.2
Quick Ratio (x) 0.9 0.9 1.0 1.0 1.0
Net Debt/Equity (X) 0.7 0.6 0.5 0.4 0.3
Net Debt/Equity ex MI (X) 1.0 0.8 0.7 0.6 0.4
Capex to Debt (%) 4.6 4.3 3.3 3.3 3.3
Z-Score (X) 1.2 1.1 1.2 1.3 1.4
Source: Company, AllianceDBS Research
Page 74
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Muhibbah Engineering
Cash Flow Statement (RMm)
FY FY FY FY DecDecDecDec 2014201420142014AAAA 2015201520152015AAAA 2016201620162016FFFF 2017201720172017FFFF 2018201820182018FFFF
Pre-Tax Profit 144 165 149 177 195
Dep. & Amort. 55.8 65.2 63.7 65.5 67.3
Tax Paid (24.8) (27.8) (20.9) (26.0) (28.9)
Assoc. & JV Inc/(loss) (49.2) (62.2) (65.3) (73.1) (79.7)
Chg in Wkg.Cap. (258) (174) (48.8) (22.5) 7.35
Other Operating CF 59.9 64.1 0.0 0.0 0.0
Net Operating CFNet Operating CFNet Operating CFNet Operating CF (72.9)(72.9)(72.9)(72.9) 30.830.830.830.8 77.777.777.777.7 121121121121 161161161161 Capital Exp.(net) (56.6) (54.1) (40.0) (40.0) (40.0)
Other Invts.(net) 0.0 0.0 0.0 0.0 0.0
Invts in Assoc. & JV (45.6) 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 66.6 60.7 0.0 0.0 0.0
Net Investing CFNet Investing CFNet Investing CFNet Investing CF (35.6)(35.6)(35.6)(35.6) 6.566.566.566.56 (40.0)(40.0)(40.0)(40.0) (40.0)(40.0)(40.0)(40.0) (40.0)(40.0)(40.0)(40.0) Div Paid (18.9) (19.1) (18.7) (20.0) (23.4)
Chg in Gross Debt 362 32.9 (75.0) 0.0 0.0
Capital Issues (13.7) 19.6 0.0 0.0 0.0
Other Financing CF (46.4) (93.5) 0.0 0.0 0.0
Net Financing CFNet Financing CFNet Financing CFNet Financing CF 283283283283 (60.2)(60.2)(60.2)(60.2) (93.7)(93.7)(93.7)(93.7) (20.0)(20.0)(20.0)(20.0) (23.4)(23.4)(23.4)(23.4)
Currency Adjustments 0.0 0.0 0.0 0.0 0.0
Chg in Cash 175 (22.8) (56.1) 61.2 97.9
Opg CFPS (sen) 39.3 43.4 26.2 27.7 29.7
Free CFPS (sen) (27.5) (5.0) 7.80 15.7 23.4
Source: Company, AllianceDBS Research
Target Price & Ratings History
Source: AllianceDBS Research
S.No.S.No.S.No.S.No. DateDateDateDateClosing Closing Closing Closing
PricePricePricePrice
Target Target Target Target
PricePricePricePriceRat ing Rat ing Rat ing Rat ing
1: 21 Jul 15 2.28 3.40 BUY
2: 01 Sep 15 1.79 2.90 BUY
3: 04 Sep 15 1.93 2.90 BUY
4: 30 Nov 15 2.23 2.90 BUY
5: 15 Dec 15 2.22 2.90 BUY
6: 14 Jan 16 2.36 2.90 BUY
7: 01 Mar 16 2.25 2.90 BUY
8: 04 Apr 16 2.37 2.90 BUY
9: 04 May 16 2.28 2.90 BUY
10: 12 May 16 2.27 3.10 BUY
11: 01 Jun 16 2.14 3.10 BUY
12: 03 Jun 16 2.25 3.10 BUY
Note Note Note Note : Share price and Target price are adjusted for corporate actions.
1
23
4 5
6
7
8
9
10
11
12
1.53
1.73
1.93
2.13
2.33
2.53
Jun-15 Oct-15 Feb-16 Jun-16
RMRMRMRM
Page 75
ASIAN INSIGHTS VICKERS SECURITIES ed: CK / sa: MA
BUYLast Traded Price: Rp3,940 (JCI : 4,980.11) Price Target : Rp4,600 (17% upside)
Potential Catalyst: Award of large-sized, multi-year contracts Where we differ: Broadly in line with consensus
Analyst Chong Tjen-San +60 3 26043972 tjensan@alliancedbs.com Tiesha Putri +6221 30034931 tiesha.narandha@id.dbsvickers.com
Price Relative
Forecasts and Valuation FY Dec (Rpbn) 2015A 2016F 2017F 2018F Revenue 14,217 20,089 24,005 27,787 EBITDA 1,677 2,202 2,728 3,208 Pre-tax Profit 1,288 1,634 2,060 2,455 Net Profit 740 889 1,129 1,353 Net Pft (Pre Ex.) 740 889 1,129 1,353 Net Pft Gth (Pre-ex) (%) 38.8 20.0 27.1 19.8 EPS (Rp) 153 183 233 279 EPS Pre Ex. (Rp) 153 183 233 279 EPS Gth Pre Ex (%) 39 20 27 20 Diluted EPS (Rp) 153 183 233 279 Net DPS (Rp) 30.6 36.7 46.6 55.9 BV Per Share (Rp) 905 1,058 1,254 1,487 PE (X) 25.8 21.5 16.9 14.1 PE Pre Ex. (X) 25.8 21.5 16.9 14.1 P/Cash Flow (X) 38.0 87.9 39.2 23.3 EV/EBITDA (X) 12.0 10.1 8.5 7.6 Net Div Yield (%) 0.8 0.9 1.2 1.4 P/Book Value (X) 4.4 3.7 3.1 2.6 Net Debt/Equity (X) 0.1 0.4 0.5 0.5 ROAE (%) 22.0 18.7 20.2 20.4 Earnings Rev (%): 0 0 0 Consensus EPS (Rp): 192 242 304 Other Broker Recs: B: 21 S: 0 H: 1
Source of all data: Company, AllianceDBS Research, DBS Vickers, Bloomberg Finance L.P
Gaining ground Maintain BUY; top pick in construction sector. We like PTPP for its good execution track record and niche in port construction. New contract wins have started to catch up in June. We expect a stronger order book replenishment and earnings growth in the coming quarters as SOEs and government ramp up capex. Meanwhile, the parliament’s recent approval of the Rp2.25tr capital injection would support earnings growth from 2017 onwards. The capital spending of Pelindo I to IV would be important to monitor, as it may provide upside potential to PTPP’s FY16 contract wins guidance of Rp31tr. New contracts make up 35% of management’s full-year target. PTPP won Rp3.6tr worth of new contracts in the first half of June, bringing its new contract wins to Rp10.8tr. The company expects new contracts to reach Rp12tr-13tr by the end of June, representing 40% of full-year target. PTPP is also the lowest bidder for Balikpapan-Samarinda and Manado-Bitung toll road’s construction work worth Rp4tr. This win is relatively assured as PTPP also owns minority stakes (15%) in the toll road concession. A ‘safer’ business model. Although the trend of contractors investing in infrastructure assets has become evident of late, PTPP sticks to its initial strategy, which is to be very selective in bidding for equity participation with the focus being on ports and power plants. While pursuing such a strategy saves PTPP from balance sheet risk and start-up losses, this also makes PTPP more dependent on the capex budget of the government and SOEs. On the positive side, the company’s large backlog of Rp44tr (2.2x our FY16F revenue) and sound track record in project delivery should provide a strong footing for PTPP in meeting our earnings growth forecast of 21% y-o-y in FY16.
Valuation:
We peg our TP to 25x FY16 EPS (+0.7SD of historical PE mean since 2012).
Key Risks to Our View:
Prolonged slowdown in property sector. PTPP has both direct and indirect exposure to the property sector. A prolonged slowdown in the economy and demand for property can negatively impact earnings and cash flows.
At A Glance
Issued Capital (m shrs) 4,842 Mkt. Cap (Rpbn/US$m) 19,079 / 1,453 Major Shareholders (%) Republic of Indonesia (%) 51.0
Free Float (%) 49.03m Avg. Daily Val (US$m) 1.8 ICB Industry : Industrials / Construction & Materials
DBS Group Research . Equity 30 Jun 2016
Indonesia Company Guide
PT PP (Persero) Version 3 | Bloomberg: PTPP IJ | Reuters: PTPP.JK Refer to important disclosures at the end of this report
81
181
281
381
481
581
504.0
1,004.0
1,504.0
2,004.0
2,504.0
3,004.0
3,504.0
4,004.0
4,504.0
Jun-12 Jun-13 Jun-14 Jun-15 Jun-16
Relative IndexRp
Pembangunan Perumahan (LHS) Relative JCI INDEX (RHS)
Page 76
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
PT PP (Persero)
CRITICAL DATA POINTS TO WATCH
Earnings Drivers:
Redirecting focus to government-related infrastructure projects. Approximately 25% of PTPP’s Rp41tr backlog came from private property developers. The project execution may be slower amid the still subdued property market, therefore affecting the company’s contract burn rate and earnings negatively. Management expects a larger contribution of government’s infrastructure projects this year with a mix of 77%:23% between government-related and private projects vs. 63%:37% booked in FY15. As government-related infrastructure projects typically command a higher margin compared to private developers’ property projects, this opens up the possibility of margin expansion in the future.
Beneficiary of Indonesia 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 largest projects are the multi-year expansions of Kuala Tanjung port (Rp18.4tr) and Tanjung Perak port (Rp8.6tr). Both ports were initially built by PTPP, hence increasing the company's competitive edge to secure the work contracts once the projects are tendered out. 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 a capex of Rp14tr for port expansion.
Capital injection overhang lifted; planned rights issue should support earnings outlook from 2017 onwards. The parliament recently approved the capital injection budget to a number of SOEs, including PTPP which amounts to Rp2.25tr. The capital injection would be executed through a rights issue (likely in 4Q16), hence allowing minority investors to maintain its ownership in the company. The rights issue proceeds will be used to fund PTPP’s equity investment in infrastructure projects, among which are Kuala Tanjung Multi Purpose Terminal, Balikpapan-Samarinda toll road, Manado-Bitung toll road, Pandaan-Malang toll road and a 2x200MW power plant in Sumatra.
New Contract Win (Rp bn)
Carry over contract (Rp bn)
Blended gross margin (%)
Source: Company, AllianceDBS Research, DBS Vickers
20,240
27,07429,876
33,901
38,667
0
5,579
11,158
16,737
22,316
27,895
33,474
39,053
2014A 2015A 2016F 2017F 2018F
22,278
29,867
39,140
48,927
58,823
0
12,000
24,000
36,000
48,000
60,000
2014A 2015A 2016F 2017F 2018F
13.914.7
12.713.2 13.4
0.0
3.0
6.0
9.0
12.0
15.0
2014A 2015A 2016F 2017F 2018F
44% 51% 46%
19% 11% 32%
37% 39% 23%
FY15A 1Q16A FY16 target
SOE Government Private
849 1,650
4,170
6,000
7,200
10,800
3% 5%
13%
19% 23%
35%
-
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
-
2,000
4,000
6,000
8,000
10,000
12,000
1M16 2M16 3M16 4M16 5M16 up to
2nd week of
June
PTPP's new contracts (Rp bn) as % of FY16 target
Page 77
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
PT PP (Persero)
Balance Sheet:
Strong balance sheet enables company to take up more projects. As at the end of Mar 2016, PTPP was in a net debt position of Rp2.8tr, translating into a net gearing of 0.5x. PTPP’s FY16 capex budget is also relatively low compared to peers at Rp2.8tr (of which Rp1.3tr will be allocated to its property arm), therefore the company still has ample room for new borrowings.
Share Price Drivers:
Award of a large-sized, multi-year infrastructure contract. The awards of large-sized, multi-year contracts will further improve PTPP’s revenue and earnings visibility, and ultimately lead to the re-rating of its share price.
Passing of tax amnesty bill. The tax amnesty plan should bring in extra revenue for the government and help to fund its infrastructure development plan.
Key Risks:
Slowdown in property sector. PTPP’s exposure to the property sector has increased notably with net profit contribution from the property arm at 26% in FY15. As at the end of Feb 2016, 25% of PTPP’s outstanding order book (c.Rp10tr) came from private developers. A prolonged slowdown in the property market may pose risks to PTPP’s earnings and cash flows.
Earnings dilution due to rights issue. PTPP is entitled to obtain a Rp2.25tr capital injection from the government this year. This will be done through a rights issue where the company may raise up to Rp4.4tr from the government and minority shareholders, with the amount representing 24% of its market capitalisation.
Company Background
PT PP is Indonesia's leading construction company whose portfolio ranges from building engineering to infrastructure construction. It has established a solid reputation in the construction of high-rise buildings and ports.
Leverage & Asset Turnover (x)
Capital Expenditure
ROE (%)
Forward PE Band (x)
PB Band (x)
Source: Company, AllianceDBS Research, DBS Vickers
0.8
0.8
0.8
0.9
0.9
0.9
0.9
0.9
1.0
1.0
1.0
0.00
0.20
0.40
0.60
0.80
1.00
1.20
2014A 2015A 2016F 2017F 2018F
Gross Debt to Equity (LHS) Asset Turnover (RHS)
0.0
500.0
1,000.0
1,500.0
2,000.0
2,500.0
2014A 2015A 2016F 2017F 2018F
Capital Expenditure (-)
Rpm
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
2014A 2015A 2016F 2017F 2018F
Avg: 16.1x
+1sd: 21.3x
+2sd: 26.5x
‐1sd: 10.9x
‐2sd: 5.7x5.1
10.1
15.1
20.1
25.1
Jun-12 Jun-13 Jun-14 Jun-15 Jun-16
(x)
Avg: 4.17x
+1sd: 5.61x
+2sd: 7.05x
‐1sd: 2.73x
‐2sd: 1.28x1.1
2.1
3.1
4.1
5.1
6.1
7.1
8.1
Jun-12 Jun-13 Jun-14 Jun-15 Jun-16
(x)
Rpbn
Page 78
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
PT PP (Persero)
Key Assumptions
FY Dec 2014A 2015A 2016F 2017F 2018F
New Contract Win (Rp bn) 20,240 27,074 29,876 33,901 38,667 Carry over contract (Rp 22,278 29,867 39,140 48,927 58,823 Blended gross margin (%) 13.9 14.7 12.7 13.2 13.4
Segmental Breakdown
FY Dec 2014A 2015A 2016F 2017F 2018F
Revenues (Rpbn)
Construction 10,662 11,611 16,252 18,205 20,238 Real Estate and Property 645 1,573 1,925 2,258 2,845 EPC 1,091 928 1,802 3,426 4,581 Others 29.3 106 111 117 122 Total 12,427 14,217 20,089 24,005 27,787 Gross Profit (Rpbn) Construction 1,414 1,244 1,788 2,003 2,226 Real Estate and Property 267 680 551 695 875 EPC 143 206 216 463 619 Others (91.8) (46.2) 0.0 0.0 0.0 Total 1,732 2,085 2,555 3,160 3,720 Gross Profit Margins (%) Construction 13.3 10.7 11.0 11.0 11.0 Real Estate and Property 41.3 43.3 28.6 30.8 30.8 EPC 13.1 22.2 12.0 13.5 13.5 Others (313.1) (43.7) 0.0 0.0 0.0 Total 13.9 14.7 12.7 13.2 13.4
Income Statement (Rpbn)
FY Dec 2014A 2015A 2016F 2017F 2018F
Revenue 12,427 14,217 20,089 24,005 27,787 Cost of Goods Sold (10,878) (12,210) (17,535) (20,845) (24,067) Gross Profit 1,550 2,007 2,555 3,160 3,720 Other Opng (Exp)/Inc (281) (410) (465) (566) (668) Operating Profit 1,268 1,597 2,089 2,593 3,052 Other Non Opg (Exp)/Inc (94.2) (50.5) 0.0 0.0 0.0 Associates & JV Inc 72.4 67.0 70.3 73.8 77.5 Net Interest (Exp)/Inc (326) (326) (526) (608) (674) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 921 1,288 1,634 2,060 2,455 Tax (387) (442) (618) (765) (894) Minority Interest (0.1) (105) (127) (166) (209) Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 533 740 889 1,129 1,353 Net Profit before Except. 533 740 889 1,129 1,353 EBITDA 1,326 1,677 2,202 2,728 3,208 Growth
Revenue Gth (%) 6.6 14.4 41.3 19.5 15.8 EBITDA Gth (%) 22.1 26.5 31.3 23.9 17.6 Opg Profit Gth (%) 18.2 25.9 30.8 24.1 17.7 Net Profit Gth (Pre-ex) (%) 26.8 38.8 20.0 27.1 19.8 Margins & Ratio
Gross Margins (%) 12.5 14.1 12.7 13.2 13.4 Opg Profit Margin (%) 10.2 11.2 10.4 10.8 11.0 Net Profit Margin (%) 4.3 5.2 4.4 4.7 4.9 ROAE (%) 25.0 22.0 18.7 20.2 20.4 ROA (%) 4.0 4.4 4.1 4.3 4.5 ROCE (%) 13.0 13.1 12.1 13.1 13.7 Div Payout Ratio (%) 25.3 27.8 24.0 25.4 24.0 Net Interest Cover (x) 3.9 4.9 4.0 4.3 4.5
Source: Company, AllianceDBS Research, DBS Vickers
Page 79
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
PT PP (Persero)
Quarterly / Interim Income Statement (Rpbn)
FY Dec 1Q2015 2Q2015 3Q2015 4Q2015 1Q2016
Revenue 1,982 3,240 3,553 5,443 2,588 Cost of Goods Sold (1,704) (2,834) (3,058) (4,614) (2,228) Gross Profit 278 405 495 829 360 Other Oper. (Exp)/Inc (86.0) (99.4) (101) (123) (105) Operating Profit 192 306 394 705 255 Other Non Opg (Exp)/Inc (17.2) (37.5) (28.1) 32.3 (19.4) Associates & JV Inc 3.20 6.80 11.8 45.2 5.80 Net Interest (Exp)/Inc (15.7) (54.2) (30.0) (226) (21.4) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 162 221 348 557 220 Tax (68.4) (104) (108) (161) (90.4) Minority Interest (0.1) (50.0) (22.1) (33.1) (31.7) Net Profit 93.5 67.2 217 362 98.2 Net profit bef Except. 93.5 67.2 217 362 98.2 EBITDA 178 275 378 783 242
Growth
Revenue Gth (%) (57.1) 63.5 9.7 53.2 (52.5) EBITDA Gth (%) (68.7) 54.8 37.3 107.2 (69.1) Opg Profit Gth (%) (65.6) 59.5 28.9 79.0 (63.8) Net Profit Gth (Pre-ex) (%) (61.4) (28.1) 223.2 66.7 (72.9) Margins
Gross Margins (%) 14.0 12.5 13.9 15.2 13.9 Opg Profit Margins (%) 9.7 9.4 11.1 13.0 9.9 Net Profit Margins (%) 4.7 2.1 6.1 6.7 3.8
Balance Sheet (Rpbn)
FY Dec 2014A 2015A 2016F 2017F 2018F
Net Fixed Assets 710 2,989 4,886 5,951 7,185 Invts in Associates & JVs 147 272 272 272 272 Other LT Assets 245 437 437 437 437 Cash & ST Invts 2,611 3,302 2,372 1,981 1,683 Inventory 2,675 2,747 3,819 4,539 5,241 Debtors 7,244 8,829 12,109 14,469 16,748 Other Current Assets 947 553 553 553 553 Total Assets 14,579 19,129 24,447 28,202 32,119
ST Debt 1,577 1,765 1,765 1,765 1,765 Creditor 7,022 7,888 11,328 13,467 15,548 Other Current Liab 1,263 1,462 1,462 1,462 1,462 LT Debt 1,455 1,913 2,923 3,423 3,923 Other LT Liabilities 928 982 982 982 982 Shareholder’s Equity 2,334 4,382 5,122 6,074 7,201 Minority Interests 1.00 737 864 1,030 1,238 Total Cap. & Liab. 14,579 19,129 24,447 28,202 32,119
Non-Cash Wkg. Capital 2,583 2,779 3,690 4,632 5,532 Net Cash/(Debt) (421) (376) (2,316) (3,207) (4,005) Debtors Turn (avg days) 200.2 206.3 190.2 202.1 205.0 Creditors Turn (avg days) 224.7 224.3 201.3 218.5 221.5 Inventory Turn (avg days) 75.1 81.6 68.8 73.6 74.6 Asset Turnover (x) 0.9 0.8 0.9 0.9 0.9 Current Ratio (x) 1.4 1.4 1.3 1.3 1.3 Quick Ratio (x) 1.0 1.1 1.0 1.0 1.0 Net Debt/Equity (X) 0.2 0.1 0.4 0.5 0.5 Net Debt/Equity ex MI (X) 0.2 0.1 0.5 0.5 0.6 Capex to Debt (%) 5.3 4.2 42.9 23.1 24.4 Z-Score (X) NA NA NA NA NA
Source: Company, AllianceDBS Research, DBS Vickers
Page 80
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
PT PP (Persero)
Cash Flow Statement (Rpbn)
FY Dec 2014A 2015A 2016F 2017F 2018F
Pre-Tax Profit 921 1,288 1,634 2,060 2,455 Dep. & Amort. 57.1 79.6 113 135 156 Tax Paid (387) (442) (618) (765) (894) Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0 Chg in Wkg.Cap. (719) (196) (911) (943) (900) Other Operating CF 410 (226) 0.0 0.0 0.0 Net Operating CF 282 503 217 487 817 Capital Exp.(net) (160) (156) (2,009) (1,200) (1,389) Other Invts.(net) (192) (77.3) 0.0 0.0 0.0 Invts in Assoc. & JV (78.2) (196) 0.0 0.0 0.0 Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 Other Investing CF (95.1) (233) 0.0 0.0 0.0 Net Investing CF (525) (662) (2,009) (1,200) (1,389) Div Paid (126) (106) (148) (178) (226) Chg in Gross Debt 369 457 1,010 500 500 Capital Issues 0.0 0.0 0.0 0.0 0.0 Other Financing CF 0.0 354 0.0 0.0 0.0 Net Financing CF 243 704 862 322 274 Currency Adjustments 11.3 71.1 0.0 0.0 0.0 Chg in Cash 11.3 616 (930) (391) (298) Opg CFPS (Rp) 207 144 233 295 355 Free CFPS (Rp) 25.3 71.7 (370) (147) (118)
Source: Company, AllianceDBS Research, DBS Vickers
Target Price & Ratings History
Source: AllianceDBS Research
S.No. Date Closing PriceTarget Price
Rating
1: 04 Dec 15 3710 4650 BUY
2: 28 Dec 15 3810 4650 BUY
3: 01 Feb 16 3825 4650 BUY
4: 29 Apr 16 3665 4600 BUY
5: 04 May 16 3630 4600 BUY
6: 30 May 16 3690 4600 BUY
7: 01 Jun 16 3680 4600 BUY
Note : Share price and Target price are adjusted for corporate actions.
1
2
34
5
6
7
2940
3140
3340
3540
3740
3940
4140
4340
Jun-15 Oct-15 Feb-16 Jun-16
Rp
Page 81
ASIAN INSIGHTS VICKERS SECURITIES
ed:CK / sa:TP
BUYBUYBUYBUYLast Traded Price: Last Traded Price: Last Traded Price: Last Traded Price: Bt22.70 (SETSETSETSET : : : : 1,430.80) Price Target :Price Target :Price Target :Price Target : Bt26.00 (15% upside) (Prev Bt22.00)
Potential Catalyst: Potential Catalyst: Potential Catalyst: Potential Catalyst: The upcoming bidding of public projects
Where we Where we Where we Where we differ:differ:differ:differ: We are less bearish than consensus Analyst Apichaya KETRUTTANABORVORN +66 2657 7823 apichayak@th.dbsvickers.com
What’s New • Remain bullish on the mega infrastructure bidding
this year
• Limited upside risk from the power plant projects
• Unexcited 2Q16F earnings
• Maintain BUY, with a higher TP of Bt26
Price Relative
Forecasts and Valuation FY FY FY FY DecDecDecDec ((((BtBtBtBt m) m) m) m) 2014201420142014AAAA 2015201520152015AAAA 2016201620162016FFFF 2017201720172017FFFF
Revenue 21,652 18,331 18,737 22,317 EBITDA 2,127 1,854 1,728 2,054 Pre-tax Profit 1,919 1,866 1,363 1,645 Net Profit 1,521 1,527 1,094 1,320 Net Pft (Pre Ex.) 1,521 1,079 1,094 1,320 Net Pft Gth (Pre-ex) (%) 1.4 (29.0) 1.4 20.7 EPS (Bt) 1.00 1.00 0.72 0.87 EPS Pre Ex. (Bt) 1.00 0.71 0.72 0.87 EPS Gth Pre Ex (%) 1 (29) 1 21 Diluted EPS (Bt) 1.00 1.00 0.72 0.87 Net DPS (Bt) 0.50 0.35 0.36 0.43 BV Per Share (Bt) 5.48 6.09 6.36 6.86 PE (X) 22.8 22.7 31.7 26.2 PE Pre Ex. (X) 22.8 32.1 31.7 26.2 P/Cash Flow (X) nm nm 25.8 15.2 EV/EBITDA (X) 13.8 17.7 17.8 14.5 Net Div Yield (%) 2.2 1.6 1.6 1.9 P/Book Value (X) 4.1 3.7 3.6 3.3 Net Debt/Equity (X) CASH CASH CASH CASH ROAE (%) 19.1 17.3 11.5 13.1
Earnings Rev (%):Earnings Rev (%):Earnings Rev (%):Earnings Rev (%): (5) (10) Consensus EPS Consensus EPS Consensus EPS Consensus EPS (BtBtBtBt):::: 0.82 0.96 Other Broker Recs:Other Broker Recs:Other Broker Recs:Other Broker Recs: B: 18 S: 0 H: 2
Corporate Governance CG Rating
Anti-corruption Progress Indicator n/a
Source of all data: Company, DBS Vickers, Bloomberg Finance L.P
Here comes the sun Reiterate BUY, Bt26.0 TP (PE valuation).Reiterate BUY, Bt26.0 TP (PE valuation).Reiterate BUY, Bt26.0 TP (PE valuation).Reiterate BUY, Bt26.0 TP (PE valuation). As one of Thailand’s
four largest construction contractors as well as having a net
cash position, STEC stands a good chance of benefiting from
the government’s infrastructure spending over the next few
years. Our TP is pegged to 29x FY17 PE (+1SD of mean). STEC
was trading at 33x PE in 2013 when the government
announced Bt2tn worth of infrastructure projects.
A prime beneficiary of rising construction activities in Thailand. A prime beneficiary of rising construction activities in Thailand. A prime beneficiary of rising construction activities in Thailand. A prime beneficiary of rising construction activities in Thailand.
After securing the dual-track railway project for the Klong 19 –
Kaeng Koy route worth Bt9.83bn in December 2015, we
maintain our bullish view that STEC stands a good chance to
win additional work worth at least Bt30bn. We have assigned
a high potential to the following projects to be opened for
bidding this year: (i) Double-track rail; Prachuab Khiri Khan –
Chumpon and Map Kabao – Thanon Chira routes, worth
Bt49bn in total, (ii) MRT orange line, worth Bt83bn, (iii) MRT
pink line, worth Bt27bn, and (iv) MRT yellow line, worth
Bt32bn. Note that STEC’s new project wins target for FY16F is
Bt30-40bn (vs our forecast of Bt30bn).
Earnings to surge in FY17. Earnings to surge in FY17. Earnings to surge in FY17. Earnings to surge in FY17. Given the delay in infrastructure
bidding in 1H16 and limited progress on STEC’s dual-track
railway project due to the initial stage of project, FY16F
earnings should be flat y-o-y. However, we expect FY17F
earnings to surge 20% y-o-y, given the high revenue
recognition from its dual-track railway project and the
estimated Bt30bn contracts signed in FY16.
Valuation:
We maintain our BUY rating with a higher TP of Bt26, pegged
to 29x FY17F PE
Key Risks to Our View:
Further delays in government spending on mega infrastructure
projects, cost overrun and higher steel/construction materials
price.
At A Glance Issued Capital (m shrs) 1,525
Mkt. Cap (Btm/US$m) 34,620 / 983
Major Shareholders (%)
Chanweerakul's Family 21.7
Thai NVDR 10.6
UBS AG Singapore Branch 5.1
Free Float (%) 72.4
3m Avg. Daily Val (US$m) 4.6
ICB IndustryICB IndustryICB IndustryICB Industry : Industrials / Construction & Materials
DBS Group Research . Equity 22 Jun 2016
Thailand Company Guide
Sino-Thai Engineering & Con. Version 3 | Bloomberg: STEC TB | Reuters: STEC.BK Refer to important disclosures at the end of this report
76
96
116
136
156
176
196
216
236
8.3
13.3
18.3
23.3
28.3
Jun-12 Jun-13 Jun-14 Jun-15 Jun-16
Relative IndexBt
Sino-Thai Engineering & Con. (LHS) Relative SET INDEX (RHS)
Page 82
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Sino-Thai Engineering & Con.
WHAT’S NEW
FY16F soft earnings outlook. Given the lack of new
contracts signed in 1H16 due to the delay of the
infrastructure bidding and the low revenue recognition from
its dual-track railway project, the Klong 19 – Kaeng Koy
route, due to the initial phase of the project, we expect FY16F
earnings to remain flat at Bt1.1bn. Thus, we revise down our
FY16F earnings by 5% to reflect the “lower-than-expected”
revenue recognition in FY16F. Note that, as of end-1Q16,
STEC’s current backlog stood at Bt52.9bn.
Failure to clinch power plant projects. In 1Q16, STEC
expected to secure power plant construction contracts in
2Q16, which should improve its backlog quality since power
plant projects offer higher gross profit margin (GPM) than
that of infrastructure projects. However, STEC failed to secure
the 1,300MW Bangpakong power plant and 1,300 MW
South Bangkok power plant, whose winning bidders were
announced recently. Additionally, the bidding process for the
other potential power plant project of STEC, the 800MW
Krabi power plant, is still pending due to environmental
issues.
Thus, we lower our FY17F GPM assumption from 9.5% to
8.9%.
Growing confidence in infrastructure bidding. We remain
convinced that the contractor sector outlook remains strong,
thanks to the government’s acceleration of mega
infrastructure auctions. This is in line with the view of
management that anticipates a number of auctions from the
government to proceed in 2H16. We have assigned a high
potential to the following projects to be opened for bidding
this year: (i) Double-track rail; Prachuab Khiri Khan – Chumpon
and Map Kabao – Thanon Chira routes, worth Bt49bn in total,
(ii) MRT orange line, worth Bt83bn, (iii) MRT pink line, worth
Bt27bn, and (iv) MRT yellow line, worth Bt32bn.
Potential backlog from MRT pink linePotential backlog from MRT pink linePotential backlog from MRT pink linePotential backlog from MRT pink line. STEC’s orderbook still has
potential upside from the MRT pink line project worth Bt19bn or
36% of its current backlog; we believe that STEC will be a partner
for BTS Group Holdings PCL (BTS TB Equity) in bidding for the
contract. However, both STEC and BTS have agreed to review the
official contract of the project first before making a final decision if
they will participate in the bidding.
The probability is low for STEC to be a co-investor with BTS in this
project, given that STEC has no experience in operating a mass
transit system and its management has shown little interest in
investing in the MRT pink line project. Note that we have not
factored in the MRT pink line project in our forecast yet.
Brighter outlook for steel prices. Steel prices decreased 20%
from its peak in April 2016. Additionally, we expect steel prices to
go down further in 3Q16, given the increasing steel supply from
China. This alleviates our concern that the profitability of STEC’s
potential projects might fall.
STEC: 2Q16F result preview
FY Dec (Btm)FY Dec (Btm)FY Dec (Btm)FY Dec (Btm) 1Q151Q151Q151Q15 1Q161Q161Q161Q16 2Q16F2Q16F2Q16F2Q16F ChgChgChgChg
yyyy----oooo----yyyy
Chg Chg Chg Chg
qqqq----oooo----qqqq
Sales 4,186 4,472 4,537 8% 1%
COGS (inc dep'n) -3,735 -4,079 -4,139 11% 1%
Gross profitGross profitGross profitGross profit 451451451451 393393393393 398398398398 -12% 1%
Selling and admin -135 -109 -110 na 1%
Operating profitOperating profitOperating profitOperating profit 316316316316 284284284284 288288288288 -9% 1%
Asso &
other income 62 30 40 -35% 34%
Net interest 24 10 10 -58% -1%
Pretax profitPretax profitPretax profitPretax profit 402402402402 324324324324 338338338338 -16% 4%
Income tax -80 -54 -58 -29% 7%
Minority interest -1 -2 -5 285% 144%
Net profitNet profitNet profitNet profit 320320320320 268268268268 276276276276 -14% 3%
EPS (Bt) 0.21 0.18 0.25 20% 44%
Margin Analysis (%)Margin Analysis (%)Margin Analysis (%)Margin Analysis (%)
Gross margin 10.8% 8.8% 8.8%
Op margin 7.6% 6.4% 6.4%
Net margin 7.6% 6.0% 6.1%
SGA/Sales (%) 3.2% 2.4% 2.4% Source: Company, DBS Vickers
Page 83
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Sino-Thai Engineering & Con.
Projects to be up for bidding in FY16
Source: Company, DBS Vickers
ProjectProjectProjectProject Des criptionDes criptionDes criptionDes cription
Cons tructionCons tructionCons tructionCons truction
Va lue (Btbn)Va lue (Btbn)Va lue (Btbn)Va lue (Btbn) Progres sProgres sProgres sProgres s
Mas s Rapid T rans it Authority of Tha iland : MRTAMas s Rapid T rans it Authority of Tha iland : MRTAMas s Rapid T rans it Authority of Tha iland : MRTAMas s Rapid T rans it Authority of Tha iland : MRTA
Orange line83
to be opened for bidding in June 2016
Pink line (Monorail) Khae Rai - Min Buri 27
Yellow line (Monorail) Lat proa - Samrong 32
Tota lTota lTota lTota l 142142142142
State Ra i lway of Tha i land : SRTState Ra i lway of Tha i land : SRTState Ra i lway of Tha i land : SRTState Ra i lway of Tha i land : SRT
Prachuab Khiri Khan - Chumpon 17
Map Kabao - Thanon Chira 29
Nakhon Pathom - Hua Hin 19
Lopburi - Paknampo 24
Tota lTota lTota lTota l 89898989
Department of Highway : DOHDepartment of Highway : DOHDepartment of Highway : DOHDepartment of Highway : DOH
Pattaya - Map Ta Phut 20
Bang Pa In - Nakhon Ratchasima 85
Bang Yai - Karnchanaburi 56
Tota lTota lTota lTota l 161161161161
Airports of Tha i land Public Company L imited : AOTAirports of Tha i land Public Company L imited : AOTAirports of Tha i land Public Company L imited : AOTAirports of Tha i land Public Company L imited : AOT
Tota lTota lTota lTota l 49494949
Tota lTota lTota lTota l 441441441441
Extension of building, terminal and utilities 49
The bid for Bt16.4bn contracts were submitted; the
lowest bidder for package I, worth Bt12bn, is Italian-
Thai Development PCL (ITD); The qualified particant
for package II are Nawarat Patanakarn PCL (NWR)
and Samprasit Construction Co., Ltd.
Double-track rail
Thailand Cultural Centre - Min Buri
To be opened for bidding in 2H16
Cabinet approved
Waiting for the cabinet approval process
In bidding process
Suvarnabhumi Airport :
Phase II
Motorway
Page 84
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Sino-Thai Engineering & Con.
CRITICAL DATA POINTS TO WATCH
Earnings Drivers:
A prime beneficiary of rising infrastructure spending. A prime beneficiary of rising infrastructure spending. A prime beneficiary of rising infrastructure spending. A prime beneficiary of rising infrastructure spending. We
reiterate our view that public investments will accelerate and
become the lone pillar of growth for the Thai economy this
year. This is on the back of the slowing growth rate of private
consumption and investments, given the fall in borrowing and
low wage growth. The government is therefore speeding up the
investment in infrastructure projects to provide a key engine for
Thai economic growth this year. This should be positive for
STEC, as it is one of the top four construction contractors in
Thailand. STEC is in a net cash position which allows the
company to readily participate in the bidding of new
infrastructure projects from the government. Note that STEC
also owns two precast concrete factories and has vast expertise
in executing infrastructure works, thus reinforcing its strong
position in the infrastructure upcycle this time around.
Backlog breakdown.Backlog breakdown.Backlog breakdown.Backlog breakdown. Based on our estimated backlog
amounting to Bt52.9bn as at 31 Mar 2016, its backlog could be
equivalent to more than two years’ worth of revenue. Thus,
STEC should still be resilient enough to cope with any further
delay in the country’s infrastructure spending.
Power plant project to maintain STEC’s GPM.Power plant project to maintain STEC’s GPM.Power plant project to maintain STEC’s GPM.Power plant project to maintain STEC’s GPM. Currently, STEC
has two power plant projects in its backlog, comprising 12 small
power plants and offsite works for power plant projects. Note
that the average GPM of power plant projects is much higher,
compared to about 6-7% for government infrastructure
projects. This should help STEC achieve its target GPM of 8-9%
Downside risk from new parliament projectDownside risk from new parliament projectDownside risk from new parliament projectDownside risk from new parliament project. Construction
progress for the Bt11.5bn new parliament project has only
reached 20% because of delays in the land expropriation
process. As a result, STEC expects to extend the completion
period to 2019 (vs November 2016 currently). We believe that it
is reasonable to expect the project to be completed in 2019,
based on a progress rate of 20% per year (base-case scenario).
STEC has booked a Bt579m loss provision from this project in
2Q15, which the company believes to be large enough to cover
the total potential losses from this project. However, we believe
that further provisions might be needed.
Expect more projects to be secured in 2016Expect more projects to be secured in 2016Expect more projects to be secured in 2016Expect more projects to be secured in 2016. Based on STEC’s
history, its success ratio in winning projects is between 20%
and 25%. Assuming that the company submits bids for projects
worth Bt150bn in 2016 and achieves a 20% success ratio, the
value of projects to be awarded should be about Bt30bn, up
sharply from Bt17.5bn in 2014 and Bt21bn in 2015
Profitability
Revenue vs Backlog
Backlog breakdown by type of work
Backlog breakdown by client
Source: Company, DBS Vickers
9.3%
8.3% 8.4%
9.5%10.2%
9.4% 9.1%
4.8%
6.1%5.5%
7.3%7.8%
7.3%
6.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
2010A 2011A 2012A 2013A 2014A 2015A 1Q16
Gross margin Net margin
14,815
19,74822,242 21,552
13,825
4,472
48,935
38,381
51,08847,821
56,07352,887
0
10,000
20,000
30,000
40,000
50,000
60,000
2011A 2012A 2013A 2014A 2015A 1Q16
Btm
Revenue Ending backlog
Page 85
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Sino-Thai Engineering & Con.
Balance Sheet:
STEC has the strongest balance sheet in the sector currently,
with a net cash position of Bt0.45/sh at end-1Q16.
Share Price Drivers:
BBBBenefitenefitenefitenefiting hugelying hugelying hugelying hugely from mega infrastructure projects to be open from mega infrastructure projects to be open from mega infrastructure projects to be open from mega infrastructure projects to be open
for bidding in 2016. for bidding in 2016. for bidding in 2016. for bidding in 2016. The concrete actions on the bidding
process of the dual-track railway, motorway and Suvarnbhumi
phase II projects fuel expectations for more projects to kick off
this year. We assigned the high potential for the projects to be
open for bidding in FY16 which are (i) double-track rail;
Prachuab Khiri Khan – Chumpon and Map Kabao – Thanon
Chira routes, worth Bt49bn, (ii) MRT orange line, worth Bt83bn,
(iii) MRT pink line, worth Bt27bn, and (iv) MRT yellow line,
worth Bt32bn.
Based on STEC’s history, its success ratio in winning projects is
between 20% and 25%. Assuming that the company submits
bids for projects worth Bt150bn in 2016 and achieves a 20%
success ratio, the value of projects to be awarded should be
about Bt30bn, up sharply from Bt17.5bn in 2014 and Bt21bn in
2015.
Key Risks:
Further delays in mega infrastructure projects. Further delays in mega infrastructure projects. Further delays in mega infrastructure projects. Further delays in mega infrastructure projects. This will cap
new contract wins.
Construction delay. Construction delay. Construction delay. Construction delay. This could result in cost overruns which
could subsequently crimp profit margins.
Increase building material costIncrease building material costIncrease building material costIncrease building material cost. . . . This could lead to lower profit
margins.
Company Background
Sino-Thai Engineering and Construction Public Company Ltd. is
a construction company providing both civil and mechanical
works. Its services include infrastructure, buildings, energy and
power generation plants, industrial and environment.
Leverage & Asset Turnover (x)
Capital Expenditure
ROE (%)
Forward PE Band (x)
PB Band (x)
Source: Company, DBS Vickers
0.7
0.8
0.8
0.9
0.9
1.0
1.0
0.00
0.02
0.04
0.06
0.08
0.10
0.12
0.14
2013A 2014A 2015A 2016F 2017F
Gross Debt to Equity (LHS) Asset Turnover (RHS)
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
800.0
900.0
1,000.0
2013A 2014A 2015A 2016F 2017F
Capital Expenditure (-)
Btm
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
2013A 2014A 2015A 2016F 2017F
Avg: 22.5x
+1sd: 29.5x
+2sd: 36.5x
-1sd: 15.5x
-2sd: 8.6x7.6
12.6
17.6
22.6
27.6
32.6
37.6
Jun-12 Jun-13 Jun-14 Jun-15 Jun-16
(x)
Avg: 3.5x
+1sd: 4.16x
+2sd: 4.82x
-1sd: 2.84x
-2sd: 2.17x
1.6
2.1
2.6
3.1
3.6
4.1
4.6
5.1
5.6
6.1
Jun-12 Jun-13 Jun-14 Jun-15 Jun-16
(x)
Page 86
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Sino-Thai Engineering & Con.
Key Assumptions
FY FY FY FY DecDecDecDec 2013201320132013AAAA 2014201420142014AAAA 2015201520152015AAAA 2016201620162016FFFF 2017201720172017FFFF
Beginning backlog 39,152 51,088 47,821 50,603 61,966
New projects signed 34,178 18,285 21,020 30,000 30,000
Realized for the year 22,242 21,552 18,238 18,637 22,217
Ending backlog 51,088 47,821 50,603 61,966 69,749
Income Statement (Btm)
FY FY FY FY DecDecDecDec 2013201320132013AAAA 2014201420142014AAAA 2015201520152015AAAA 2016201620162016FFFF 2017201720172017FFFF
Revenue 22,294 21,652 18,331 18,737 22,317
Cost of Goods Sold (20,168) (19,435) (16,599) (17,116) (20,327)
Gross ProfitGross ProfitGross ProfitGross Profit 2,1262,1262,1262,126 2,2172,2172,2172,217 1,7311,7311,7311,731 1,6211,6211,6211,621 1,9901,9901,9901,990 Other Opng (Exp)/Inc (490) (529) (389) (422) (509)
Operating ProfitOperating ProfitOperating ProfitOperating Profit 1,6361,6361,6361,636 1,6881,6881,6881,688 1,3421,3421,3421,342 1,1991,1991,1991,199 1,4811,4811,4811,481 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0
Associates & JV Inc (21.5) 11.1 17.4 18.3 19.2
Net Interest (Exp)/Inc 281 220 58.8 145 145
Exceptional Gain/(Loss) 294 0.0 448 0.0 0.0
PrePrePrePre----tax Profittax Profittax Profittax Profit 2,1902,1902,1902,190 1,9191,9191,9191,919 1,8661,8661,8661,866 1,3631,3631,3631,363 1,6451,6451,6451,645 Tax (449) (389) (321) (269) (325)
Minority Interest (7.3) (9.5) (18.2) 0.0 0.0
Preference Dividend 0.0 0.0 0.0 0.0 0.0
Net ProfitNet ProfitNet ProfitNet Profit 1,7331,7331,7331,733 1,5211,5211,5211,521 1,5271,5271,5271,527 1,0941,0941,0941,094 1,3201,3201,3201,320 Net Profit before Except. 1,500 1,521 1,079 1,094 1,320
EBITDA 1,983 2,127 1,854 1,728 2,054
Growth Revenue Gth (%) 12.2 (2.9) (15.3) 2.2 19.1
EBITDA Gth (%) 22.5 7.3 (12.8) (6.8) 18.9
Opg Profit Gth (%) 34.3 3.2 (20.5) (10.7) 23.5
Net Profit Gth (Pre-ex) (%) 36.9 1.4 (29.0) 1.4 20.7
Margins & Ratio Gross Margins (%) 9.5 10.2 9.4 8.7 8.9
Opg Profit Margin (%) 7.3 7.8 7.3 6.4 6.6
Net Profit Margin (%) 7.8 7.0 8.3 5.8 5.9
ROAE (%) 25.6 19.1 17.3 11.5 13.1
ROA (%) 7.7 6.1 6.4 4.6 4.9
ROCE (%) 18.7 16.5 12.3 9.9 11.5
Div Payout Ratio (%) 44.0 50.2 35.3 50.0 50.0
Net Interest Cover (x) NM NM NM NM NM
Source: Company, DBS Vickers
Page 87
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Sino-Thai Engineering & Con.
uarterly / Interim Income Statement (Btm)
FY FY FY FY DecDecDecDec 1Q1Q1Q1Q2015201520152015 2Q2Q2Q2Q2015201520152015 3Q3Q3Q3Q2015201520152015 4Q4Q4Q4Q2015201520152015 1Q1Q1Q1Q2016201620162016
Revenue 4,221 4,993 4,690 4,427 4,486
Cost of Goods Sold (3,735) (4,520) (4,235) (4,109) (4,079)
Gross ProfitGross ProfitGross ProfitGross Profit 486486486486 473473473473 454454454454 319319319319 407407407407 Other Oper. (Exp)/Inc (109) (99.1) (144) (36.7) (100)
Operating ProfitOperating ProfitOperating ProfitOperating Profit 376376376376 373373373373 311311311311 282282282282 306306306306 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0
Associates & JV Inc 1.87 0.39 6.72 8.43 7.54
Net Interest (Exp)/Inc 23.7 15.9 14.4 4.76 10.1
Exceptional Gain/(Loss) 0.0 0.0 0.0 448 0.0
PrePrePrePre----tax Profittax Profittax Profittax Profit 402402402402 390390390390 332332332332 743743743743 324324324324 Tax (80.5) (62.3) (60.1) (119) (53.8)
Minority Interest (1.3) (1.7) (1.5) (13.7) (2.1)
Net ProfitNet ProfitNet ProfitNet Profit 320320320320 326326326326 270270270270 611611611611 268268268268 Net profit bef Except. 320 326 270 163 268
EBITDA 512 451 452 368 454
Growth Revenue Gth (%) (30.0) 18.3 (6.1) (5.6) 1.3
EBITDA Gth (%) (8.1) (12.0) 0.1 (18.6) 23.4
Opg Profit Gth (%) (15.1) (0.7) (16.8) (9.2) 8.7
Net Profit Gth (Pre-ex) (%) (13.8) 1.8 (17.1) (39.7) 64.6
Margins Gross Margins (%) 11.5 9.5 9.7 7.2 9.1
Opg Profit Margins (%) 8.9 7.5 6.6 6.4 6.8
Net Profit Margins (%) 7.6 6.5 5.8 13.8 6.0
Balance Sheet (Btm)
FY FY FY FY DecDecDecDec 2013201320132013AAAA 2014201420142014AAAA 2015201520152015AAAA 2016201620162016FFFF 2017201720172017FFFF
Net Fixed Assets 2,650 3,166 3,197 3,498 3,598
Invts in Associates & JVs 127 148 159 159 159
Other LT Assets 2,363 3,128 3,733 3,733 3,733
Cash & ST Invts 8,663 5,565 2,065 4,084 5,157
Inventory 1,118 1,187 2,300 2,371 2,824
Debtors 2,917 2,748 3,079 3,454 3,900
Other Current Assets 7,172 9,061 8,128 7,841 9,340
Total AssetsTotal AssetsTotal AssetsTotal Assets 25,01025,01025,01025,010 25,00425,00425,00425,004 22,66122,66122,66122,661 25,14225,14225,14225,142 28,71128,71128,71128,711
ST Debt 69.5 70.4 71.3 71.3 71.3
Creditor 2,966 3,727 4,023 4,148 4,940
Other Current Liab 13,659 12,129 8,554 10,508 12,513
LT Debt 0.0 0.0 0.0 0.0 0.0
Other LT Liabilities 539 528 505 505 505
Shareholder’s Equity 7,588 8,351 9,292 9,694 10,467
Minority Interests 189 198 216 216 216
Total Cap. & Liab.Total Cap. & Liab.Total Cap. & Liab.Total Cap. & Liab. 25,01025,01025,01025,010 25,00425,00425,00425,004 22,66122,66122,66122,661 25,14225,14225,14225,142 28,71128,71128,71128,711
Non-Cash Wkg. Capital (5,418) (2,860) 930 (989) (1,389)
Net Cash/(Debt) 8,594 5,495 1,993 4,013 5,086
Debtors Turn (avg days) 38.8 47.8 58.0 63.6 60.1
Creditors Turn (avg days) 54.5 62.5 85.8 87.6 81.8
Inventory Turn (avg days) 13.0 21.6 38.3 49.8 46.6
Asset Turnover (x) 1.0 0.9 0.8 0.8 0.8
Current Ratio (x) 1.2 1.2 1.2 1.2 1.2
Quick Ratio (x) 1.1 1.1 1.0 1.0 1.0
Net Debt/Equity (X) CASH CASH CASH CASH CASH
Net Debt/Equity ex MI (X) CASH CASH CASH CASH CASH
Capex to Debt (%) 1,233.5 1,341.0 736.4 1,139.1 917.9
Z-Score (X) 2.7 2.7 3.1 2.9 2.8
Source: Company, DBS Vickers
Page 88
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Sino-Thai Engineering & Con.
Cash Flow Statement (Btm)
FY FY FY FY DecDecDecDec 2013201320132013AAAA 2014201420142014AAAA 2015201520152015AAAA 2016201620162016FFFF 2017201720172017FFFF
Pre-Tax Profit 2,190 1,919 1,866 1,363 1,645
Dep. & Amort. 368 427 494 510 554
Tax Paid (412) (359) (315) (250) (306)
Assoc. & JV Inc/(loss) 21.5 (11.1) (17.4) (18.3) (19.2)
Chg in Wkg.Cap. 666 (2,558) (1,619) (264) 400
Other Operating CF (104) (822) (618) (0.7) 0.25
Net Operating CFNet Operating CFNet Operating CFNet Operating CF 2,7302,7302,7302,730 (1,404)(1,404)(1,404)(1,404) (208)(208)(208)(208) 1,3401,3401,3401,340 2,2742,2742,2742,274 Capital Exp.(net) (857) (944) (525) (812) (654)
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 0.0 0.0 0.0
Net Investing CFNet Investing CFNet Investing CFNet Investing CF (857)(857)(857)(857) (944)(944)(944)(944) (525)(525)(525)(525) (812)(812)(812)(812) (654)(654)(654)(654) Div Paid (593) (763) (763) (539) (547)
Chg in Gross Debt (108) 0.87 0.87 0.0 0.0
Capital Issues 339 0.0 0.0 0.0 0.0
Other Financing CF (37.5) 11.8 24.3 0.0 0.0
Net Financing CFNet Financing CFNet Financing CFNet Financing CF (399)(399)(399)(399) (750)(750)(750)(750) (737)(737)(737)(737) (539)(539)(539)(539) (547)(547)(547)(547)
Currency Adjustments 0.0 0.0 0.0 0.0 0.0
Chg in Cash 1,473 (3,098) (1,470) (10.7) 1,073
Opg CFPS (Bt) 1.35 0.76 0.92 1.05 1.23
Free CFPS (Bt) 1.23 (1.5) (0.5) 0.35 1.06
Source: Company, DBS Vickers
Target Price & Ratings History
Source: DBS Vickers
ScoreScoreScoreScore Range Number of LogoRange Number of LogoRange Number of LogoRange Number of Logo DescriptionDescriptionDescriptionDescription
90-100 Excellent
80-89 Very Good
70-79 Good
60-69 Satisfactory
50-59 Pass
<50 No logo given N/A
S.No.S.No.S.No.S.No. DateDateDateDateClosing Closing Closing Closing
PricePricePricePrice
Target Target Target Target
PricePricePricePriceRat ing Rat ing Rat ing Rat ing
1: 11 Aug 15 22.20 22.00 HOLD
2: 16 Sep 15 25.25 30.00 BUY
3: 02 Nov 15 25.00 30.00 BUY
4: 12 Nov 15 24.90 30.00 BUY
5: 20 Nov 15 25.00 30.00 BUY
6: 25 Jan 16 22.30 30.00 BUY
7: 19 Feb 16 19.60 22.00 BUY
8: 29 Mar 16 21.60 22.00 BUY
9: 16 May 16 21.80 22.00 BUY
Note Note Note Note : Share price and Target price are adjusted for corporate actions.
1
2
3
4
5
6
7
8
9
16.62
18.62
20.62
22.62
24.62
26.62
Jun-15 Oct-15 Feb-16 Jun-16
BtBtBtBt
Page 89
ASIAN INSIGHTS VICKERS SECURITIES
ed: CK / sa:BC
BUYBUYBUYBUYLast Traded Price: Last Traded Price: Last Traded Price: Last Traded Price: RM1.65 (KLCIKLCIKLCIKLCI : : : : 1,648.98) Price TargetPrice TargetPrice TargetPrice Target:::: RM1.92 (17% upside) Potential Catalyst: Potential Catalyst: Potential Catalyst: Potential Catalyst: Good proxy to 11MP infra projects, higly profitable precast segment. Where we differ:Where we differ:Where we differ:Where we differ: While our earnings forecasts are broadly in-line, we are more bullish in terms of TP. We believe SCG will rerate with stronger earnings deliverance and contract wins.
Analyst Chong Tjen-San +60 3 26043972 tjensan@alliancedbs.com
What’s New • Executing on peak orderbook of RM5bn
• Strong YTD wins and looking to exceed RM2.5bn
forecast, ample capacity for new orders.
• Potential writebacks may lift earnings
Price Relative
Forecasts and Valuation FY FY FY FY DecDecDecDec ((((RMRMRMRM m) m) m) m) 2014201420142014AAAA 2015201520152015AAAA 2016201620162016FFFF 2017201720172017FFFF
Revenue 1,881 1,917 1,989 2,150 EBITDA 162 178 221 243 Pre-tax Profit 141 141 178 201 Net Profit 114 127 143 161 Net Pft (Pre Ex.) 125 127 143 161 Net Pft Gth (Pre-ex) (%) 86.5 1.9 12.1 12.9 EPS (sen) 8.83 9.84 11.0 12.4 EPS Pre Ex. (sen) 9.65 9.84 11.0 12.4 EPS Gth Pre Ex (%) 87 2 12 13 Diluted EPS (sen) 8.83 9.84 11.0 12.4 Net DPS (sen) 0.0 4.00 4.08 4.60 BV Per Share (sen) 24.4 34.9 41.8 49.7 PE (X) 18.7 16.8 15.0 13.3 PE Pre Ex. (X) 17.1 16.8 15.0 13.3 P/Cash Flow (X) 11.6 9.0 12.3 10.6 EV/EBITDA (X) 12.6 10.1 7.8 6.6 Net Div Yield (%) 0.0 2.4 2.5 2.8 P/Book Value (X) 6.8 4.7 3.9 3.3 Net Debt/Equity (X) CASH CASH CASH CASH ROAE (%) 24.6 33.2 28.7 27.2
Earnings Rev (%):Earnings Rev (%):Earnings Rev (%):Earnings Rev (%): 0 0 0 Consensus EPS Consensus EPS Consensus EPS Consensus EPS (sensensensen):::: 10.0 10.7 11.9 Other Broker Recs:Other Broker Recs:Other Broker Recs:Other Broker Recs: B: 8 S: 0 H: 3
Source of all data: Company, AllianceDBS Research, Bloomberg Finance L.P
Strong and dependable Malaysia’s leading pure construction player.Malaysia’s leading pure construction player.Malaysia’s leading pure construction player.Malaysia’s leading pure construction player. Sunway Construction Group (SCG) is the largest listed pure play construction player in Malaysia. Given its strong track record with MRT, LRT and BRT jobs previously, we are of the view that SCG is on a strong footing to bag several key infrastructure packages such as LRT3 and BRT as well as other major highway projects like SUKE, DUKE and Pan-Borneo Highway. SCG has also established itself as the only construction specialist to be involved in all three Rapid Line infra projects (MRT, LRT and BRT). This makes the group one of the strongest contenders to win the pipeline of 11MP projects.
Riding on Singapore’s public housing development. Riding on Singapore’s public housing development. Riding on Singapore’s public housing development. Riding on Singapore’s public housing development. Its precast division is a strong proxy to the growing demand for HDB residences in Singapore where the government is targeting to build an additional 88,000 units of public housing in FY16-FY19. With premium EBIT margins recorded over the past few years, the business is ROE-enhancing and also synergistic to its construction business. The completion of its 3rd precast plant in Iskandar should give it ample capacity to cater for more orders while also compensating for the eventual return of the Tampines plant.
Still bidding for more jobs and looking to exceed RM2.5bn Still bidding for more jobs and looking to exceed RM2.5bn Still bidding for more jobs and looking to exceed RM2.5bn Still bidding for more jobs and looking to exceed RM2.5bn forecast. forecast. forecast. forecast. Not one to rest on its laurels, SCG will be bidding for LRT 3 (already prequalified), DASH and SUKE, Pan Borneo Highway and the internal projects from the property arm of its holding company. Its total tenderbook now stands at RM18bn. Assuming SCG were to win one package for LRT, one for either DASH and SUKE and also Pan Borneo Highway, it is likely to beat its 2013 new order wins of RM2.9bn, inclusive of precast.
Valuation: BUY, TP set at RM 1.92. BUY, TP set at RM 1.92. BUY, TP set at RM 1.92. BUY, TP set at RM 1.92. Our TP is based on sum-of-parts (SOP) valuation to reflect the growing contribution from its high-margin precast business. While our SOP value is RM2.77bn or RM2.14/share, we have ascribed a 10% discount to arrive at our target price of RM1.92.
Key Risks to Our View: The timely execution of its peak orderbook of RM5bn is crucial to minimise any earnings cuts. With its strong execution track record and experience, we believe the group is able to execute the projects in a timely manner. At A Glance Issued Capital (m shrs) 1,293
Mkt. Cap (RMm/US$m) 2,133 / 531
Major Shareholders (%)
Sunway Berhad 55.6
Tan Sri Jeffrey Cheah & Family 7.6
Free Float (%) 37.9
3m Avg. Daily Val (US$m) 1.5
ICB IndustryICB IndustryICB IndustryICB Industry : Industrials / Construction & Materials
DBS Group Research . Equity 13 May 2016
Malaysia Company Guide
Sunway Construction Group Version 1 | Bloomberg: SCGB MK | Reuters: SCOG.KL Refer to important disclosures at the end of this report
83
103
123
143
163
183
203
0.9
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
Jul-15 Oct-15 Jan-16 Apr-16
Relative IndexRM
Sunway Construction Group (LHS) Relative KLCI INDEX (RHS)
Page 90
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Sunway Construction Group
WHAT’S NEW
Looking to exceed expectations
We hosted SCG on a one and a half day non-deal roadshow
(NDR) in Hong Kong which attracted a strong response.
Below are some of the key takeaways:
Executing on peak orderbook.Executing on peak orderbook.Executing on peak orderbook.Executing on peak orderbook. SCG's orderbook now stands
at RM5bn which is at its peak. This will give it two and a half
years’ earnings visibility. The largest projects are Putrajaya
Parcel F and MRT Line 2, V201 package which forms 53% of
this. More importantly, we think pretax margins for these two
key projects will also be at least 7-8%. Recall that 2015
pretax margin was low at 3.6% due to MRT Line 1 and KLCC
project (NEC and Package 2 and 2A) where certain losses and
provisions were fully provided for. For its KLCC project, the
project ran into unfavourable soil conditions and was also
impacted by a stop work order due to the client changing the
tower footprint. We understand 1Q16 construction margins
will show significant improvement on a y-o-y basis.
For the Putrajaya Parcel F, SCG has already locked in 50% of
the steel requirements at an average price of roughly
RM1,800 to RM2,000/tonne. This is a design and build
project where it was also a criteria to be VDC-enabled,
implying there is room to achieve higher margins. Also as a
mitigating factor, SCG is looking to import more steel billets
from China to be used at the local steel manufacturer's plant.
For MRT Line 2, V201 package, pricing is 30% higher on a
per km basis as compared to its V4 package for MRT Line 1,
while all raw material requirements are borne by the
government. Works are anticipated to start in June/July.
Total Outstanding Orderbook (RMm)
Still bidding for more jobs and looking to exceed RM2.5bn Still bidding for more jobs and looking to exceed RM2.5bn Still bidding for more jobs and looking to exceed RM2.5bn Still bidding for more jobs and looking to exceed RM2.5bn
forecast.forecast.forecast.forecast. Not one to rest on its laurels, SCG will be bidding
for LRT 3 (already prequalified), DASH and SUKE, Pan Borneo
Highway and the internal projects from the property arm of
its holding company. Its total tenderbook now stands at
RM18bn. Assuming SCG were to win one package for LRT 3,
one for either DASH and SUKE and also Pan Borneo Highway,
it is likely to beat its 2013 new order wins of RM2.9bn,
inclusive of precast.
SCG has prior experience for the LRT Package B (Kelana Jaya
extension) which was completed in 2015 while the nature of
DASH and SUKE which is largely elevated work will give it an
edge over its competitors. We also like SCG's chances for Pan
Borneo Highway given it has submitted four tenders out of
eight, with all tenders closing by end of May. Additionally, its
partner, KTS Group has strong local connections in terms of
the supply chain procurement of raw materials, coupled with
the fact that it also owns a quarry.
Strong YTD winsStrong YTD winsStrong YTD winsStrong YTD wins. So far, YTD wins including precast amount
to RM2.0bn. We have modelled in RM2.5bn worth of new
orders for FY16F, inclusive of precast. We estimate for every
RM250m worth of new orders will raise our FY16F net profit
by 1.4%.
Ample capacity to take on new orders.Ample capacity to take on new orders.Ample capacity to take on new orders.Ample capacity to take on new orders. In spite of its peak
orderbook of RM5bn, SCG believes it will take on more jobs
with the existing machinery and 800 foreign workers it has
directly under its payroll. Moreover, its larger projects such as
MRT Line 2 and Putrajaya Parcel F stretches for another 4-5
years. SCG has one of the largest machinery arrays that
include 27 boring rigs, 18 tower cranes, 11 crawler cranes
and 23 hydraulic excavators. Also, in the past it has done
work for MRT, LRT and BRT concurrently. In the more
extreme circumstance, SCG can also outsource more work to
release capacity.
Total YTD wins and potential new wins
Contract s umContract s umContract s umContract s um
Outs tanding Outs tanding Outs tanding Outs tanding
order bookorder bookorder bookorder book
Infras tructureInfras tructureInfras tructureInfras tructure
MRT Package V4 (Sec 17 to Semantan) 1,173 43
MRT Package V201 (Sungai Buloh- Persiaran Dagang) 1,213 1,213
JohorJohorJohorJohor
Coastal Highway Southern Link 170 66
BuildingBuildingBuildingBuilding
Putrajaya Parcel F 1,610 1,450
KLCC (NEC + Package 2 & 2a 646 414
Others 92 33
Interna lInterna lInterna lInterna l
Sunway Velocity 2 Mall + Link Bridge 370 92
Sunway Velocity Hotel + Office 93 69
Sunway Velocity Medical Centre 200 159
Sunway Geo Retail Shops & Flexi Suites 153 59
Sunway Medical Centre 3 (Sub & Superstructures) 167 96
Sunway Medical Centre 4 (2 towers) 380 380
Sunway Iskandar - Citrine Swc Apt 213 106
Sunway Geo Retail Shops & Flexi Suites Phase 2 244 207
Sunway Lenang Phase 1A 96 30
Sunway Iskandar- Emerald Residences 175 133
Others 124 51
Singapore
Precast 844 416
Grand Tota lGrand Tota lGrand Tota lGrand Tota l 7,9617,9617,9617,961 5,0165,0165,0165,016
ProjectsProjectsProjectsProjects Contract Sum (RMm)Contract Sum (RMm)Contract Sum (RMm)Contract Sum (RMm)
Civil, Infrastructure & Building
MRT Package V201 ( Sungai Buloh- Persiaran Dagang) 1213
Velocity Link Bridge 20
MRT Spurline (piling) 12
Casa Kiara 3 (piling) 19
SMC4 & 5 380
Sunway Velocity Medical Centre 200
Sunway Velocity Hotel + Office 93
Precast 53
Grand total of YTD wins 1995
Potential new wins
LRT3 600
DASH or SUKE 600
Pan Borneo (30% of RM1.5bn) 450
Precast 250
Grand total of potential new wins 1900
Page 91
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Sunway Construction Group
Total Yearly New Order wins
Potential writebacks?Potential writebacks?Potential writebacks?Potential writebacks? There could be one-off writebacks from
certain projects but the timing remains uncertain. Of
significance are its toll road projects in India with up to
RM40m of potential writebacks and VOs for MRT Line 1. For
MRT Line 1 V4 package, the PDP has only certified RM770m
out of the RM1.173bn total contract value. This implies that
there is ample budget to pay at least part of this balance
RM440m. We understand part of this difference includes
largely changing terrain conditions and prolongation costs.
The Indian toll road writebacks could be by this year as we
understand the courts have ruled in the favour of SCG at
every jurisdiction level. This is part of the ongoing arbitration
process with the National Highway Authority of India.
Precast.Precast.Precast.Precast. SCG is guiding for S$100m (c.RM300m) worth of
new orders for FY16F which will continue to be buoyed by
the housing market (80% in HDB) in Singapore. YTD wins
amount to RM58m. It is confident of remaining as the top 3
precast supplier for HDB in Singapore.
We understand 50% of the steel requirements for the HDB
construction can be passed on to the main contractor. Pretax
margins will normalise to between 20% and 25% in FY16F vs
39% in FY14 and 31% in FY15. The higher margins in FY14-
FY15 were due to the finalisation of accounts which typically
is a 1-2 year process. When the accounts are certified, the
additional revenue will flow straight to its bottomline.
Strong balance sheetStrong balance sheetStrong balance sheetStrong balance sheet. SCG is in a net cash position of
RM332m as at end-2015 which will give it the flexibility to
raise its dividend payout from the current 35% policy and
also give it the opportunity to take on PFI and bullet payment-
type projects or even explore overseas projects. This is a rarity
among the listed contractors where most are in a net debt
position. SCG has done works in the Middle East, Trinidad
and Tobago and India before.
1900
2900
800
2600
0
500
1000
1500
2000
2500
3000
3500
FY12 FY13 FY14 FY15
RMmRMmRMmRMmRMmRMmRMmRMmRMmRMmRMmRMmRMmRMmRMmRMm
Page 92
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Sunway Construction Group
CRITICAL DATA POINTS TO WATCH
Earnings Drivers:
Sweet spot ahead. Sweet spot ahead. Sweet spot ahead. Sweet spot ahead. We think SCG’s construction segment is
entering a ‘sweet spot’ on the back of the expected upturn in
Malaysia’s construction industry. Given its notable brand name
and strong execution track record, we believe the group is one
of the strongest contenders to bag several key projects under
the Eleventh Malaysia Plan (11MP). We are of the view that SCG
is on a strong footing to bag several key infrastructure packages
such as LRT3 and BRT as well as other major highway projects
like SUKE, DUKE and Pan-Borneo Highway.
Stronger infrastructure orderbook.Stronger infrastructure orderbook.Stronger infrastructure orderbook.Stronger infrastructure orderbook. With MRT2 viaduct package
(V201) being the major infra win in 2016 so far, we estimate
its construction orderbook now stands at RM5.0bn. We think
SCG has gotten off to a strong start with construction YTD
wins of RM1.9bn. This means that SCG will only need to clinch
another c.RM300m worth of contracts to meet our FY16F new
wins assumptions for construction, as we have assumed a total
of RM2.2bn new orders for this division.
Highly profitable precast segment. Highly profitable precast segment. Highly profitable precast segment. Highly profitable precast segment. SCG’s precast segment
should be sturdy in contributing a larger share of earnings to
the group. SCG’s precast division made up 13-16% of revenue
in FY12-FY15. It was the largest earnings contributor in FY15,
accounting for 57% of the group’s overall EBIT. The group
believes the normalised margin lies in the 20-25% range. This is
supported by sustainable orders from the Singapore market.
Assuming that it will retain the 3rd precast plant this year, its
total annual production capacity in 2016 is estimated to rise to
251,000 m³. The continuous expansion of its plants enables the
group to have ample capacity to cater for more orders from the
Singapore market, as the group plans to return the Tampines
plant by year 2017.
Potential next win Potential next win Potential next win Potential next win –––– Pan Borneo Highway. Pan Borneo Highway. Pan Borneo Highway. Pan Borneo Highway. SCG has partnered
with a local private company in Sarawak, KTS Holdings Sdn Bhd.
For this project, it is understood that the share of the JV must
be 70:30 with local Sarawak contractor holding the majority
stake. It is estimated that total cost for the Pan Borneo Highway
Sarawak project amounted to RM16.1bn, with each package
worth around RM1-1.5bn. Hence, we expect SCG to win at
least another RM450m, based on 30% share of the RM1.5bn
package.
New order wins
Construction revenue
Precast revenue
Construction EBIT margins
Precast EBIT margins
Source: Company, AllianceDBS Research
2,900
800
2,6002,500
2,300
0
400
800
1,200
1,600
2,000
2,400
2,800
2013A 2014A 2015A 2016F 2017F
1,9552,032
1,664 1,6891,830
0
400
800
1,200
1,600
2,000
2013A 2014A 2015A 2016F 2017F
252
301
253
300320
0
65
130
196
261
326
2013A 2014A 2015A 2016F 2017F
3.56
6.97.39
0.00
0.93
1.87
2.80
3.73
4.67
5.60
6.53
7.47
2015A 2016F 2017F
30.5
21 21
0.0
6.2
12.3
18.5
24.6
30.8
2015A 2016F 2017F
Page 93
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Sunway Construction Group
Balance Sheet:
Strong balance sheet and cash generation ability.Strong balance sheet and cash generation ability.Strong balance sheet and cash generation ability.Strong balance sheet and cash generation ability. As at 31 Dec
2015, the company has a net cash position of RM332m, with
no long-term borrowings and minimal working capital
requirements going forward. We estimate the group will retain
its strong balance sheet with next cash position of RM417m and
RM527m for FY16-FY17F. Meanwhile, its ROAE is expected to
hover around the 27-29%.
Share Price Drivers:
Executing on peak orderbook.Executing on peak orderbook.Executing on peak orderbook.Executing on peak orderbook. Suncon's orderbook now stands
at RM5bn which is at its peak. This will give it two and a half
years’ visibility. The largest projects are Putrajaya Parcel F and
MRT Line 2, V201 package which forms 53% of this. More
importantly, we think pretax margins for these two key projects
will also be at least 7-8%. Recall that 2015 pretax margin was
low at 3.6% due to MRT Line 1 and KLCC project (NEC and
Package 2 and 2A) where certain losses and provisions were
fully provided for.
Dividend payout policy of at least 35%. Dividend payout policy of at least 35%. Dividend payout policy of at least 35%. Dividend payout policy of at least 35%. SCG is committed to
distribute minimum 35% of its core profit to shareholders,
which is rare among construction players. This could be
attributable to its sizeable operations with a large asset base
that requires little capex spending going forward. We have
imputed a 37% dividend payout ratio, based on our strong net
cash forecasts. This translates into decent yields of c.3%
Key Risks:
Delays in construction. Delays in construction. Delays in construction. Delays in construction. There may be project cost overruns due
to several factors such as design and engineering issues and
soil conditions.
Fluctuations Fluctuations Fluctuations Fluctuations ofofofof prices of raw materials. prices of raw materials. prices of raw materials. prices of raw materials. The construction
business typically requires a wide range of raw materials
including steel bars, ready mixed concrete, diesel, electrical
cables and fittings, which are all subject to price fluctuations.
Company Background
An established player with >30 years of heritage, Sunway
Construction Group (SCG) is one of Malaysia’s largest
construction companies. It adopts an integrated business
model that covers various phases of construction activities,
from project design to completion.
Leverage & Asset Turnover (x)
Capital Expenditure
ROE (%)
Forward PE Band (x)
PB Band (x)
Source: Company, AllianceDBS Research
1.2
1.3
1.3
1.4
1.4
0.00
0.10
0.20
0.30
0.40
0.50
2014A 2015A 2016F 2017F
Gross Debt to Equity (LHS) Asset Turnover (RHS)
0.0
10.0
20.0
30.0
40.0
50.0
60.0
2013A 2014A 2015A 2016F 2017F
Capital Expenditure (-)
RMm
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
2014A 2015A 2016F 2017F
Avg: 12.3x
+1sd: 13.5x
+2sd: 14.6x
-1sd: 11.1x
-2sd: 9.9x
8.6
9.6
10.6
11.6
12.6
13.6
14.6
15.6
Jul-15 Oct-15 Jan-16 Apr-16
(x)
Avg: 3.94x
+1sd: 4.21x
+2sd: 4.48x
-1sd: 3.66x
-2sd: 3.39x
2.9
3.4
3.9
4.4
4.9
Jul-15 Oct-15 Jan-16 Apr-16
(x)
Page 94
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Sunway Construction Group
Key Assumptions
FY FY FY FY DecDecDecDec 2013201320132013AAAA 2014201420142014AAAA 2015201520152015AAAA 2016201620162016FFFF 2017201720172017FFFF
New order wins 2,900 800 2,600 2,500 2,300
Construction revenue 1,955 2,032 1,664 1,689 1,830
Precast revenue 253 300 320
Construction EBIT margins 3.56 6.90 7.39
Segmental Breakdown
FY FY FY FY DecDecDecDec 2013201320132013AAAA 2014201420142014AAAA 2015201520152015AAAA 2016201620162016FFFF 2017201720172017FFFF
Revenues (RMm) Construction 1,955 2,032 1,664 1,689 1,830
Precast Concrete 252 301 253 300 320
Consolidated Adjustments (368) (452) 0.0 0.0 0.0
TotalTotalTotalTotal 1,8401,8401,8401,840 1,8811,8811,8811,881 1,9171,9171,9171,917 1,9891,9891,9891,989 2,1502,1502,1502,150
EBIT (RMm) Construction 59.2 117 135
Precast Concrete 77.1 62.9 67.2
TotalTotalTotalTotal 42.442.442.442.4 120120120120 136136136136 180180180180 203203203203
EBIT Margins (%) Construction N/A N/A 3.6 6.9 7.4
Precast Concrete N/A N/A 30.5 21.0 21.0
TotalTotalTotalTotal 2.32.32.32.3 6.46.46.46.4 7.17.17.17.1 9.09.09.09.0 9.49.49.49.4
Income Statement (RMm)
FY FY FY FY DecDecDecDec 2013201320132013AAAA 2014201420142014AAAA 2015201520152015AAAA 2016201620162016FFFF 2017201720172017FFFF
Revenue 1,840 1,881 1,917 1,989 2,150
Cost of Goods Sold (1,502) (1,485) (1,514) (1,529) (1,666)
Gross ProfitGross ProfitGross ProfitGross Profit 338338338338 395395395395 403403403403 460460460460 484484484484 Other Opng (Exp)/Inc (296) (275) (267) (280) (281)
Operating ProfitOperating ProfitOperating ProfitOperating Profit 42.442.442.442.4 120120120120 136136136136 180180180180 203203203203 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0
Associates & JV Inc 45.4 30.4 (0.1) 0.0 0.0
Net Interest (Exp)/Inc 2.07 0.72 4.54 (1.4) (1.4)
Exceptional Gain/(Loss) 27.6 (10.6) 0.0 0.0 0.0
PrePrePrePre----tax Profittax Profittax Profittax Profit 117117117117 141141141141 141141141141 178178178178 201201201201 Tax (23.7) (26.5) (13.0) (35.6) (40.2)
Minority Interest 0.85 0.05 (0.6) 0.0 0.0
Preference Dividend 0.0 0.0 0.0 0.0 0.0
Net ProfitNet ProfitNet ProfitNet Profit 94.594.594.594.5 114114114114 127127127127 143143143143 161161161161 Net Profit before Except. 66.9 125 127 143 161
EBITDA 85.2 162 178 221 243
Growth Revenue Gth (%) N/A 2.2 1.9 3.7 8.1
EBITDA Gth (%) nm 90.0 10.1 24.0 9.8
Opg Profit Gth (%) nm 183.7 13.4 31.7 12.8
Net Profit Gth (Pre-ex) (%) nm 86.5 1.9 12.1 12.9
Margins & Ratio Gross Margins (%) 18.4 21.0 21.0 23.1 22.5
Opg Profit Margin (%) 2.3 6.4 7.1 9.0 9.4
Net Profit Margin (%) 5.1 6.1 6.6 7.2 7.5
ROAE (%) N/A 24.6 33.2 28.7 27.2
ROA (%) N/A 8.5 9.2 9.0 9.3
ROCE (%) N/A 21.8 25.3 22.1 21.7
Div Payout Ratio (%) 0.0 0.0 40.7 37.0 37.0
Net Interest Cover (x) NM NM NM 130.7 143.3
Source: Company, AllianceDBS Research
RM2.3bn new wins in 2017 (RM2bn construction RM300m precast)
Precast margins to normalise towards 20% range
Page 95
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Sunway Construction Group
Quarterly / Interim Income Statement (RMm)
FY FY FY FY DecDecDecDec 1Q1Q1Q1Q2015201520152015 2Q2Q2Q2Q2015201520152015 3Q3Q3Q3Q2015201520152015 4Q4Q4Q4Q2015201520152015
Revenue 496 500 450 470
Cost of Goods Sold 0.0 0.0 0.0 0.0
Gross ProfitGross ProfitGross ProfitGross Profit 496496496496 500500500500 450450450450 470470470470 Other Oper. (Exp)/Inc (457) (459) (422) (443)
Operating ProfitOperating ProfitOperating ProfitOperating Profit 39.239.239.239.2 41.341.341.341.3 28.228.228.228.2 27.627.627.627.6 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0
Associates & JV Inc 0.0 0.0 0.0 0.0
Net Interest (Exp)/Inc 0.44 0.37 1.90 1.84
Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0
PrePrePrePre----tax Profittax Profittax Profittax Profit 39.639.639.639.6 41.741.741.741.7 30.130.130.130.1 29.429.429.429.4 Tax (5.2) (3.8) (5.0) 0.97
Minority Interest 0.0 0.0 0.46 (1.0)
Net ProfitNet ProfitNet ProfitNet Profit 34.434.434.434.4 37.837.837.837.8 25.725.725.725.7 29.429.429.429.4 Net profit bef Except. 34.4 37.8 25.7 29.4
EBITDA 39.2 41.3 28.2 27.6
Growth Revenue Gth (%) N/A 0.8 (10.0) 4.4
EBITDA Gth (%) nm 5.4 (31.6) (2.4)
Opg Profit Gth (%) nm 5.4 (31.6) (2.4)
Net Profit Gth (Pre-ex) (%) nm 10.0 (32.1) 14.4
Margins Gross Margins (%) 100.0 100.0 100.0 100.0
Opg Profit Margins (%) 7.9 8.3 6.3 5.9
Net Profit Margins (%) 6.9 7.6 5.7 6.2
Balance Sheet (RMm)
FY FY FY FY DecDecDecDec 2013201320132013AAAA 2014201420142014AAAA 2015201520152015AAAA 2016201620162016FFFF 2017201720172017FFFF
Net Fixed Assets 206 179 163 156 151
Invts in Associates & JVs 22.1 24.2 0.0 0.0 0.0
Other LT Assets 5.77 10.8 17.4 17.4 17.4
Cash & ST Invts 157 222 468 555 662
Inventory 25.5 20.2 17.3 19.8 21.4
Debtors 1,020 790 835 872 943
Other Current Assets 4.95 8.52 14.4 14.4 14.4
Total AssetsTotal AssetsTotal AssetsTotal Assets 1,4421,4421,4421,442 1,2541,2541,2541,254 1,5151,5151,5151,515 1,6341,6341,6341,634 1,8091,8091,8091,809
ST Debt 75.1 135 137 138 139
Creditor 731 791 913 942 1,014
Other Current Liab 9.42 13.2 9.26 9.26 9.26
LT Debt 15.4 0.07 0.0 0.0 0.0
Other LT Liabilities 1.57 4.29 4.10 4.10 4.10
Shareholder’s Equity 614 315 451 541 642
Minority Interests (4.5) (5.2) 0.63 0.63 0.63
Total Cap. & Liab.Total Cap. & Liab.Total Cap. & Liab.Total Cap. & Liab. 1,4421,4421,4421,442 1,2541,2541,2541,254 1,5151,5151,5151,515 1,6341,6341,6341,634 1,8091,8091,8091,809
Non-Cash Wkg. Capital 311 14.1 (56.1) (45.1) (44.9)
Net Cash/(Debt) 66.1 86.4 332 417 523
Debtors Turn (avg days) N/A 175.7 154.7 156.6 154.0
Creditors Turn (avg days) N/A 192.4 211.3 227.6 219.5
Inventory Turn (avg days) N/A 5.8 4.6 4.6 4.6
Asset Turnover (x) NM 1.4 1.4 1.3 1.2
Current Ratio (x) 1.5 1.1 1.3 1.3 1.4
Quick Ratio (x) 1.4 1.1 1.2 1.3 1.4
Net Debt/Equity (X) CASH CASH CASH CASH CASH
Net Debt/Equity ex MI (X) CASH CASH CASH CASH CASH
Capex to Debt (%) 54.6 33.8 18.8 25.4 25.2
Z-Score (X) NA NA NA NA NA
Source: Company, AllianceDBS Research
Strong balance sheet and net cash position
Mainly due to higher margins contributed by precast segment
Page 96
ASIAN INSIGHTS VICKERS SECURITIES
Page 8
Company Guide
Sunway Construction Group
Cash Flow Statement (RMm)
FY FY FY FY DecDecDecDec 2013201320132013AAAA 2014201420142014AAAA 2015201520152015AAAA 2016201620162016FFFF 2017201720172017FFFF
Pre-Tax Profit 89.8 151 141 178 201
Dep. & Amort. 42.8 41.6 41.9 41.5 40.1
Tax Paid (23.7) (26.5) (13.0) (35.6) (40.2)
Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0
Chg in Wkg.Cap. (66.8) 297 79.9 (11.0) (0.2)
Other Operating CF 41.0 (279) (13.6) 0.0 0.0
Net Operating CFNet Operating CFNet Operating CFNet Operating CF 83.183.183.183.1 184184184184 236236236236 173173173173 201201201201 Capital Exp.(net) (49.4) (45.7) (25.7) (35.0) (35.0)
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 (19.7) 395 (38.8) 0.0 0.0
Net Investing CFNet Investing CFNet Investing CFNet Investing CF (69.2)(69.2)(69.2)(69.2) 349349349349 (64.5)(64.5)(64.5)(64.5) (35.0)(35.0)(35.0)(35.0) (35.0)(35.0)(35.0)(35.0) Div Paid (19.5) (429) (70.0) (52.7) (59.5)
Chg in Gross Debt 29.2 46.5 1.64 1.00 1.00
Capital Issues 0.0 0.0 0.0 0.0 0.0
Other Financing CF (21.9) (85.5) 65.7 0.0 0.0
Net Financing CFNet Financing CFNet Financing CFNet Financing CF (12.2)(12.2)(12.2)(12.2) (468)(468)(468)(468) (2.6)(2.6)(2.6)(2.6) (51.7)(51.7)(51.7)(51.7) (58.5)(58.5)(58.5)(58.5)
Currency Adjustments 0.0 0.0 0.0 0.0 0.0
Chg in Cash 1.76 65.5 169 86.3 107
Opg CFPS (sen) 11.6 (8.7) 12.1 14.2 15.5
Free CFPS (sen) 2.61 10.7 16.3 10.7 12.8
Source: Company, AllianceDBS Research
Target Price & Ratings History
Source: AllianceDBS Research
S.No.S.No.S.No.S.No. DateDateDateDateClosing Closing Closing Closing
PricePricePricePrice
Target Target Target Target
PricePricePricePriceRat ing Rat ing Rat ing Rat ing
1: 28 Mar 16 1.67 1.92 BUY
2: 29 Mar 16 1.67 1.92 BUY
Note Note Note Note : Share price and Target price are adjusted for corporate actions.
1
2
0.96
1.06
1.16
1.26
1.36
1.46
1.56
1.66
1.76
Jul-15 Nov-15 Mar-16
RMRMRMRM
Capex capped at RM40m going forward.
Page 97
ASIAN INSIGHTS VICKERS SECURITIES ed: JS / sa:MA
HOLD (Downgrade from BUY)
Last Traded Price: Rp2,540 (JCI : 4,980.11) Price Target : Rp2,700 (6% upside)
Potential Catalyst: Toll road divestment plan materialises Where we differ: Broadly in line with consensus Analyst Chong Tjen-San +60 3 26043972 tjensan@alliancedbs.com Tiesha Putri +6221 30034931 tiesha.narandha@id.dbsvickers.com
What’s New Downgrade to HOLD; recent rally leaves limited upside
potential
Toll road divestment plan will be a key catalyst
Price Relative
Forecasts and Valuation FY Dec (Rp m) 2015A 2016F 2017F 2018F Revenue 14,153 23,995 29,040 30,487 EBITDA 1,715 2,437 3,029 3,312 Pre-tax Profit 1,398 2,020 2,167 2,259 Net Profit 1,048 1,499 1,548 1,623 Net Pft (Pre Ex.) 955 1,499 1,548 1,623 Net Pft Gth (Pre-ex) (%) 90.4 57.0 3.3 4.8 EPS (Rp) 78.2 112 116 121 EPS Pre Ex. (Rp) 71.3 112 116 121 EPS Gth Pre Ex (%) 37 57 3 5 Diluted EPS (Rp) 78.2 112 116 121 Net DPS (Rp) 15.6 22.4 23.1 24.2 BV Per Share (Rp) 713 809 902 1,000 PE (X) 32.5 22.7 22.0 21.0 PE Pre Ex. (X) 35.6 22.7 22.0 21.0 P/Cash Flow (X) 37.1 1099.9 70.7 24.4 EV/EBITDA (X) 21.4 17.5 14.3 13.0 Net Div Yield (%) 0.6 0.9 0.9 1.0 P/Book Value (X) 3.6 3.1 2.8 2.5 Net Debt/Equity (X) 0.3 0.8 0.7 0.6 ROAE (%) 17.0 14.7 13.5 12.7 Earnings Rev (%): 0 9 0 Consensus EPS (Rp): 104 130 174 Other Broker Recs: B: 19 S: 1 H: 5
Source of all data: Company, AllianceDBS Research, DBS Vickers, Bloomberg Finance L.P
Downgrade to Hold on limited upside Downgrade to HOLD; recent rally leaves limited upside potential. We downgraded Waskita Karya (WSKT) to HOLD as there is limited upside potential to the share price after a very strong rally in the past few months. The share price has notched up return of 50% year-to-date (YTD), outperforming the sector and the broader market, driven by consensus’ earnings upgrade (+37% in the past six months). Currently, consensus’ FY16 earnings forecast is on par with management’s guidance of Rp1.5tr (implying 43% y-o-y earnings growth in FY16). We think the current share price has priced in the positives. Toll road divestment plan would be key catalyst to watch. With 15 toll roads in the portfolio to be delivered in 2016-2018, we flag the risk of an overstretched balance sheet in the future. The company is planning for another capital injection exercise from the government in 2017. It is also considering divesting some toll roads to strategic investors. Given the high funding needs, we will closely monitor the progress of these plans. 4M16 new contracts made up 17% of management’s full-year target. WSKT has signed Rp6.7tr worth of new contracts in the first four months of this year, representing an 81% increase y-o-y. Note that the company has changed its disclosure policy to only release new contract achievements on a quarterly basis going forward. While its order book replenishment has not been the strongest among peers YTD, WSKT has plenty of contracts that are strongly slated to be awarded to it this year, coming from its in-house toll roads and Palembang LRT (making up 67% of target for new contracts for FY16).
Valuation:
We valued WSKT’s construction business at 22x FY16F PE. As for the toll roads, we valued the three toll roads that will be operational in 2017 using the DCF method. Our sum-of-the-parts TP of Rp2,700 implies 24x FY16F PE.
Key Risks to Our View:
Delay in project execution. Delay in project execution could lead to lower earnings and trigger negative sentiment towards Indonesia's construction sector.
At A Glance
Issued Capital (m shrs) 13,573 Mkt. Cap (Rpbn/US$m) 34,476 / 2,626 Major Shareholders (%) Republic of Indonesia 68.0
Free Float (%) 32.03m Avg. Daily Val (US$m) 8.6 ICB Industry : Industrials / Construction & Materials
DBS Group Research . Equity 30 Jun 2016
Indonesia Company Guide
Waskita Karya Version 4 | Bloomberg: WSKT IJ | Reuters: WSKT.JK Refer to important disclosures at the end of this report
89
189
289
389
489
589
689
333.4
833.4
1,333.4
1,833.4
2,333.4
2,833.4
Dec-12 Jan-14 Jan-15 Jan-16
Relative IndexRp
Waskita Karya (LHS) Relative JCI INDEX (RHS)
Page 98
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Waskita Karya
WHAT’S NEW
Downgrade to HOLD; recent rally leaves limited upside
potential
Consensus’ earnings forecast is now on par with management guidance. WSKT’s strong earnings momentum was one of the key reasons supporting our BUY rating back in February. We nonetheless noted that there has been a series of significant earnings upgrades with consensus’ FY16F EPS raised by 37% to Rp1.5tr, on par with management’s guidance. While we are confident that WSKT’s excellent project execution would continue to translate to strong top line growth going forward (which we believe is also the general consensus view), we do not see much upside on margins that could trigger further earnings upgrades. Indeed, the exceptionally high gross margins of WSKT’s precast segment (28.0% in 1Q16) leaves us concerned whether it is sustainable. As a comparison, WTON was only able to book 12.4% gross margin in the same quarter despite its utilisation rate reaching 79%.
We also flag a similar risk in WSKT’s construction segment, where gross margins hit a record-high in 1Q16 (16.3% vs. typical low-teens gross margin for state-run contractors). Nonetheless, we think the high margins will last longer in construction segment along with rising revenue contribution from WSKT’s in-house toll road construction. We note that while the accounting standard allows WSKT to book profits from its self-owned toll road construction work, the profit generated by precast segment will likely be eliminated upon consolidation of its financial statements.
We are maintaining our net profit forecast for FY16. However, we highlight that our FY17 net profit forecast is now 14% below consensus as we have assumed Rp431bn start-up losses to be generated by WSKT’s two toll roads, Pejagan-Pemalang and Kanci-Pejagan, next year. We expect FY17F net profit to only grow by 5% y-o-y in FY17F although EBITDA should continue to record robust growth of 24% y-o-y. We believe there is downside risk to consensus’ FY17F net profit forecast as it has yet to factor in potential start-up losses from WSKT’s toll roads operations.
Flagging balance sheet risk, but potential capital injection in 2017 and toll road divestment plan would allay these concerns. With 15 toll road concessions in the portfolio, WSKT is set to gear up its balance sheet in the next two years. The company is a majority shareholder of 8 toll road concessions, which is estimated to require an investment of Rp51tr, funded by a combination of 70% in debt and 30% equity. WSKT also owns minority stakes in seven other toll road concessions. While this strategy should continue to boost net profit growth of WSKT’s construction segment in
the next 2-3 years, we believe it would not be accompanied by strong operating cash flow generation. We acknowledge that despite expecting strong earnings growth in FY16, the company expects operating cash flow to deteriorate to –Rp3.8tr vs. +Rp918bn in FY15.
WSKT is planning to propose another capital injection exercise to the government in 2017. The company is also considering divesting some of its toll roads to strategic investors after the construction completes. Both of these plans, if they materialise, would ease balance sheet concern and act as a key catalyst for the share price, in our view.
Consensus EPS Trend vs. Share Price
Source: Bloomberg Finance L.P, AllianceDBS Research, DBS Vickers
Construction and Precast Segment Gross Margin Trend
Source: Company, AllianceDBS Research, DBS Vickers
1,000
1,200
1,400
1,600
1,800
2,000
2,200
2,400
2,600
2,800
900
1,000
1,100
1,200
1,300
1,400
1,500
1,600
Rp bn
WSKT net profit FY16F Price (RHS)
Company guidance (Rp1.5tr)
0%
5%
10%
15%
20%
25%
30%
1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16
Construction gross margin Precast gross margin
Page 99
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Waskita Karya
CRITICAL DATA POINTS TO WATCH
Earnings Drivers:
Re-routing its business plan. The toll road acquisition spree last year marked a change in WSKT’s business model. The company is now aiming to become one of the leading toll road operators in Indonesia by 2018. The company is the majority stakeholder for seven toll road concessions in Java and one in Sumatra whose total investment value is Rp51tr. It also owns minority stakes in seven other toll road concessions.
We estimate that the construction works for WSKT’s 15 toll road concessions could be worth over Rp55tr. Approximately Rp15tr has been awarded and included in WSKT’s order book. Management expects to book contracts worth another Rp15tr from its self-owned toll roads for the remainder of this year.
Capital intensive toll road business would require further capital raising. The cyclical nature of the construction business and intensifying competition among contractors are the main reasons for WSKT’s expansion into toll road operations. While this expansion should secure a recurring income stream in the long term, this also exposes WSKT to financial and traffic risks – particularly during the initial years of toll road operations. Given the high capital requirement and long gestation period of the business, the toll road acquisition spree last year has raised concerns on WSKT’s ability to fund its expansion plan.
Assuming a capital structure of 70% debt and 30% equity for the 15 toll roads, WSKT needs to invest Rp14.6tr to fund its equity stakes. The company will have to increase its gearing given that the Rp5.3tr rights issue proceeds received last year can only cover 36% of the equity investment requirement. The company plans to propose Rp3.1tr capital injection from the government in 2017. One more alternative funding that the company is considering is to partially divest its toll roads once the construction completes. We believe toll road divestment will be a key catalyst for WSKT in the future. The recent development on this plan is the gradual divestment of its 25% stake in Kanci-Pejagan toll road to Adhi Karya (ADHI) in exchange for construction services given by ADHI to the toll road’s existing stakeholders.
New Contract Wins (Rp bn)
Carry Over Contract (Rp bn)
Construction Gross Margin (%)
Precast Gross Margin (%)
Toll Road Equity Investment's Funding Structure (Rp tr)
Source: Company, AllianceDBS Research, DBS Vickers
22,625
32,000
40,000
31,150 31,150
0
5,771
11,543
17,314
23,086
28,857
34,629
2014A 2015A 2016F 2017F 2018F
10,516
19,915
36,898
54,09857,786
0
11,788
23,577
35,365
47,153
2014A 2015A 2016F 2017F 2018F
10.1
1312.4 12.5 12.6
0.0
2.6
5.3
7.9
10.6
13.2
2014A 2015A 2016F 2017F 2018F
(5,000)
(4,000)
(3,000)
(2,000)
(1,000)
0
1,000
2,000
2012A 2013A 2014A 2015A 2016F (Company guidance)
5.3
5.0
4.3
2015 rights issue Bonds Waskita precast 2017 rights issue
Page 100
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Waskita Karya
Balance Sheet:
Further fund raising needed. As at the end of 1Q16, WSKT had a net debt of Rp5.6tr, translating to net gearing of 0.59x. 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. Management has budgeted Rp6tr capex this year, most of which is for toll road expansion. To fund this, WSKT plans to issue bonds amounting to Rp3-5tr and divest Waskita Beton Precast through IPO this year with targeted proceeds of Rp4tr.
Share Price Drivers:
Award of large-sized infrastructure contracts. The award of large-sized, multi-year projects will improve WSKT’s revenue and earnings visibility, and ultimately lead to an upward re-rating of its share price.
Incremental value from toll roads. To better capture the toll road operating business, we incorporate the NPV of WSKT’s toll roads that will be operational in 2017 into our TP, i.e. Pejagan-Pemalang, Depok-Antasari and Kanci-Pejagan. We assume that each toll road will achieve WSKT’s expected traffic volume by year 3. For traffic volume, we assumed a CAGR of 12-20% in the first 10 years, 5-7% in the following 10 years and 2% up to year 40 when the concessions end. Based on our DCF calculation (WACC 9.6%), these toll roads add Rp2.7tr incremental value to WSKT or a Rp200 increase to our TP. Note that our project IRR assumptions of 13-14% are lower than management’s guidance of 17% and we have yet to include the remaining 12 toll roads into our TP calculation.
Key Risks:
Persistently weak operating cash flow. We have yet to see positive operating cash flows at WSKT despite strong contract wins last year. Its venture into the toll road operating business could also deteriorate WSKT’s operating cash flow during the early years of operations. As such, its balance sheet could remain stretched, forcing it to make another rights or bond issue in the future.
Unsustainable precast margins. We are cautious on the sustainability of its precast margins. The company expects to be able to sustain the segment's gross margin at 15%. However, we think this will be challenging given that Wika Beton, the market leader in precast business, only expects to sustain its gross margin at 13%. We believe this can only be achieved through continuous product innovation.
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. 80% of its revenues from construction and >50% of its projects from the Government of Indonesia.
Leverage & Asset Turnover (x)
Capital Expenditure
ROE (%)
Forward PE Band (x)
PB Band (x)
Source: Company, AllianceDBS Research, DBS Vickers
0.6
0.7
0.7
0.8
0.8
0.9
0.9
1.0
1.0
0.00
0.20
0.40
0.60
0.80
1.00
1.20
2014A 2015A 2016F 2017F 2018F
Gross Debt to Equity (LHS) Asset Turnover (RHS)
0.0
1,000.0
2,000.0
3,000.0
4,000.0
5,000.0
6,000.0
7,000.0
2014A 2015A 2016F 2017F 2018F
Capital Expenditure (-)
Rpm
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
2014A 2015A 2016F 2017F 2018F
Avg: 15.5x
+1sd: 19.3x
+2sd: 23.2x
‐1sd: 11.7x
‐2sd: 7.8x6.7
8.7
10.7
12.7
14.7
16.7
18.7
20.7
22.7
24.7
Dec-12 Jan-14 Jan-15 Jan-16
(x)
Avg: 2.91x
+1sd: 3.74x
+2sd: 4.57x
‐1sd: 2.09x
‐2sd: 1.26x1.1
1.6
2.1
2.6
3.1
3.6
4.1
4.6
5.1
5.6
6.1
Dec-12 Jan-14 Jan-15 Jan-16
(x)
Rpbn
Page 101
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Waskita Karya
Key Assumptions
FY Dec 2014A 2015A 2016F 2017F 2018F
New Contract Wins (Rp 22,625 32,000 40,000 31,150 31,150 Carry Over Contract (Rp 10,516 19,915 36,898 54,098 57,786 Construction Gross 10.1 13.0 12.4 12.5 12.6 Precast Gross Margin (%) 18.2 15.9 14.0 14.0 14.0
Segmental Breakdown
FY Dec 2014A 2015A 2016F 2017F 2018F
Revenues (Rpbn)
Construction 9,484 12,052 20,374 24,450 25,143 Building rentals/Property 0.30 0.60 0.60 0.60 0.60 Precast 803 2,069 3,620 4,344 4,996 Energy 0.0 0.0 0.0 0.0 0.0 Others 0.0 31.8 0.0 246 348 Total 10,287 14,153 23,995 29,040 30,487 Gross Profit (Rpbn)
Construction 963 1,561 2,526 3,056 3,168 Building rentals/Property 0.30 0.60 0.60 0.60 0.60 Precast 146 328 507 608 699 Energy 0.0 0.0 0.0 0.0 0.0 Others 0.0 0.0 0.0 246 348 Total 1,109 1,889 3,034 3,911 4,216 Gross Profit Margins (%) Construction 10.1 13.0 12.4 12.5 12.6 Building rentals/Property 99.7 100.0 100.0 100.0 100.0 Precast 18.2 15.9 14.0 14.0 14.0 Energy N/A N/A N/A N/A N/A Others N/A 0.0 N/A 100.0 100.0 Total 10.8 13.4 12.6 13.5 13.8
Income Statement (Rpbn)
FY Dec 2014A 2015A 2016F 2017F 2018F
Revenue 10,287 14,153 23,995 29,040 30,487 Cost of Goods Sold (9,178) (12,232) (20,961) (25,129) (26,271) Gross Profit 1,109 1,921 3,034 3,911 4,216 Other Opng (Exp)/Inc (431) (518) (888) (1,345) (1,450) Operating Profit 678 1,403 2,146 2,566 2,766 Other Non Opg (Exp)/Inc 20.5 159 0.0 0.0 0.0 Associates & JV Inc 197 10.1 194 241 275 Net Interest (Exp)/Inc (140) (267) (321) (641) (783) Exceptional Gain/(Loss) 0.0 92.8 0.0 0.0 0.0 Pre-tax Profit 756 1,398 2,020 2,167 2,259 Tax (254) (350) (520) (618) (636) Minority Interest 0.30 0.10 0.40 0.40 0.40 Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 502 1,048 1,499 1,548 1,623 Net Profit before Except. 502 955 1,499 1,548 1,623 EBITDA 934 1,715 2,437 3,029 3,312 Growth
Revenue Gth (%) 6.2 37.6 69.5 21.0 5.0 EBITDA Gth (%) 27.3 83.7 42.1 24.3 9.3 Opg Profit Gth (%) 18.9 106.9 52.9 19.6 7.8 Net Profit Gth (Pre-ex) (%) 36.3 90.4 57.0 3.3 4.8 Margins & Ratio
Gross Margins (%) 10.8 13.6 12.6 13.5 13.8 Opg Profit Margin (%) 6.6 9.9 8.9 8.8 9.1 Net Profit Margin (%) 4.9 7.4 6.2 5.3 5.3 ROAE (%) 19.7 17.0 14.7 13.5 12.7 ROA (%) 4.7 4.9 4.5 4.0 3.9 ROCE (%) 8.2 7.8 7.4 7.7 7.8 Div Payout Ratio (%) 20.0 20.0 20.0 20.0 20.0 Net Interest Cover (x) 4.8 5.3 6.7 4.0 3.5
Source: Company, AllianceDBS Research, DBS Vickers
Page 102
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Waskita Karya
Quarterly / Interim Income Statement (Rpbn)
FY Dec 1Q2015 2Q2015 3Q2015 4Q2015 1Q2016
Revenue 1,403 2,582 3,438 6,731 3,072 Cost of Goods Sold (1,246) (2,258) (3,024) (5,704) (2,552) Gross Profit 157 324 414 1,027 520 Other Oper. (Exp)/Inc (50.0) (90.6) (112) (245) 58.2 Operating Profit 107 233 301 782 578 Other Non Opg (Exp)/Inc (18.0) 1.40 (4.3) 159 (151) Associates & JV Inc 11.1 37.2 14.4 (52.6) (35.2) Net Interest (Exp)/Inc (50.2) (67.6) (27.6) (122) (132) Exceptional Gain/(Loss) 0.0 0.0 22.8 70.0 0.0 Pre-tax Profit 50.1 204 307 837 260 Tax (38.2) (44.7) (77.7) (190) (136) Minority Interest 0.0 0.10 (0.1) 0.20 3.20 Net Profit 11.9 160 229 647 127 Net profit bef Except. 11.9 160 206 578 127 EBITDA 100 272 311 889 392
Growth
Revenue Gth (%) (72.0) 84.0 33.2 95.8 (54.4) EBITDA Gth (%) (81.3) 171.1 14.5 185.5 (55.9) Opg Profit Gth (%) (76.2) 117.5 29.1 159.7 (26.1) Net Profit Gth (Pre-ex) (%) (96.8) 1,238.9 29.0 180.4 (78.0) Margins
Gross Margins (%) 11.2 12.5 12.0 15.3 16.9 Opg Profit Margins (%) 7.6 9.0 8.8 11.6 18.8 Net Profit Margins (%) 0.8 6.2 6.7 9.6 4.1
Balance Sheet (Rpbn)
FY Dec 2014A 2015A 2016F 2017F 2018F
Net Fixed Assets 622 1,923 7,703 8,247 8,648 Invts in Associates & JVs 735 1,572 1,572 1,572 1,572 Other LT Assets 1,080 8,739 8,739 8,739 8,739 Cash & ST Invts 1,700 5,522 968 885 1,297 Inventory 327 388 617 736 769 Debtors 6,842 10,093 14,356 17,374 18,240 Other Current Assets 1,237 2,073 2,493 2,991 3,228 Total Assets 12,542 30,309 36,447 40,544 42,491
ST Debt 1,917 3,483 3,483 3,483 3,483 Creditor 5,272 8,773 12,121 14,470 15,104 Other Current Liab 539 1,409 1,409 1,409 1,409 LT Debt 1,246 4,547 6,047 6,547 6,547 Other LT Liabilities 803 2,394 2,394 2,394 2,394 Shareholder’s Equity 2,759 9,547 10,837 12,085 13,398 Minority Interests 5.90 157 157 156 156 Total Cap. & Liab. 12,542 30,309 36,447 40,544 42,491
Non-Cash Wkg. Capital 2,594 2,371 3,935 5,223 5,723 Net Cash/(Debt) (1,463) (2,508) (8,562) (9,144) (8,733) Debtors Turn (avg days) 220.2 218.4 185.9 199.4 213.2 Creditors Turn (avg days) 186.9 212.0 182.7 194.8 207.6 Inventory Turn (avg days) 12.1 10.8 8.8 9.9 10.6 Asset Turnover (x) 1.0 0.7 0.7 0.8 0.7 Current Ratio (x) 1.3 1.3 1.1 1.1 1.2 Quick Ratio (x) 1.1 1.1 0.9 0.9 1.0 Net Debt/Equity (X) 0.5 0.3 0.8 0.7 0.6 Net Debt/Equity ex MI (X) 0.5 0.3 0.8 0.8 0.7 Capex to Debt (%) 10.4 11.7 61.7 7.6 6.7 Z-Score (X) NA NA NA NA NA
Source: Company, AllianceDBS Research, DBS Vickers
Page 103
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Waskita Karya
Cash Flow Statement (Rpbn)
FY Dec 2014A 2015A 2016F 2017F 2018F Pre-Tax Profit 756 1,398 2,019 2,166 2,258 Dep. & Amort. 38.0 143 96.0 221 270 Tax Paid (254) (350) (520) (618) (636) Assoc. & JV Inc/(loss) 0.0 1.00 0.0 0.0 0.0 Chg in Wkg.Cap. (417) 148 (1,564) (1,288) (500) Other Operating CF (211) (421) 0.0 0.0 0.0 Net Operating CF (88.7) 918 30.9 481 1,392 Capital Exp.(net) (329) (938) (5,876) (764) (671) Other Invts.(net) 0.0 0.0 0.0 0.0 0.0 Invts in Assoc. & JV (755) (498) 0.0 0.0 0.0 Div from Assoc & JV 1.10 0.0 0.0 0.0 0.0 Other Investing CF 0.0 (170) 0.0 0.0 0.0 Net Investing CF (1,083) (1,607) (5,876) (764) (671) Div Paid (110) (100) (210) (300) (310) Chg in Gross Debt 1,782 (729) 1,500 500 0.0 Capital Issues 59.2 5,348 0.0 0.0 0.0 Other Financing CF (3.1) 0.0 0.0 0.0 0.0 Net Financing CF 1,728 4,519 1,291 200 (310) Currency Adjustments (1.2) 5.90 0.0 0.0 0.0 Chg in Cash 556 3,836 (4,555) (82.7) 411 Opg CFPS (Rp) 34.0 57.5 119 132 141 Free CFPS (Rp) (43.2) (1.5) (436) (21.1) 53.8
Source: Company, AllianceDBS Research, DBS Vickers
Target Price & Ratings History
Source: AllianceDBS Research
S.No. Date Closing PriceTarget Price
Rating
1: 10 Aug 15 1820 1305 FULLY VALUED
2: 11 Nov 15 1680 1700 HOLD
3: 01 Feb 16 1730 2150 BUY
4: 02 May 16 2370 2700 BUY
5: 04 May 16 2550 2700 BUY
6: 11 May 16 2440 2700 BUY
7: 30 May 16 2590 2700 BUY
8: 01 Jun 16 2510 2700 BUY
Note : Share price and Target price are adjusted for corporate actions.
12
3
456 7
8
1444
1644
1844
2044
2244
2444
2644
Jun-15 Oct-15 Feb-16 Jun-16
Rp
Page 104
ASIAN INSIGHTS VICKERS SECURITIES
ed:CK / sa:BC
HOLDHOLDHOLDHOLDLast Traded Price: Last Traded Price: Last Traded Price: Last Traded Price: RM1.69 (KLCIKLCIKLCIKLCI : : : : 1,630.96) Price Target :Price Target :Price Target :Price Target : RM1.55 (-8% downside) Potential Catalyst: Potential Catalyst: Potential Catalyst: Potential Catalyst: Higher margin contract wins and property sales
Where we differ:Where we differ:Where we differ:Where we differ: We believe the holding company discount will widen
post listing of REIT and construction Analyst Chong Tjen-San +60 3 26043972 tjensan@alliancedbs.com
What’s New • 1Q16 profit hit by unrealised forex loss, marginal
improvement for construction and property
• Listing of REIT & construction likely to be delayed
• Exploring other options to degear balance sheet
• Maintain HOLD, TP unchanged at RM1.55
Price Relative
Forecasts and Valuation FY FY FY FY DecDecDecDec ((((RMRMRMRM m) m) m) m) 2015201520152015AAAA 2016201620162016FFFF 2017201720172017FFFF 2018201820182018FFFF
Revenue 1,668 2,369 2,591 2,523 EBITDA 234 280 333 378 Pre-tax Profit 272 202 213 223 Net Profit 219 155 165 175 Net Pft (Pre Ex.) 161 155 165 175 Net Pft Gth (Pre-ex) (%) 33.7 (3.7) 6.6 5.5 EPS (sen) 18.3 9.39 10.0 10.6 EPS Pre Ex. (sen) 13.4 9.39 10.0 10.6 EPS Gth Pre Ex (%) 34 (30) 7 5 Diluted EPS (sen) 16.8 9.39 10.0 10.6 Net DPS (sen) 3.38 3.38 3.38 3.38 BV Per Share (sen) 218 165 173 181 PE (X) 9.3 18.0 16.9 16.0 PE Pre Ex. (X) 12.6 18.0 16.9 16.0 P/Cash Flow (X) nm 8.1 9.8 7.8 EV/EBITDA (X) 17.1 17.6 15.5 14.1 Net Div Yield (%) 2.0 2.0 2.0 2.0 P/Book Value (X) 0.8 1.0 1.0 0.9 Net Debt/Equity (X) 0.7 0.8 0.8 0.8 ROAE (%) 9.0 5.8 5.9 6.0
Earnings Rev (%):Earnings Rev (%):Earnings Rev (%):Earnings Rev (%): 0 1 N/A Consensus EPS Consensus EPS Consensus EPS Consensus EPS (sensensensen):::: 11.3 13.3 14.9 Other Broker Recs:Other Broker Recs:Other Broker Recs:Other Broker Recs: B: 11 S: 1 H: 6
Source of all data: Company, AllianceDBS Research, Bloomberg Finance L.P
Widening holding company discount Degearing exercise unlikely to exciteDegearing exercise unlikely to exciteDegearing exercise unlikely to exciteDegearing exercise unlikely to excite
WCT is still looking to list its construction arm and REIT to help degear its balance sheet but the timing remains fluid. In the meantime, WCT is looking to dispose of some other assets (land and office). As at 31 March 2016, WCT was in a net debt position of RM2.7bn (including JV) or net gearing of 1.0x. While the listing exercise is much needed to address its cash flow issues with its ongoing mall expansion, we are concerned that the remaining core business left in WCT is its deteriorating property development business. Unless the listing entails a hefty special dividend or a meaningful restricted offer for shares, we see no reason to be bullish on the exercise.
Construction division on stronger footingConstruction division on stronger footingConstruction division on stronger footingConstruction division on stronger footing Its outstanding orderbook is now RM4.4bn, given the strong 2015 wins of RM3.1bn. We are encouraged that 74% of its orderbook now constitutes engineering and infrastructure works, which give it more flexibility for margin enhancement. However, note that RM755m of this orderbook relates to TRX infra work which does not generate any cash flow as profits will be used to acquire a plot of land in TRX. WCT is guiding for RM2bn worth of new orders this year.
Lacklustre property sales to offset constructionLacklustre property sales to offset constructionLacklustre property sales to offset constructionLacklustre property sales to offset construction WCT recorded property sales of RM373m for 2015 (vs RM460m in 2014). It has set a sales target of RM600m for FY16F and the main launch for this year will be the residential portion of its OUG project known as Paradigm Garden City. While the indicative pricing of RM800-850psf is lower than its Azure Residences at RM1000psf, we are concerned that take-up rates will be lacklustre with the still poor sentiment on the sector.
Valuation:
We have a HOLD rating for WCT with an SOP-based TP of
RM1.55. We value its construction business using PE, while its
property development and property investment units are
valued based on DCF and market value respectively.
Key Risks to Our View:
With a stronger construction orderbook and pipeline ahead,
we think the key risk is the continued deterioration of its
property franchise and widening holding company discount
from the listing of its construction unit and REIT. At A Glance Issued Capital (m shrs) 1,248
Mkt. Cap (RMm/US$m) 2,109 / 514
Major Shareholders (%)
WCT Capital 19.8
EPF 7.3
Free Float (%) 44
3m Avg. Daily Val (US$m) 0.86
ICB IndustryICB IndustryICB IndustryICB Industry : Industrials / Construction & Materials
DBS Group Research . Equity 26 May 2016
Malaysia Company Guide
WCT Holdings Bhd Version 3 | Bloomberg: WCTHG MK | Reuters: WCTE.KL Refer to important disclosures at the end of this report
51
71
91
111
131
151
171
191
211
1.0
1.2
1.4
1.6
1.8
2.0
2.2
2.4
2.6
2.8
May-12 May-13 May-14 May-15 May-16
Relative IndexRM
WCT Holdings Bhd (LHS) Relative KLCI INDEX (RHS)
Page 105
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
WCT Holdings Bhd
WHAT’S NEW
A slow start but it could get better
Dragged by forex lossDragged by forex lossDragged by forex lossDragged by forex loss.... Its 1Q16 headline net profit of RM9m
(-73% y-o-y and -87% q-o-q) included an unrealised foreign
exchange loss of RM23m in relation to its Qatar project.
Stripping this out, net profit would have been RM32m –
broadly in line with our expectations.
Construction back in the blackConstruction back in the blackConstruction back in the blackConstruction back in the black. 1Q16 construction EBIT
registered a small profit of RM3.7m vs a loss of RM19m in
4Q15. Stripping out the effects of forex, we estimate that
1Q16 construction EBIT was RM27m vs RM11m in 4Q15
while 1Q margins improved to 3.7% vs 1.4% in 4Q15. There
should be gradual improvements in margins in the
subsequent quarters as the higher margin local civil
engineering works filter through.
PPPProperty salesroperty salesroperty salesroperty sales still slowstill slowstill slowstill slow.... 1Q16 property EBIT was higher at
RM17m vs RM11m in 4Q15 (vs RM25m in 3Q15) on the back
of a 66% increase in revenue to RM93m. Unbilled sales as at
31 March 2016 stood at RM551m while its sales target for
FY16F is RM600m. 1Q property sales amounted to RM68m
while the official launch of its Paradigm Garden City in OUG,
whose first phase is known as R2, has not occurred. However,
based on the bookings received for its soft launch where
WCT collected a deposit of RM10k, this could translate into
sales of RM137m.
Exploring other avenues to reduce net gearingExploring other avenues to reduce net gearingExploring other avenues to reduce net gearingExploring other avenues to reduce net gearing. . . . We
understand the timing of the listing of its REIT and
construction businesses may take longer than expected. Its
net debt as at 31 March 2016 (inclusive of JV) was RM2.7bn
(net gearing of 1.0x). WCT is contemplating the disposal of
some assets and land which could raise up to RM600m.
Together with the JV with UEM Sunrise for the Rawang
development, the total amount raised could hit RM800m
which would bring its net gearing down to 0.7x. Nonetheless,
capex requirements over the next few years will be high with
the expansion of its mall business.
.
Quarterly / Interim Income Statement (RMm)
FY FY FY FY DecDecDecDec 1Q1Q1Q1Q2015201520152015 4Q4Q4Q4Q2015201520152015 1Q1Q1Q1Q2016201620162016 % chg yoy % chg yoy % chg yoy % chg yoy % chg qoq% chg qoq% chg qoq% chg qoq
Revenue 352 522 485 37.9 (7.1)
Cost of Goods Sold (297) (481) (419) 41.1 (12.9)
Gross ProfitGross ProfitGross ProfitGross Profit 54.954.954.954.9 41.641.641.641.6 66.466.466.466.4 20.820.820.820.8 59.459.459.459.4
Other Oper. (Exp)/Inc 4.33 (33.4) (36.9) (951.9) 10.3
Operating ProfitOperating ProfitOperating ProfitOperating Profit 59.359.359.359.3 8.178.178.178.17 29.529.529.529.5 (50.3)(50.3)(50.3)(50.3) 260.6260.6260.6260.6
Other Non Opg (Exp)/Inc 0.0 0.0 0.0 nm nm
Associates & JV Inc 3.49 73.0 9.15 162.4 (87.5)
Net Interest (Exp)/Inc (20.0) 2.90 (13.4) 32.9 nm
Exceptional Gain/(Loss) 0.0 0.0 23.0 nm nm
PrePrePrePre----tax Profittax Profittax Profittax Profit 42.842.842.842.8 84.184.184.184.1 48.248.248.248.2 (41.1)(41.1)(41.1)(41.1) (70.0)(70.0)(70.0)(70.0)
Tax (9.5) (15.4) (15.1) 59.5 (2.0)
Minority Interest (0.1) 0.22 (1.3) 1,478.0 (688.2)
Net ProfitNet ProfitNet ProfitNet Profit 33.233.233.233.2 68.968.968.968.9 8.838.838.838.83 (73.4)(73.4)(73.4)(73.4) (87.2)(87.2)(87.2)(87.2)
Net profit bef Except. 33.2 68.9 31.8 (3.61) (53.6)
EBITDA 62.8 81.2 38.6 (38.4) (52.4)
Margins (%)
Gross Margins 15.6 8.0 13.7
Opg Profit Margins 16.9 1.6 6.1
Net Profit Margins 9.4 13.2 1.8
Source of all data: Company, AllianceDBS Research
Page 106
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
WCT Holdings Bhd
CRITICAL DATA POINTS TO WATCH
Earnings Drivers:
Stronger construction franchise. Stronger construction franchise. Stronger construction franchise. Stronger construction franchise. WCT’s construction division has
now an outstanding orderbook of RM4.2bn, given the strong
2015 wins of RM3.1bn. We are encouraged that 74% of its
orderbook now constitutes engineering and infrastructure
works, which give more flexibility in margin accretion. However,
note that RM755m of this orderbook relates to TRX infra work
which does not generate any cash flow as profits will be used to
acquire a plot of land in TRX.
It is guiding for RM2bn worth of new orders this year where
projects in the pipeline could be from additional RAPID, TRX and
Kwasa Damansara Land works, MRT 2, LRT 3, and Pan Borneo
Highway. The revival of its KK Water Supply scheme project will
be an added boost to its orderbook, while it will also continue
to focus on projects in Qatar. We understand WCT has
tendered for a prison project worth RM1bn there.
Softer property sales to offset better construction earnings.Softer property sales to offset better construction earnings.Softer property sales to offset better construction earnings.Softer property sales to offset better construction earnings.
WCT recorded property sales of RM373m in 2015 (vs RM460m
in 2014). It has set a sales target of RM600m for FY16F and the
main launch for this year will be the residential portion of its
OUG project known as Paradigm Garden City. While the
indicative pricing of RM800-850psf is lower than its Azure
Residences at RM1000psf, we are concerned that the take-up
rates will be lacklustre with the still poor sentiment on the
sector. The first phase of Paradigm Garden City is known as R2
(419 units with a GDV of RM418m). Average built-ups are
between 941 and 1,619 sq ft. The next phase is slated for end-
2016 and will have bigger built-ups of 1,000-2,900 sq ft and
comprise 940 units.
Two assets slated for REIT.Two assets slated for REIT.Two assets slated for REIT.Two assets slated for REIT. WCT’s REIT will comprise two assets
initially, i.e. Paradigm Mall in Kelana Jaya and AEON BBT Mall in
Klang. The combined asset size is c.RM1.2bn. The two malls
generate positive EBITDA of RM40-45m and RM30m
respectively. Although Gateway@KLIA2 has received the
extension of its concession period to 25 years (which lowers the
yearly amortisation), we think that it will be difficult to inject
this asset into the REIT given its concession structure and WCT
also only owns 70% of the concession.
Post the completion of the renewal of tenancies for Paradigm
Mall, WCT has managed to achieve a 10% increase in base
rental rates to RM7.50 psf. This is on the back of occupancy
rates of 94%. At a later stage, other assets such as Paradigm
Johor Bahru (1.25m sq ft) and Paradigm Mall OUG (1.5m sq ft)
may be injected. Paradigm Johor Bahru is slated to open
towards the later part of 2016. So far, it has managed to clinch
50% tenancy of the total NLA of 1.25m sq ft and has targeted
an average rental rate of RM7.50 psf.
Construction new orders
Construction margins
Construction profit
Property development profit
Property investment profit
Source: Company, AllianceDBS Research
994
3,100
1,7001,500 1,500
0
447
895
1,342
1,789
2,236
2,684
3,131
2014A 2015A 2016F 2017F 2018F
4.85
5.975.53
5.86
0.00
1.22
2.45
3.67
4.90
6.12
2014A 2015A 2016F 2017F 2018F
94
140
95
108 110
0
28
57
85
114
142
2014A 2015A 2016F 2017F 2018F
73.569
81.286.1
97.4
0.0
19.7
39.4
59.0
78.7
98.4
2014A 2015A 2016F 2017F 2018F
3532.5
43.8
48.2
53.7
0.0
10.8
21.7
32.5
43.4
54.2
2014A 2015A 2016F 2017F 2018F
Page 107
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
WCT Holdings Bhd
Balance Sheet:
Balance sheet to be degeared.Balance sheet to be degeared.Balance sheet to be degeared.Balance sheet to be degeared. WCT is a net debt position of
RM2.7bn (net gearing of 1.0x) as at 31 March 2016, inclusive of
debt at JV level (Paradigm Mall and Gateway@KLIA2). The
listing of its REIT and construction division is still ongoing but
the timing remains fluid. This was expected to bring net gearing
levels to a more manageable 0.4x. In the meantime, WCT is
looking to dispose of some other assets which could raise up to
RM600m. Together with the sale of Rawang Land to UEM
Sunrise, this could bring its net gearing level to 0.7x. But capex
requirements over the next few years will still be higher with the
construction of Paradigm Garden City in OUG.
Share Price Drivers:
Stronger contract flows. WCT is guiding for RM2bn worth of
new wins in 2016. If it is able to surprise on the upside with
higher-margin contracts, this could act as a rerating catalyst.
Resurgence in property sales in 2016.Resurgence in property sales in 2016.Resurgence in property sales in 2016.Resurgence in property sales in 2016. WCT has set a sales
target of RM600m for FY16F. This is highly dependent on the
success of Paradigm Garden City. In our view, this target is
challenging and we expect property sales to be lacklustre given
the still poor consumer sentiment, and it could see more
downside risks.
Special dividends?Special dividends?Special dividends?Special dividends? Investors hoping for a bumper special
dividend from the successful arbitration for the Dubai race
course project will be disappointed. The timeline for completion
is expected to be long (two years) while WCT's capex
requirements over the next few years are high given the
expansion of its retail malls. The arbitral tribunal under the
Dubai International Arbitration Centre (DIAC) has ruled in
favour of the group in a dispute with the Meydan Group. The
total amount to be paid is AED1.1bn (c.RM1.2bn) for work
done, repayment of performance bond, loss of profit, damages
and interest, arbitration fees and legal costs. The carrying value
of performance security deposits and receivables under dispute
in WCT’s books was c.AED318m (RM330m). Hence, this will
translate into a net gain of RM860m or RM0.47/share.
Key Risks:
Execution risks.Execution risks.Execution risks.Execution risks. WCT has been beefing up its orderbook with
more civil engineering jobs, which is positive. What is pertinent
now is the ability to execute these orders now and deliver
better-margin construction earnings. We think this is crucial for
a sustained rerating of the stock.
COMPANY BACKGROUND
WCT is primarily involved in construction, property
development and property investment. Its construction division
is involved in a wide array of civil infrastructure and building
works. The property division has developments in the Klang
Valley, Iskandar Malaysia and Sabah. WCT also owns three
malls and a hotel as part of its property investment assets.
Leverage & Asset Turnover (x)
Capital Expenditure
ROE (%)
Forward PE Band (x)
PB Band (x)
Source: Company, AllianceDBS Research
0.2
0.2
0.2
0.3
0.3
0.3
0.3
0.3
0.4
0.4
0.4
0.00
0.20
0.40
0.60
0.80
1.00
2014A 2015A 2016F 2017F 2018F
Gross Debt to Equity (LHS) Asset Turnover (RHS)
0.0
50.0
100.0
150.0
200.0
250.0
300.0
350.0
400.0
450.0
2014A 2015A 2016F 2017F 2018F
Capital Expenditure (-)
RMm
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
2014A 2015A 2016F 2017F 2018F
Avg: 15.2x
+1sd: 18.5x
+2sd: 21.8x
-1sd: 11.8x
-2sd: 8.5x
6.9
8.9
10.9
12.9
14.9
16.9
18.9
20.9
22.9
May-12 May-13 May-14 May-15 May-16
(x)
Avg: 1.09x
+1sd: 1.39x
+2sd: 1.69x
-1sd: 0.79x
-2sd: 0.49x0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
May-12 May-13 May-14 May-15 May-16
(x)
Page 108
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
WCT Holdings Bhd
Key Assumptions
FY FY FY FY DecDecDecDec 2014201420142014AAAA 2015201520152015AAAA 2016201620162016FFFF 2017201720172017FFFF 2018201820182018FFFF
Construction new orders 994 3,100 1,700 1,500 1,500
Construction margins 4.85 5.97 5.53 5.80 6.00
Construction profit 93.9 140 95.2 108 110
Property development profit 73.5 69.0 81.2 86.1 97.4
Property investment profit 35.0 32.5 43.8 48.2 53.7
Segmental Breakdown
FY FY FY FY DecDecDecDec 2014201420142014AAAA 2015201520152015AAAA 2016201620162016FFFF 2017201720172017FFFF 2018201820182018FFFF
Revenues (RMm) Construction 1,935 2,117 1,720 1,866 1,837
Property Development 399 336 509 577 529
Property Investment 59.9 61.1 140 148 157
Inter-segment (732) (846) 0.0 0.0 0.0
TotalTotalTotalTotal 1,6621,6621,6621,662 1,6681,6681,6681,668 2,3692,3692,3692,369 2,5912,5912,5912,591 2,5232,5232,5232,523
Pretax profit (RMm) Construction 93.9 140 95.2 108 110
Property Development 73.5 69.0 81.2 86.1 97.4
Property Investment 35.0 32.5 43.8 48.2 53.7
Others (51.3) 30.4 (18.2) (29.4) (37.9)
TotalTotalTotalTotal 151151151151 272272272272 202202202202 213213213213 223223223223
Pretax Margins (%) Construction 4.9 6.6 5.5 5.8 6.0
Property Development 18.4 20.5 16.0 14.9 18.4
Property Investment 58.4 53.2 31.3 32.7 34.1
TotalTotalTotalTotal 9.19.19.19.1 16.316.316.316.3 8.58.58.58.5 8.28.28.28.2 8.98.98.98.9
Income Statement (RMm)
FY FY FY FY DecDecDecDec 2014201420142014AAAA 2015201520152015AAAA 2016201620162016FFFF 2017201720172017FFFF 2018201820182018FFFF
Revenue 1,662 1,668 2,369 2,591 2,523
Cost of Goods Sold (1,429) (1,467) (1,965) (2,167) (2,081)
Gross ProfitGross ProfitGross ProfitGross Profit 234234234234 201201201201 404404404404 425425425425 443443443443 Other Opng (Exp)/Inc (215) (287) (193) (194) (197)
Operating ProfitOperating ProfitOperating ProfitOperating Profit 157157157157 207207207207 211211211211 230230230230 246246246246 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0
Associates & JV Inc 15.4 30.2 33.2 36.6 40.2
Net Interest (Exp)/Inc (20.9) (23.9) (42.1) (53.7) (62.4)
Exceptional Gain/(Loss) 10.0 58.0 0.0 0.0 0.0
PrePrePrePre----tax Profittax Profittax Profittax Profit 161161161161 272272272272 202202202202 213213213213 223223223223 Tax (28.5) (54.9) (50.5) (53.3) (55.8)
Minority Interest (2.1) 2.49 3.74 5.61 7.01
Preference Dividend 0.0 0.0 0.0 0.0 0.0
Net ProfitNet ProfitNet ProfitNet Profit 131131131131 219219219219 155155155155 165165165165 175175175175 Net Profit before Except. 121 161 155 165 175
EBITDA 184 234 280 333 378
Growth Revenue Gth (%) (0.6) 0.3 42.1 9.4 (2.6)
EBITDA Gth (%) (34.9) 27.0 19.6 18.9 13.6
Opg Profit Gth (%) (38.0) 32.2 1.7 9.2 6.6
Net Profit Gth (Pre-ex) (%) (39.0) 33.7 (3.7) 6.6 5.5
Margins & Ratio Gross Margins (%) 14.1 12.0 17.1 16.4 17.5
Opg Profit Margin (%) 9.4 12.4 8.9 8.9 9.7
Net Profit Margin (%) 7.9 13.1 6.6 6.4 6.9
ROAE (%) 5.9 9.0 5.8 5.9 6.0
ROA (%) 2.2 3.4 2.2 2.2 2.2
ROCE (%) 2.6 3.0 2.7 2.8 2.8
Div Payout Ratio (%) 31.0 18.5 35.9 33.7 32.0
Net Interest Cover (x) 7.5 8.7 5.0 4.3 3.9
Source: Company, AllianceDBS Research
Page 109
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
WCT Holdings Bhd
Quarterly / Interim Income Statement (RMm)
FY FY FY FY DecDecDecDec 1Q1Q1Q1Q2015201520152015 2Q2Q2Q2Q2015201520152015 3Q3Q3Q3Q2015201520152015 4Q4Q4Q4Q2015201520152015 1Q1Q1Q1Q2016201620162016
Revenue 352 422 372 522 485
Cost of Goods Sold (297) (377) (313) (481) (419)
Gross ProfitGross ProfitGross ProfitGross Profit 54.954.954.954.9 45.845.845.845.8 58.458.458.458.4 41.641.641.641.6 66.466.466.466.4 Other Oper. (Exp)/Inc 4.33 7.77 61.8 (33.4) (36.9)
Operating ProfitOperating ProfitOperating ProfitOperating Profit 59.359.359.359.3 53.553.553.553.5 120120120120 8.178.178.178.17 29.529.529.529.5 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0
Associates & JV Inc 3.49 9.68 2.03 73.0 9.15
Net Interest (Exp)/Inc (20.0) (19.4) (21.3) 2.90 (13.4)
Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0
PrePrePrePre----tax Profittax Profittax Profittax Profit 42.842.842.842.8 43.843.843.843.8 101101101101 84.184.184.184.1 25.225.225.225.2 Tax (9.5) (14.9) (15.3) (15.4) (15.1)
Minority Interest (0.1) 2.11 0.25 0.22 (1.3)
Net ProfitNet ProfitNet ProfitNet Profit 33.233.233.233.2 31.131.131.131.1 85.985.985.985.9 68.968.968.968.9 8.838.838.838.83 Net profit bef Except. 33.2 31.1 85.9 68.9 8.83
EBITDA 62.8 63.2 122 81.2 38.6
Growth Revenue Gth (%) 9.1 20.1 (12.0) 40.4 (7.1)
EBITDA Gth (%) 62.4 0.7 93.4 (33.6) (52.4)
Opg Profit Gth (%) 64.0 (9.7) 124.5 (93.2) 260.6
Net Profit Gth (Pre-ex) (%) 63.7 (6.5) 176.6 (19.8) (87.2)
Margins Gross Margins (%) 15.6 10.8 15.7 8.0 13.7
Opg Profit Margins (%) 16.9 12.7 32.3 1.6 6.1
Net Profit Margins (%) 9.4 7.4 23.1 13.2 1.8
Balance Sheet (RMm)
FY FY FY FY DecDecDecDec 2014201420142014AAAA 2015201520152015AAAA 2016201620162016FFFF 2017201720172017FFFF 2018201820182018FFFF
Net Fixed Assets 1,232 1,434 1,766 2,068 2,339
Invts in Associates & JVs 528 664 697 734 774
Other LT Assets 1,723 1,966 1,966 1,966 1,966
Cash & ST Invts 952 665 643 552 525
Inventory 506 695 760 780 774
Debtors 1,022 1,156 1,328 1,431 1,400
Other Current Assets 240 183 183 183 183
Total AssetsTotal AssetsTotal AssetsTotal Assets 6,2016,2016,2016,201 6,7626,7626,7626,762 7,3437,3437,3437,343 7,7137,7137,7137,713 7,9597,9597,9597,959
ST Debt 584 520 520 520 520
Creditor 1,025 936 1,256 1,357 1,326
Other Current Liab 13.2 9.24 9.24 9.24 9.24
LT Debt 1,846 2,073 2,223 2,373 2,523
Other LT Liabilities 452 566 566 566 566
Shareholder’s Equity 2,228 2,621 2,735 2,860 2,994
Minority Interests 52.8 36.8 33.1 27.5 20.5
Total Cap. & Liab.Total Cap. & Liab.Total Cap. & Liab.Total Cap. & Liab. 6,2016,2016,2016,201 6,7626,7626,7626,762 7,3437,3437,3437,343 7,7137,7137,7137,713 7,9597,9597,9597,959
Non-Cash Wkg. Capital 729 1,088 1,005 1,028 1,021
Net Cash/(Debt) (1,479) (1,928) (2,100) (2,341) (2,519)
Debtors Turn (avg days) 231.8 238.3 191.3 194.4 204.8
Creditors Turn (avg days) 243.3 248.5 211.0 231.1 251.4
Inventory Turn (avg days) 115.4 152.1 140.0 136.1 145.6
Asset Turnover (x) 0.3 0.3 0.3 0.3 0.3
Current Ratio (x) 1.7 1.8 1.6 1.6 1.6
Quick Ratio (x) 1.2 1.2 1.1 1.1 1.0
Net Debt/Equity (X) 0.6 0.7 0.8 0.8 0.8
Net Debt/Equity ex MI (X) 0.7 0.7 0.8 0.8 0.8
Capex to Debt (%) 0.1 1.1 14.6 14.0 13.3
Z-Score (X) 1.1 1.1 1.2 1.2 1.2
Source: Company, AllianceDBS Research
Page 110
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
WCT Holdings Bhd
Cash Flow Statement (RMm)
FY FY FY FY DecDecDecDec 2014201420142014AAAA 2015201520152015AAAA 2016201620162016FFFF 2017201720172017FFFF 2018201820182018FFFF
Pre-Tax Profit 161 272 202 213 223
Dep. & Amort. 27.4 26.7 69.0 102 133
Tax Paid (58.8) (60.4) (50.5) (53.3) (55.8)
Assoc. & JV Inc/(loss) (15.4) (30.2) (33.2) (36.6) (40.2)
Chg in Wkg.Cap. (503) (531) 82.9 (22.5) 6.87
Other Operating CF (30.5) (231) 74.9 81.9 89.1
Net Operating CFNet Operating CFNet Operating CFNet Operating CF (419)(419)(419)(419) (554)(554)(554)(554) 345345345345 285285285285 356356356356 Capital Exp.(net) (2.8) (29.7) (402) (404) (404)
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 (96.1) (106) 0.0 0.0 0.0
Net Investing CFNet Investing CFNet Investing CFNet Investing CF (98.8)(98.8)(98.8)(98.8) (136)(136)(136)(136) (402)(402)(402)(402) (404)(404)(404)(404) (404)(404)(404)(404) Div Paid (48.8) (22.6) (40.5) (40.5) (40.5)
Chg in Gross Debt 498 142 150 150 150
Capital Issues 0.0 0.0 0.0 0.0 0.0
Other Financing CF (66.7) (57.8) (74.9) (81.9) (89.1)
Net Financing CFNet Financing CFNet Financing CFNet Financing CF 383383383383 61.661.661.661.6 34.634.634.634.6 27.627.627.627.6 20.320.320.320.3
Currency Adjustments 46.7 202 0.0 0.0 0.0
Chg in Cash (88.3) (427) (22.2) (90.9) (27.5)
Opg CFPS (sen) 6.99 (1.9) 15.9 18.6 21.1
Free CFPS (sen) (35.1) (48.6) (3.4) (7.2) (2.9)
Source: Company, AllianceDBS Research
Target Price & Ratings History
Source: AllianceDBS Research
S.No.S.No.S.No.S.No. DateDateDateDateClosing Closing Closing Closing
PricePricePricePrice
Target Target Target Target
PricePricePricePriceRat ing Rat ing Rat ing Rat ing
1: 26 May 15 1.70 1.83 HOLD
2: 22 Jul 15 1.39 1.44 HOLD
3: 21 Aug 15 1.18 1.29 HOLD
4: 20 Oct 15 1.39 1.30 HOLD
5: 13 Nov 15 1.34 1.30 HOLD
6: 25 Nov 15 1.53 1.48 HOLD
7: 16 Jan 16 1.62 1.48 HOLD
8: 26 Feb 16 1.58 1.55 HOLD
Note Note Note Note : Share price and Target price are adjusted for corporate actions.
1
2
3
4
5
67
8
1.07
1.17
1.27
1.37
1.47
1.57
1.67
1.77
May-15 Sep-15 Jan-16 May-16
RMRMRMRM
Page 111
ASIAN INSIGHTS VICKERS SECURITIES ed: JS / sa: MA
HOLDHOLDHOLDHOLD Last Traded Price: Last Traded Price: Last Traded Price: Last Traded Price: Rp2,960 (JCIJCIJCIJCI : : : : 4,980.11) Price Target :Price Target :Price Target :Price Target : Rp2,550 (14% downside)
Potential CPotential CPotential CPotential Catalyst: atalyst: atalyst: atalyst: Resumption of HSR construction
Where we differWhere we differWhere we differWhere we differ:::: Broadly in line with consensus Analyst Chong Tjen-San +60 3 26043972 tjensan@alliancedbs.com Tiesha Putri +6221 30034931 tiesha.narandha@id.dbsvickers.com
Price Relative
Forecasts and Valuation FY FY FY FY DecDecDecDec ((((RpRpRpRpbnbnbnbn) ) ) ) 2015201520152015AAAA 2016201620162016FFFF 2017201720172017FFFF 2018201820182018FFFF
Revenue 13,620 17,175 24,827 31,611 EBITDA 1,681 1,976 3,043 3,954 Pre-tax Profit 1,098 1,341 1,878 2,415 Net Profit 625 707 971 1,274 Net Pft (Pre Ex.) 625 707 971 1,274 Net Pft Gth (Pre-ex) (%) 2.8 13.1 37.5 31.2 EPS (Rp) 102 115 158 207 EPS Pre Ex. (Rp) 102 115 158 207 EPS Gth Pre Ex (%) 3 13 37 31 Diluted EPS (Rp) 102 115 158 207 Net DPS (Rp) 20.9 20.6 23.3 32.0 BV Per Share (Rp) 711 806 941 1,116 PE (X) 29.1 25.8 18.7 14.3 PE Pre Ex. (X) 29.1 25.8 18.7 14.3 P/Cash Flow (X) 76.3 49.1 39.9 33.8 EV/EBITDA (X) 12.0 12.0 8.6 7.3 Net Div Yield (%) 0.7 0.7 0.8 1.1 P/Book Value (X) 4.2 3.7 3.1 2.7 Net Debt/Equity (X) 0.2 0.7 0.9 1.1 ROAE (%) 15.1 15.1 18.1 20.2 Earnings Rev (%):Earnings Rev (%):Earnings Rev (%):Earnings Rev (%): 0 0 0 Consensus EPS Consensus EPS Consensus EPS Consensus EPS (Rp):::: 125 164 209
Other Broker Recs:Other Broker Recs:Other Broker Recs:Other Broker Recs: B: 14 S: 0 H: 11
Source of all data: Company, AllianceDBS Research, Bloomberg Finance L.P
Awaiting progress on high-speed rail Maintain HOLD. Maintain HOLD. Maintain HOLD. Maintain HOLD. We maintain our HOLD call on WIKA as we
believe its earnings outlook largely hinges on the progress of
its signature Jakarta-Bandung high-speed railway project. The
share price had a strong rally in the past few weeks as
investors had anticipated the approval of capital injection plan.
Recall that the company is planning to use the equity raising
proceeds to fund WIKA’s Rp8tr equity investment portion in 10
infrastructure projects. While this event should remove the
funding overhang on WIKA, we would like to see better
progress on the HSR project before turning more positive on
the stock.
The fast train is inching alongThe fast train is inching alongThe fast train is inching alongThe fast train is inching along. . . . Following the ground breaking
ceremony in Jan 2016, the construction for the project has yet
to resume, pending financial close with China Development
Bank (CDB) and issuance of the construction permit for the
remaining 137 km-long track. Recall that Ministry of
Transportation has only issued construction permit for 5 km-
long track to date.
Strong new contract growth but still way off targetStrong new contract growth but still way off targetStrong new contract growth but still way off targetStrong new contract growth but still way off target. . . . Up to
second week of June, the company has won Rp10.25tr worth
of new contracts (+37.5% y-o-y), making up 19% of
management’s FY16 target. Note that WIKA has set an
ambitious target to double its new contract wins to Rp52.8tr.
Jakarta-Bandung high speed railway (HSR) is expected to
contribute the most at c. 32% of FY16 target. We also note
that WIKA expects a surge in EPC jobs this year from only
Rp1tr new contracts in FY15 to Rp8.4tr in FY16 as it is
confident of winning some fuel storage and power plant
projects. Valuation:
Following the earnings revision, we cut our TP to Rp2,550 (vs.
Rp2,850 previously). We peg our TP to 22x FY16F EPS (mean
forward PE since 2012).
Key Risks to Our View:
Delay in project rolloutDelay in project rolloutDelay in project rolloutDelay in project rollout. Delay in project rollout, especially the
mega high-speed railway project, should lead to lower-than-
expected revenue and earnings. At A Glance Issued Capital (m shrs) 6,149
Mkt. Cap (Rpbn/US$m) 18,202 / 1,386
Major Shareholders (%)
Republic of Indonesia (%) 65.2 Free Float (%) 33.8 3m Avg. Daily Val (US$m) 2.5
ICB IndustryICB IndustryICB IndustryICB Industry : Industrials / Construction & Materials
DBS Group Research . Equity
30 Jun 2016
Indonesia Company Guide
Wijaya Karya Version 3 | Bloomberg: WIKA IJ | Reuters: WIKA.JK Refer to important disclosures at the end of this report
82
132
182
232
282
900.0
1,400.0
1,900.0
2,400.0
2,900.0
3,400.0
3,900.0
Jun-12 Jun-13 Jun-14 Jun-15 Jun-16
Relative IndexRp
Wijaya Karya (LHS) Relative JCI INDEX (RHS)
Page 112
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Wijaya Karya
CRITICAL DATA POINTS TO WATCH
Earnings Drivers:
Capital injection overhang liftedCapital injection overhang liftedCapital injection overhang liftedCapital injection overhang lifted. . . . Through plenary meeting, the
parliament recently approved WIKA’s proposal to obtain Rp4tr
government capital injection in 2016. The company will seek to
obtain additional Rp2.1tr cash from minority shareholders
through a rights issue in Nov 2016. Recall that WIKA plans to
use the equity raising proceeds to fund its equity investment in
10 infra projects worth Rp142tr, where its equity portion
amounts to Rp8tr. The management initially guided that if
capital injection is passed and the rights issue takes place in Sep
2016, FY16 net profit guidance might be raised by 9% to
Rp820bn.
All eyes on HSR. All eyes on HSR. All eyes on HSR. All eyes on HSR. The mega project Jakarta-Bandung HSR is now
running behind schedule after breaking ground in Jan 2016.
The construction work is halted pending the completion of the
detailed engineering design, issuance of construction permit for
the remaining 137 km-long track and financial closure with
CDB. Prior to this delay, WIKA expects to recognise 18% of the
targeted Rp19.23tr order book as revenue in FY16. Nonetheless
as the construction timeline is now stretched out to July 2016 at
the earliest, we see downside risk to management’s guidance.
Transit Oriented Development (TOD) plans remains a work in Transit Oriented Development (TOD) plans remains a work in Transit Oriented Development (TOD) plans remains a work in Transit Oriented Development (TOD) plans remains a work in
progress. progress. progress. progress. Following the appointment of the three world-class
property and urban development consultants (Aedas, Atkins
and Surbana Jurong) back in Jan 2016, more details on the TOD
plan is scheduled to be revealed this year. This should bring
more clarity on how the consortium plans to compensate HSR’s
low IRR (estimated FIRR is in the range of 6.5%-10.8%). The
HSR consortium plans to team up with private developers given
the high capital requirement to develop new townships.
Nonetheless, we believe WIKA Realty, WIKA’s property arm,
would play an important role in the development.
The TOD will be built in the vicinity of HSR’s four stations i.e.
Halim Perdanakusuma (East Jakarta), Karawang (West Java),
Walini (West Java) and Tegalluar (Bandung, West Java). Walini
would become the largest township project with a total area of
2,900ha, followed by Tegalluar (450ha). The consortium also
plans to develop the 250ha land in Karawang into a commercial
area. As for Halim, the project scale is relatively small with the
plan to build hotels and low-rise apartments on the 25ha land.
In total, the ToD would be built on 3,625ha land over the next
few years. At the end of Jan 2016, management claimed to
have secured commitment-to-sell from land owners for 45% of
HSR’s land requirement.
New Contract Win (Rp bn)
Total Order Book (Rp bn)
Blended Gross Margin (%)
Management's Guidance for FY16
WIKA's Funding Structure for HSR Equity Investment
Source: Company, AllianceDBS Research
17,632
25,222
45,313
37,698 36,965
0
6,538
13,076
19,614
26,152
32,690
39,228
45,766
2014A 2015A 2016F 2017F 2018F
23,784 23,301
31,362 32,531
40,216
0
8,204
16,408
24,612
32,817
2014A 2015A 2016F 2017F 2018F
11.412.1 11.8 11.9 12
0.0
2.5
5.0
7.4
9.9
12.4
2014A 2015A 2016F 2017F 2018F
New New New New
contractscontractscontractscontracts CapexCapexCapexCapex Net profitNet profitNet profitNet profit
Net profit Net profit Net profit Net profit
growthgrowthgrowthgrowth
(Rp bn)(Rp bn)(Rp bn)(Rp bn) (Rp bn)(Rp bn)(Rp bn)(Rp bn) (Rp bn)(Rp bn)(Rp bn)(Rp bn) (y-o-y)(y-o-y)(y-o-y)(y-o-y)
Government injects
Rp4tr capital; WIKA
holds rights issue in Seprights issue in Seprights issue in Seprights issue in Sep6,980 820 31%
WIKA holds private private private private
placementplacementplacementplacement in Nov
without the
government’s
participation 4,500 750 20%
52,802
ScenarioScenarioScenarioScenario
Revenue ex-Revenue ex-Revenue ex-Revenue ex-
JOJOJOJO
(Rp bn)(Rp bn)(Rp bn)(Rp bn)
19,386
Rights issueRp1.28tr
DebtRp1.75tr
Earnings from HSR
constructionRp1tr
Total WIKA'sequity investment
in PT KCICRp4tr
Page 113
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Wijaya Karya
Balance Sheet:
Room to increase debt still exists.Room to increase debt still exists.Room to increase debt still exists.Room to increase debt still exists. WIKA had Rp3.7tr debt at the
end of 1Q16 with a relatively low net gearing level at 0.39x,
while gearing ratio was at 0.67x.
Listing of WIKA Gedung. Listing of WIKA Gedung. Listing of WIKA Gedung. Listing of WIKA Gedung. The company is currently in the
process of spinning off its building construction business and
merging it into WIKA Gedung, one of WIKA’s subsidiaries.
Following the spinoff, WIKA plans to divest a 30% stake in
WIKA Gedung through IPO likely next year. The IPO is expected
to raise Rp1tr.
Share Price Drivers:
Progress on HSR project. Progress on HSR project. Progress on HSR project. Progress on HSR project. Further clarity on HSR project would be
a positive catalyst for WIKA. Among the key events to watch
are: i) completion of detailed engineering design, ii) issuance of
construction permit, and iii) financial closure. All of which
should pave way for WIKA to achieve its order book and
earnings target.
Faster rollFaster rollFaster rollFaster roll----out of government’s infrastructure projects. out of government’s infrastructure projects. out of government’s infrastructure projects. out of government’s infrastructure projects. If the
government manages to eliminate red tape and speed up the
execution of infrastructure development plan, WIKA’s share
price may re-rate upward.
Key Risks:
Delay in infrastructure project execution.Delay in infrastructure project execution.Delay in infrastructure project execution.Delay in infrastructure project execution. Delay in project
execution could lead to lower order book and earnings. Such
newsflow could also create negative sentiment towards
Indonesia's construction sector and lead to valuation de-rating.
Lower free cash flow generation in the medium term. Lower free cash flow generation in the medium term. Lower free cash flow generation in the medium term. Lower free cash flow generation in the medium term. Aside
from being the contractor, WIKA typically owns some stakes in
the assets being built. This exposes WIKA to the risk of
deteriorating cash flow generation, as such a business model
requires high capital investments and normally generates
negative cash flows in the early years of operations.
Earnings dilution due to rights issue. Earnings dilution due to rights issue. Earnings dilution due to rights issue. Earnings dilution due to rights issue. The company plans to
hold a rights issue to raise additional capital of Rp6.1tr this
year. The targeted proceeds represent 34% of its current
market capitalisation.
Company Background
Wijaya Karya is a construction company with interests in EPC,
civil, building works, precast and realty.
Leverage & Asset Turnover (x)
Capital Expenditure
ROE (%)
Forward PE Band (x)
PB Band (x)
Source: Company, AllianceDBS Research
0.7
0.8
0.8
0.9
0.9
1.0
1.0
0.00
0.20
0.40
0.60
0.80
1.00
1.20
2014A 2015A 2016F 2017F 2018F
Gross Debt to Equity (LHS) Asset Turnover (RHS)
0.0
500.0
1,000.0
1,500.0
2,000.0
2,500.0
3,000.0
3,500.0
4,000.0
2014A 2015A 2016F 2017F 2018F
Capital Expenditure (-)
Rpm
0.0%
5.0%
10.0%
15.0%
20.0%
2014A 2015A 2016F 2017F 2018F
Avg: 21x
+1sd: 26.5x
+2sd: 31.9x
-1sd: 15.6x
-2sd: 10.2x9.1
14.1
19.1
24.1
29.1
34.1
39.1
Jun-12 Jun-13 Jun-14 Jun-15 Jun-16
(x)
Avg: 4.18x
+1sd: 5x
+2sd: 5.82x
-1sd: 3.35x
-2sd: 2.53x2.2
2.7
3.2
3.7
4.2
4.7
5.2
5.7
6.2
6.7
7.2
Jun-12 Jun-13 Jun-14 Jun-15 Jun-16
(x)
Page 114
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Wijaya Karya
Key Assumptions
FY FY FY FY DecDecDecDec 2014201420142014AAAA 2015201520152015AAAA 2016201620162016FFFF 2017201720172017FFFF 2018201820182018FFFF
New Contract Win (Rp bn) 17,632 25,222 45,313 37,698 36,965
Total Order Book (Rp bn) 23,784 23,302 31,362 32,531 40,216
Blended Gross Margin (%) 11.4 12.1 11.8 11.9 12.0 Segmental Breakdown
FY FY FY FY DecDecDecDec 2014201420142014AAAA 2015201520152015AAAA 2016201620162016FFFF 2017201720172017FFFF 2018201820182018FFFF Revenues (Rpbn)
Construction 4,731 5,984 8,866 13,231 17,365
EPC 3,179 3,370 3,001 4,130 5,282
Industrial (Precast) 3,271 2,830 4,166 5,856 6,886
Property 1,283 1,436 1,142 1,611 2,077
TotalTotalTotalTotal 12,46312,46312,46312,463 13,62013,62013,62013,620 17,17517,17517,17517,175 24,82724,82724,82724,827 31,61131,61131,61131,611
Gross Profit (Rpbn) Construction 371 593 913 1,433 1,912
EPC 273 424 360 496 634
Industrial (Precast) 544 400 574 778 914
Property 237 238 183 258 332
TotalTotalTotalTotal 1,4251,4251,4251,425 1,6551,6551,6551,655 2,0302,0302,0302,030 2,9642,9642,9642,964 3,7923,7923,7923,792
Gross Profit Margins (%) Construction 7.8 9.9 10.3 10.8 11.0
EPC 8.6 12.6 12.0 12.0 12.0
Industrial (Precast) 16.6 14.1 13.8 13.3 13.3
Property 18.4 16.6 16.0 16.0 16.0
TotalTotalTotalTotal 11.411.411.411.4 12.112.112.112.1 11.811.811.811.8 11.911.911.911.9 12.012.012.012.0
Income Statement (Rpbn)
FY FY FY FY DecDecDecDec 2014201420142014AAAA 2015201520152015AAAA 2016201620162016FFFF 2017201720172017FFFF 2018201820182018FFFF Revenue 12,463 13,620 17,175 24,827 31,611
Cost of Goods Sold (11,039) (11,965) (15,145) (21,863) (27,819)
Gross ProfitGross ProfitGross ProfitGross Profit 1,4251,4251,4251,425 1,6551,6551,6551,655 2,0302,0302,0302,030 2,9642,9642,9642,964 3,7923,7923,7923,792 Other Opng (Exp)/Inc (393) (429) (546) (757) (934)
Operating ProfitOperating ProfitOperating ProfitOperating Profit 1,0321,0321,0321,032 1,2261,2261,2261,226 1,4851,4851,4851,485 2,2072,2072,2072,207 2,8582,8582,8582,858 Other Non Opg (Exp)/Inc (131) (38.6) (46.3) (55.6) (66.7)
Associates & JV Inc 363 283 287 377 492
Net Interest (Exp)/Inc (124) (372) (384) (650) (868)
Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0
PrePrePrePre----tax Profittax Profittax Profittax Profit 1,1391,1391,1391,139 1,0981,0981,0981,098 1,3411,3411,3411,341 1,8781,8781,8781,878 2,4152,4152,4152,415 Tax (395) (395) (490) (709) (921)
Minority Interest (136) (78.0) (144) (198) (220)
Preference Dividend 0.0 0.0 0.0 0.0 0.0
Net ProfitNet ProfitNet ProfitNet Profit 608608608608 625625625625 707707707707 971971971971 1,2741,2741,2741,274
Net Profit before Except. 608 625 707 971 1,274
EBITDA 1,393 1,681 1,976 3,043 3,954
Growth
Revenue Gth (%) 4.9 9.3 26.1 44.6 27.3
EBITDA Gth (%) 21.1 20.7 17.6 54.0 30.0
Opg Profit Gth (%) 8.0 18.8 21.2 48.6 29.5
Net Profit Gth (Pre-ex) (%) 6.7 2.8 13.1 37.5 31.2
Margins & Ratio
Gross Margins (%) 11.4 12.1 11.8 11.9 12.0
Opg Profit Margin (%) 8.3 9.0 8.6 8.9 9.0
Net Profit Margin (%) 4.9 4.6 4.1 3.9 4.0
ROAE (%) 18.0 15.1 15.1 18.1 20.2
ROA (%) 4.3 3.5 3.2 3.6 3.9
ROCE (%) 9.1 7.9 7.6 8.8 9.5
Div Payout Ratio (%) 28.1 20.6 17.9 14.7 15.4
Net Interest Cover (x) 8.3 3.3 3.9 3.4 3.3
Source: Company, AllianceDBS Research
We assumed Rp17tr new contracts from Jakarta-Bandung HSR.
Expect HSR’s construction profit to contribute 11% to WIKA’s FY16F operating profit.
Page 115
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Wijaya Karya
Quarterly / Interim Income Statement (Rpbn)
FY FY FY FY DecDecDecDec 1Q1Q1Q1Q2015201520152015 2Q2Q2Q2Q2015201520152015 3Q3Q3Q3Q2015201520152015 4Q4Q4Q4Q2015201520152015 1Q1Q1Q1Q2016201620162016 Revenue 2,005 2,773 3,313 5,529 2,727
Cost of Goods Sold (1,821) (2,462) (2,830) (4,853) (2,435)
Gross ProfitGross ProfitGross ProfitGross Profit 185185185185 312312312312 483483483483 676676676676 292292292292 Other Oper. (Exp)/Inc (82.3) (102) (104) (141) (87.0)
Operating ProfitOperating ProfitOperating ProfitOperating Profit 103103103103 209209209209 379379379379 535535535535 205205205205 Other Non Opg (Exp)/Inc 17.5 (17.3) (7.1) (31.6) (0.7)
Associates & JV Inc 47.6 50.3 73.1 112 28.4
Net Interest (Exp)/Inc (53.0) (10.2) (150) (159) (60.4)
Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0
PrePrePrePre----tax Profittax Profittax Profittax Profit 115115115115 232232232232 295295295295 457457457457 172172172172 Tax (48.0) (78.9) (93.6) (175) (77.9)
Minority Interest (5.1) (14.3) (11.1) (47.5) (22.5)
Net ProfitNet ProfitNet ProfitNet Profit 61.561.561.561.5 139139139139 190190190190 235235235235 71.771.771.771.7 Net profit bef Except. 61.5 139 190 235 71.7
EBITDA 168 242 445 615 232
Growth
Revenue Gth (%) (48.0) 38.3 19.5 66.9 (50.7)
EBITDA Gth (%) (64.9) 44.6 83.5 38.3 (62.2)
Opg Profit Gth (%) (72.6) 104.3 80.9 41.2 (61.7)
Net Profit Gth (Pre-ex) (%) (70.3) 125.9 36.7 23.4 (69.4)
Margins Gross Margins (%) 9.2 11.2 14.6 12.2 10.7
Opg Profit Margins (%) 5.1 7.6 11.4 9.7 7.5
Net Profit Margins (%) 3.1 5.0 5.7 4.2 2.6
Balance Sheet (Rpbn)
FY FY FY FY DecDecDecDec 2014201420142014AAAA 2015201520152015AAAA 2016201620162016FFFF 2017201720172017FFFF 2018201820182018FFFF Net Fixed Assets 2,676 3,184 6,534 8,519 10,848
Invts in Associates & JVs 1,897 1,898 2,185 2,561 3,053
Other LT Assets 1,855 1,960 1,960 1,960 1,960
Cash & ST Invts 2,301 2,560 1,705 1,518 859
Inventory 817 1,031 1,224 1,755 2,231
Debtors 4,416 6,278 7,764 10,543 13,424
Other Current Assets 1,948 2,691 2,826 2,967 3,115
Total AssetsTotal AssetsTotal AssetsTotal Assets 15,90915,90915,90915,909 19,60219,60219,60219,602 24,19624,19624,19624,196 29,82229,82229,82229,822 35,49035,49035,49035,490
ST Debt
1,691 1,796 1,796 1,796 1,796
Creditor 3,903 4,323 5,478 7,852 9,985
Other Current Liab 2,882 4,479 4,694 4,920 5,157
LT Debt 1,275 1,646 4,146 6,146 8,146
Other LT Liabilities 1,281 1,921 1,921 1,921 1,921
Shareholder’s Equity 3,888 4,375 4,955 5,784 6,862
Minority Interests 989 1,063 1,207 1,405 1,625
Total Cap. & Liab.Total Cap. & Liab.Total Cap. & Liab.Total Cap. & Liab. 15,90915,90915,90915,909 19,60219,60219,60219,602 24,19624,19624,19624,196 29,82229,82229,82229,822 35,49035,49035,49035,490
Non-Cash Wkg. Capital 395 1,198 1,642 2,493 3,629
Net Cash/(Debt) (665) (882) (4,237) (6,424) (9,082)
Debtors Turn (avg days) 116.0 143.3 149.2 134.6 138.4
Creditors Turn (avg days) 117.0 127.7 120.1 114.0 119.9
Inventory Turn (avg days) 32.4 28.7 27.6 25.5 26.8
Asset Turnover (x) 0.9 0.8 0.8 0.9 1.0
Current Ratio (x) 1.1 1.2 1.1 1.2 1.2
Quick Ratio (x) 0.8 0.8 0.8 0.8 0.8
Net Debt/Equity (X) 0.1 0.2 0.7 0.9 1.1
Net Debt/Equity ex MI (X) 0.2 0.2 0.9 1.1 1.3
Capex to Debt (%) 34.9 20.4 60.6 31.5 30.2
Z-Score (X) NA NA NA NA NA
Source: Company, AllianceDBS Research
Page 116
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Wijaya Karya
Cash Flow Statement (Rpbn)
FY FY FY FY DecDecDecDec 2014201420142014AAAA 2015201520152015AAAA 2016201620162016FFFF 2017201720172017FFFF 2018201820182018FFFF Pre-Tax Profit 1,139 1,098 1,341 1,878 2,415
Dep. & Amort. 129 211 251 515 671
Tax Paid (370) (479) (490) (709) (921)
Assoc. & JV Inc/(loss) (363) (283) (287) (377) (492)
Chg in Wkg.Cap. (665) (811) (444) (851) (1,136)
Other Operating CF (49.2) 503 0.0 0.0 0.0
Net Operating CFNet Operating CFNet Operating CFNet Operating CF (178)(178)(178)(178) 238238238238 371371371371 456456456456 538538538538 Capital Exp.(net) (1,036) (701) (3,600) (2,500) (3,000)
Other Invts.(net) (316) (12.0) 0.0 0.0 0.0
Invts in Assoc. & JV (48.6) 282 0.0 0.0 0.0
Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0
Other Investing CF 132 106 0.0 0.0 0.0
Net Investing CFNet Investing CFNet Investing CFNet Investing CF (1,268)(1,268)(1,268)(1,268) (325)(325)(325)(325) (3,600)(3,600)(3,600)(3,600) (2,500)(2,500)(2,500)(2,500) (3,000)(3,000)(3,000)(3,000) Div Paid (171) (129) (127) (143) (197)
Chg in Gross Debt 638 479 2,500 2,000 2,000
Capital Issues 448 0.0 0.0 0.0 0.0
Other Financing CF 1,446 (4.0) 0.0 0.0 0.0
Net Financing CFNet Financing CFNet Financing CFNet Financing CF 2,3602,3602,3602,360 346346346346 2,3742,3742,3742,374 1,8571,8571,8571,857 1,8041,8041,8041,804
Currency Adjustments 0.0 0.0 0.0 0.0 0.0
Chg in Cash 914 259 (856) (187) (659)
Opg CFPS (Rp) 79.2 171 133 213 272
Free CFPS (Rp) (197) (75.2) (525) (332) (400)
Source: Company, AllianceDBS Research
Target Price & Ratings History
Source: AllianceDBS Research
S.No.S.No.S.No.S.No. DateDateDateDate Closing PriceClosing PriceClosing PriceClosing PriceTarget Target Target Target
PricePricePricePriceRating Rating Rating Rating
1: 10 Aug 15 2650 3000 HOLD
2: 25 Nov 15 2875 2850 HOLD
3: 01 Dec 15 2865 2850 HOLD
4: 01 Feb 16 2745 2850 HOLD
5: 02 May 16 2580 2550 HOLD
6: 04 May 16 2560 2550 HOLD
7: 01 Jun 16 2450 2550 HOLD
8: 23 Jun 16 2860 2550 HOLD
Note Note Note Note : Share price and Target price are adjusted for corporate actions.
1
23
4
5
6
7
8
2099
2299
2499
2699
2899
3099
3299
Jun-15 Oct-15 Feb-16 Jun-16
RpRpRpRp
Page 117
ASIAN INSIGHTS VICKERS SECURITIES ed: JS / sa: MA
HOLD Last Traded Price: Rp975 (JCI : 4,980.11) Price Target : Rp1,000 (3% upside) Potential Catalyst: Resumption of HSR construction Where we differ: We have factored in potential earnings from HSR Analyst Chong Tjen-San +60 3 26043972 tjensan@alliancedbs.com Tiesha Putri +6221 30034931 tiesha.narandha@id.dbsvickers.com
Price Relative
Forecasts and Valuation FY Dec (Rpbn) 2015A 2016F 2017F 2018F Revenue 2,653 4,166 5,856 6,886 EBITDA 322 557 758 898 Pre-tax Profit 206 463 640 712 Net Profit 174 348 479 533 Net Pft (Pre Ex.) 174 348 479 533 Net Pft Gth (Pre-ex) (%) (47.1) 100.3 37.6 11.3 EPS (Rp) 20.0 40.0 55.0 61.2 EPS Pre Ex. (Rp) 20.0 40.0 55.0 61.2 EPS Gth Pre Ex (%) (47) 100 38 11 Diluted EPS (Rp) 20.0 40.0 55.0 61.2 Net DPS (Rp) 11.3 5.99 12.0 16.5 BV Per Share (Rp) 253 287 330 375 PE (X) 48.9 24.4 17.7 15.9 PE Pre Ex. (X) 48.9 24.4 17.7 15.9 P/Cash Flow (X) 18.5 15.1 15.4 13.2 EV/EBITDA (X) 25.7 15.0 11.6 10.0 Net Div Yield (%) 1.2 0.6 1.2 1.7 P/Book Value (X) 3.9 3.4 3.0 2.6 Net Debt/Equity (X) CASH CASH 0.1 0.1 ROAE (%) 8.0 14.8 17.8 17.4 Earnings Rev (%): 0 0 0 Consensus EPS (Rp): 33.8 44.8 55.5 Other Broker Recs: B: 6 S: 0 H: 5
Source of all data: Company, AllianceDBS Research, DBS Vickers, Bloomberg Finance L.P
Waiting for the train Preferred HSR play, but maintain Hold on lofty valuation and slow progress of HSR. With a market share of 40%, Wijaya Karya Beton (WTON) remains an important proxy to Indonesia’s infrastructure story. We have seen significant improvements in the government’s project execution and are confident that this would help WTON’s earnings to recover this year. Nonetheless, we see limited upside for WTON’s share price from the current level unless there is notable progress on Jakarta-Bandung high-speed railway (HSR) project. Currently, construction has halted pending the issuance of construction permit and financial closure. Banking on Jakarta-Bandung HSR and WIKA’s internal projects. The HSR consortium is working to finalise the detailed engineering design of the project which is expected to bring more clarity on the total precast requirements and order size for WTON. Management’s latest estimate suggests that the project would bring in new contracts worth Rp6tr-Rp9tr in 2016-2019 which is equal to 1.4-2.2x our forecast revenue for FY16. We understand that most state-run contractors have lately been expanding their precast manufacturing capacity to support their internal projects, resulting in some loss for WTON. This was reflected in last year’s decline in revenue and earnings. WIKA’s multi-year projects (such as HSR and LRT) would support earnings recovery this year. 5M16 new contracts in line. For the five months to may 2016, WTON has secured Rp1.55tr worth of new contracts, making up 36% of management’s full-year guidance of Rp4.3tr. Note that the guidance does not take into account potential orders from the Jakarta-Bandung HSR. Valuation:
We maintain our TP at Rp1,000, based on 25x FY16F EPS (at -0.7SD of its 2-year forward PE mean). Key Risks to Our View:
Delay in government’s infrastructure project rollout, particularly for the Jakarta-Bandung HSR, would result in lower-than-expected order book and earnings for WTON. At A Glance Issued Capital (m shrs) 8,715 Mkt. Cap (Rpbn/US$m) 8,498 / 647 Major Shareholders (%) PT Wijaya Karya (Persero) Tbk 60.0KKMS 8.8Treasury Stock 4.3
Free Float (%) 26.93m Avg. Daily Val (US$m) 1.2 ICB Industry : Industrials / Construction & Materials
DBS Group Research . Equity 30 Jun 2016
Indonesia Company Guide
Wijaya Karya Beton Version 3 | Bloomberg: WTON IJ | Reuters: WTON.JK Refer to important disclosures at the end of this report
89
109
129
149
169
189
209
229
531.0
731.0
931.0
1,131.0
1,331.0
1,531.0
Apr-14 Oct-14 Apr-15 Oct-15 Apr-16
Relative IndexRp
Wijaya Karya Beton (LHS) Relative JCI INDEX (RHS)
Page 118
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Wijaya Karya Beton
CRITICAL DATA POINTS TO WATCH
Earnings Drivers:
Clear beneficiary of Jakarta-Bandung high-speed railway. WTON recently agreed to support its parent company, Wijaya Karya, to supply precast to the Jakarta-Bandung HSR project. The company estimates that the project requires 3.5m tonnes of precast concrete in 2016-2018 or roughly 1.17m tonnes p.a., on par with WTON’s annual capacity from West Java factory, with the contract value ranging from Rp6tr to Rp9tr. The company plans to set up several temporary production facilities near HSR’s 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 while WIKA has expressed interest to bid for Bandung LRT construction work, which would benefit WTON. We expect HSR project to contribute 13% and 41% to our FY16F and FY17F net profit respectively. Better revenue visibility with 5M16 order backlog reaching 0.6x of our FY16 revenue forecast. WTON expects to win Rp4.3tr worth of new contracts in FY16, a 23% increase from FY15. The company also has Rp1.7tr order backlog from FY15. Including the contracts brought forward, WTON’s order book would be Rp2.4tr at the end of May 2016 or 0.6x of our FY16 forecasted revenue. As WTON’s precast orders are typically delivered and recognised as revenue within 3-6 months, we are confident that this large backlog will enable WTON’s earnings to recover this year. First-mover advantage in ex Java market. WTON has continued to expand its coverage to markets outside Java where competitors are fewer. 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 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 FY15, net margin of ex Java market was 200bps higher than Java’s.
Gross profit margin (%)
Production capacity ('000 tons)
Sales volume ('000 tons)
Utilization rate (%)
Source: Company, AllianceDBS Research, DBS Vickers
14.9
12.4
13.813.3 13.3
0.0
2.1
4.3
6.4
8.6
10.7
12.9
15.0
2014A 2015A 2016F 2017F 2018F
2,2002,300
2,500
3,000
3,300
0
673
1,346
2,020
2,693
3,366
2014A 2015A 2016F 2017F 2018F
1,464 1,413
1,868
2,532
2,863
0
584
1,168
1,752
2,336
2,920
2014A 2015A 2016F 2017F 2018F
66.561.4
74.7
84.4 86.7
0.0
17.5
35.0
52.6
70.1
87.6
2014A 2015A 2016F 2017F 2018F
Page 119
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Wijaya Karya Beton
Balance Sheet:
Robust balance sheet to fund expansion plan. We expect WTON to maintain its net cash position over the next two years. To fund the increasing working capital needs, the company plans to sell its treasury stocks to the public this year. The planned expansion over the next two years will boost capacity to 3m tons 2.3m in 2015 but should be adequately funded by internally generated funds. Assuming the treasury stocks are sold at Rp920/share, the proceeds raised would be Rp347bn.
Share Price Drivers:
Award of large-sized, multi-year contracts. Among the potential contracts are Jakarta-Bandung HSR, Greater Jakarta LRT and Giant Sea Wall. Resumption of Jakarta-Bandung HSR construction. Construction on the Jakarta-Bandung HSR project is currently halted after breaking ground in Jan 2016, as the consortium needs to finalise the detailed engineering design and secure the construction permit from the government before resuming construction activities. The resumption 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 high-speed railway, 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. 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 FY15, Java contributed to 55% and 46% 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 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 c.40% market share.
Leverage & Asset Turnover (x)
Capital Expenditure
ROE (%)
Forward PE Band (x)
PB Band (x)
Source: Company, AllianceDBS Research, DBS Vickers
0.6
0.7
0.7
0.8
0.8
0.9
0.9
1.0
1.0
0.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
2014A 2015A 2016F 2017F 2018F
Gross Debt to Equity (LHS) Asset Turnover (RHS)
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
800.0
900.0
1,000.0
2014A 2015A 2016F 2017F 2018F
Capital Expenditure (-)
Rpm
0.0%
5.0%
10.0%
15.0%
20.0%
2014A 2015A 2016F 2017F 2018F
Avg: 27.8x
+1sd: 40.4x
+2sd: 53x
‐1sd: 15.2x
‐2sd: 2.6x2.3
12.3
22.3
32.3
42.3
52.3
62.3
Apr-14 Oct-14 Apr-15 Oct-15 Apr-16
(x)
Avg: 4.36x
+1sd: 5.22x
+2sd: 6.07x
‐1sd: 3.51x
‐2sd: 2.66x2.3
2.8
3.3
3.8
4.3
4.8
5.3
5.8
6.3
Apr-14 Oct-14 Apr-15 Oct-15 Apr-16
(x)
Rpbn
Page 120
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Wijaya Karya Beton
Key Assumptions
FY Dec 2014A 2015A 2016F 2017F 2018F Gross profit margin (%) 14.9 12.4 13.8 13.3 13.3 Production capacity ('000 2,200 2,300 2,500 3,000 3,300 Sales volume ('000 tons) 1,464 1,413 1,868 2,532 2,863 Utilization rate (%) 66.5 61.4 74.7 84.4 86.7
Segmental Breakdown
FY Dec 2014A 2015A 2016F 2017F 2018F Revenues (Rpbn) Concrete 3,228 2,591 4,101 5,781 6,798 Service 49.7 61.7 65.0 75.1 88.4 Total 3,277 2,653 4,166 5,856 6,886 Gross Profit (Rpbn)
Concrete 396 231 462 641 752 Service 12.7 7.40 7.80 9.00 10.6 Total 409 238 470 650 764 Gross Profit Margins (%) Concrete 12.3 8.9 11.3 11.1 11.1 Service 25.5 12.0 12.0 12.0 12.0 Total 12.5 9.0 11.3 11.1 11.1
Income Statement (Rpbn)
FY Dec 2014A 2015A 2016F 2017F 2018F Revenue 3,277 2,653 4,166 5,856 6,886 Cost of Goods Sold (2,790) (2,324) (3,592) (5,077) (5,972) Gross Profit 487 329 574 778 914 Other Opng (Exp)/Inc (76.9) (90.2) (104) (129) (152) Operating Profit 410 238 470 650 763 Other Non Opg (Exp)/Inc (3.4) (6.4) 0.0 0.0 0.0 Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc 6.00 (25.9) (8.4) (10.7) (51.4) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 413 206 463 640 712 Tax (89.1) (34.3) (115) (160) (178) Minority Interest 6.10 2.10 2.10 0.0 0.0 Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 329 174 348 479 533 Net Profit before Except. 329 174 348 479 533 EBITDA 492 322 557 758 898 Growth Revenue Gth (%) 24.0 (19.1) 57.1 40.6 17.6 EBITDA Gth (%) 25.1 (34.5) 73.0 36.1 18.5 Opg Profit Gth (%) 22.0 (41.9) 97.1 38.2 17.4 Net Profit Gth (Pre-ex) (%) 35.3 (47.1) 100.3 37.6 11.3 Margins & Ratio Gross Margins (%) 14.9 12.4 13.8 13.3 13.3 Opg Profit Margin (%) 12.5 9.0 11.3 11.1 11.1 Net Profit Margin (%) 10.0 6.6 8.4 8.2 7.7 ROAE (%) 23.4 8.0 14.8 17.8 17.4 ROA (%) 9.8 4.2 7.1 8.0 7.5 ROCE (%) 15.5 6.9 11.5 13.9 14.5 Div Payout Ratio (%) 30.0 56.7 15.0 21.8 26.9 Net Interest Cover (x) NM 9.2 56.0 60.7 14.8
Source: Company, AllianceDBS Research, DBS Vickers
Expecting Jakarta-Bandung HSR project to contribute 15% to FY16F revenue.
Page 121
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Wijaya Karya Beton
Quarterly / Interim Income Statement (Rpbn)
FY Dec 1Q2015 2Q2015 3Q2015 4Q2015 1Q2016 Revenue 428 464 658 1,104 733 Cost of Goods Sold (394) (383) (583) (964) (642) Gross Profit 34.1 80.5 74.3 140 91.0 Other Oper. (Exp)/Inc (17.9) (21.8) (20.7) (29.7) (17.8) Operating Profit 16.2 58.7 53.6 110 73.2 Other Non Opg (Exp)/Inc (2.0) (3.3) 0.20 (1.4) 0.60 Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc 2.90 (9.0) (10.5) (9.4) (4.2) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 17.1 46.4 43.3 99.2 69.7 Tax (2.1) (10.0) (9.6) (12.6) (16.3) Minority Interest 2.00 0.10 0.50 (0.5) (3.1) Net Profit 17.0 36.5 34.2 86.1 50.2 Net profit bef Except. 17.0 36.5 34.2 86.1 50.2 EBITDA 14.2 55.4 53.8 109 73.8 Growth Revenue Gth (%) (55.2) 8.5 41.8 67.9 (33.6) EBITDA Gth (%) (88.9) 291.2 (2.9) 101.9 (32.0) Opg Profit Gth (%) (87.1) 262.6 (8.7) 105.2 (33.5) Net Profit Gth (Pre-ex) (%) (83.8) 114.7 (6.3) 151.7 (41.7) Margins Gross Margins (%) 8.0 17.4 11.3 12.7 12.4 Opg Profit Margins (%) 3.8 12.7 8.2 10.0 10.0 Net Profit Margins (%) 4.0 7.9 5.2 7.8 6.9
Balance Sheet (Rpbn)
FY Dec 2014A 2015A 2016F 2017F 2018F Net Fixed Assets 1,671 1,998 2,494 3,298 3,856 Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0 Other LT Assets 4.10 3.70 3.70 3.70 3.70 Cash & ST Invts 1,039 824 853 489 294 Inventory 458 623 848 1,201 1,411 Debtors 476 570 821 1,154 1,357 Other Current Assets 155 439 378 496 573 Total Assets 3,802 4,456 5,397 6,641 7,495 ST Debt 565 212 312 412 412 Creditor 420 558 767 1,087 1,277 Other Current Liab 525 1,025 1,361 1,811 2,085 LT Debt 1.20 320 320 320 320 Other LT Liabilities 88.5 79.2 79.2 79.2 79.2 Shareholder’s Equity 2,143 2,205 2,501 2,876 3,266 Minority Interests 59.5 58.2 56.1 56.1 56.1 Total Cap. & Liab. 3,802 4,456 5,397 6,641 7,495 Non-Cash Wkg. Capital 144 49.3 (81.4) (46.8) (20.2) Net Cash/(Debt) 472 292 222 (243) (437) Debtors Turn (avg days) 50.0 72.0 60.9 61.6 66.6 Creditors Turn (avg days) 50.3 79.9 68.9 68.1 73.9 Inventory Turn (avg days) 87.9 88.2 76.5 75.2 81.7 Asset Turnover (x) 1.0 0.6 0.8 1.0 1.0 Current Ratio (x) 1.4 1.4 1.2 1.0 1.0 Quick Ratio (x) 1.0 0.8 0.7 0.5 0.4 Net Debt/Equity (X) CASH CASH CASH 0.1 0.1 Net Debt/Equity ex MI (X) CASH CASH CASH 0.1 0.1 Capex to Debt (%) 139.6 88.8 92.2 124.7 94.6 Z-Score (X) 4.8 3.5 3.2 2.9 2.8
Source: Company, AllianceDBS Research, DBS Vickers
EBIT margin improved y-o-y on better utilisation rate.
Page 122
ASIAN INSIGHTS VICKERS SECURITIES
Company Guide
Wijaya Karya Beton
Cash Flow Statement (Rpbn)
FY Dec 2014A 2015A 2016F 2017F 2018F Pre-Tax Profit 412 206 462 639 711 Dep. & Amort. 84.8 89.9 86.0 108 135 Tax Paid (125) (34.3) (115) (160) (178) Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0 Chg in Wkg.Cap. (283) 94.4 131 (34.6) (26.6) Other Operating CF 103 102 0.0 0.0 0.0 Net Operating CF 192 458 563 552 641 Capital Exp.(net) (790) (472) (582) (912) (692) 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 0.0 0.0 0.0 Net Investing CF (790) (472) (582) (912) (692) Div Paid (20.0) (98.6) (52.2) (105) (144) Chg in Gross Debt 13.0 (103) 100 100 0.0 Capital Issues 1,193 0.0 0.0 0.0 0.0 Other Financing CF 37.4 0.80 0.0 0.0 0.0 Net Financing CF 1,224 (201) 47.8 (4.5) (144) Currency Adjustments 0.0 0.0 0.0 0.0 0.0 Chg in Cash 625 (215) 28.6 (365) (194) Opg CFPS (Rp) 54.4 41.8 49.6 67.3 76.6 Free CFPS (Rp) (68.6) (1.6) (2.2) (41.3) (5.8)
Source: Company, AllianceDBS Research, DBS Vickers
Target Price & Ratings History
Source: AllianceDBS Research
S.No. Date Closing PriceTarget Price
Rating
1: 10 Aug 15 1060 1200 BUY
2: 25 Nov 15 915 1000 HOLD
3: 01 Dec 15 910 1000 HOLD
4: 01 Feb 16 990 1000 HOLD
5: 03 Mar 16 945 1000 HOLD
6: 28 Apr 16 975 1000 HOLD
7: 04 May 16 935 1000 HOLD
8: 01 Jun 16 915 1000 HOLD
Note : Share price and Target price are adjusted for corporate actions.
1
23
4
5
6
7
8
741
791
841
891
941
991
1041
1091
1141
1191
Jun-15 Oct-15 Feb-16 Jun-16
Rp
Page 123
Asian Insights SparX
Asean Construction
Page 124
AllianceDBS Research recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
Share price appreciation + dividends
GENERAL DISCLOSURE/DISCLAIMER
This report is prepared by AllianceDBS Research Sdn Bhd This report is solely intended for the clients of DBS Bank Ltd and DBS Vickers Securities
(Singapore) Pte Ltd, its respective connected and associated corporations and affiliates 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.
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”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard
to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of
addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal
or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of
profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This
document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or
persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have
positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and
other banking services for these companies.
Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can
be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments.
The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it
may not contain all material information concerning the company (or companies) referred to in this report.
This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere.
The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and
assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on
which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual
results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED
UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:
(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and
(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk
assessments stated therein.
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.
DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research
department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction
in the past twelve months and does not engage in market-making.
ANALYST CERTIFICATION
The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the
companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her
Asian Insights SparX
Asean Construction
Page 125
compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of 11 Jul 2016, the
analyst(s) and his/her spouse and/or relatives who are financially dependent on the analyst(s), do not hold interests in the securities recommended
in this report (“interest” includes direct or indirect ownership of securities).
COMPANY-SPECIFIC / REGULATORY DISCLOSURES
1. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates do not have a proprietary
positions in the Gamuda, IJM Corp, Kimlun Corp, MMC Corporation, Muhibbah Engineering, Sunway Construction Group, WCT Holdings
Bhd, Pembangunan Perumahan, Waskita Karya, Wijaya Karya, Wijaya Karya Beton recommended in this report as of 30 June 2016
DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates do not have a proprietary
positions in the Ch. Karnchang, Sino-Thai Engineering & Con.recommended in this report as of 31 May 2016
2. Compensation for investment banking services:
DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a
manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further
information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document
should contact DBSVUSA exclusively.
RESTRICTIONS ON DISTRIBUTION
General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.
Australia This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), both of which are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.
Hong Kong This report is being distributed in Hong Kong by DBS Vickers (Hong Kong) Limited which is licensed and regulated by the Hong Kong Securities and Futures Commission and/or by DBS Bank (Hong Kong) Limited which is regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission. Where this publication relates to a research report, unless otherwise stated in the research report(s), DBS Bank (Hong Kong) Limited is not the issuer of the research report(s). This publication including any research report(s) is/are distributed on the express understanding that, whilst the information contained within is believed to be reliable, the information has not been independently verified by DBS Bank (Hong Kong) Limited. This report is intended for distribution in Hong Kong only to professional investors (as defined in the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) and any rules promulgated thereunder.)
Indonesia This report is being distributed in Indonesia by PT DBS Vickers Securities Indonesia.
Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.
Wong Ming Tek, Executive Director, ADBSR
Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report.
Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are only intended for institutional clients only and no other person may act upon it.
Asian Insights SparX
Asean Construction
Page 126
United Kingdom This report is being distributed in the UK by DBS Vickers Securities (UK) Ltd, who is an authorised person in the meaning of the Financial Services and Markets Act and is regulated by The Financial Conduct Authority. Research distributed in the UK is intended only for institutional clients.
Dubai This research report is being distributed in The Dubai International Financial Centre (“DIFC”) by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3rd Floor, Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it.
United States This report was prepared by AllianceDBS Research Sdn Bhd. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.
Other jurisdictions In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.
AllianceDBS Research Sdn Bhd
(128540 U)
19th Floor, Menara Multi-Purpose, Capital Square,
8 Jalan Munshi Abdullah 50100
Kuala Lumpur, Malaysia.
Tel.: +603 2604 3333 Fax: +603 2604 3921 email : general@alliancedbs.com