Refer to Important disclosures in the last page of this report
Price to Orderbook multiple
-
0
0
0
0
0
0
0
0
Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17
+2SD
+1SD
(X)
AVG
-1SD
-2SD
Source: Bloomberg
More attractively valued than ever
� Order book and profit growth is slowing after peaking in 2016.
� Valuation has fully priced-in slower growth outlook, in our view.
� Pre-cast business offers higher margin, lower risk from turnkey.
� Initiate coverage with Buys on WTON (our top pick) and WSBP.
Order book growth may have peaked in 2016. Aggregate new contract and
order book of the Big Four SOE contractors grew at 5-yr CAGR of 30%/32% in
2011-2016, respectively, with their peak growth of 70%/58% in 2016, respectively.
However, we forecast growth to slow to 8.3%/26.7% in 2017F, respectively, due to
very high base and financing contraints, despite sustained high fiscal budget for
infra spending in 2017/2018. We forecast construction earnings to grow 73% in
2017F; c.21% in 2018-19F – although slowing vs. prior years, these are robust
growth outlook which are well above equity market growth in Indonesia.
Valuation has fully priced-in slower growth outlook. Slowing order book
growth, rising earnings risks from self-funded (turnkey) projects, and uncertainty on
2019 election outcome, may have contributed to the sharp derating of the sector in
2017. Although financing costs have risen sharply, in part due to contribution of
turnkey projects/delayed payments from the government, we believe the risk is
mitigated by improving operating efficiency on the back of still robust revenue
growth in next 3 years. Moreover, price-to-order book and price-to-earnings ratios
have fallen to 0.2x and 13x, respectively, from their peaks of >0.3x and 20x,
respectively, or returning to 2012 levels (before the era of President Jokowi). As
such, we believe valuation has fully priced-in the slower growth outlook. WIKA
and ADHI are our top picks among the contractors.
Initiating coverage on pre-cast concrete stocks. We initiate with BUY ratings
on Wijaya Karya Beton (WTON) and Waskita Beton (WSBP), the pre-cast concrete
subsidiaries of WIKA and WSKT, respectively, which benefited from their parent
companies’ strong order books and operating in an industry with limited competition,
better margins and lower debt leverage vs. construction companies. We believe these
factors should lower their earnings risk from potential margin pressures from turnkey
projects. WTON is our top pick, because it has diversified customer base, thus
lowering risk in the event the government decides to limit exposure to parent
company to 50% of revenue, which would affect WSBP more.
Our top picks. We view the risk-reward profile is currently very attractive for
Indonesia’s construction sector given its still robust earnings growth outlook in
next 3 years, and the sector’s low valuation, both historically and relative to other
sectors. WIKA and ADHI are our top picks in the sector because of lucrative
upside potential from their upcoming projects, namely: Jabodetabek LRT and
Jakarta – Bandung HSR, respectively. We also like the pre-cast concrete
subsidiaries of these companies, with WTON as our pick, because we view their
earnings should be less vulnerable to rising financial costs from turnkey projects.
Stock Ticker Rating Price TP
17F
P/E
18F
P/E
17F
P/B
18F
P/B
17F
ROA
17F
ROE
(Rp) (Rp) (x) (x) (x) (x) (%) (%)
Wijaya Karya Beton WTON IJ BUY 680 810 15.6 12.3 2.1 1.9 7.0 14.1
Waskita Beton WSBP IJ BUY 410 620 10.6 8.2 1.3 1.2 6.2 13.0
Waskita Karya WSKT IJ BUY 2,140 3,100 7.2 6.3 1.7 1.4 5.0 21.7
PT PP PTPP IJ BUY 2,820 4,700 13.4 10.9 1.4 1.3 3.8 11.4
Wijaya Karya WIKA IJ BUY 2,010 2,900 13.9 11.7 1.4 1.3 3.6 10.0
Adhi Karya ADHI IJ BUY 2,230 2,700 15.5 10.5 1.3 1.2 2.2 9.0
Source: Bloomberg, IndoPremier Note: Share prices as of closing 9 November 2017
Indonesia Construction
13 November 2017
Sector Update
Sector Index Performance (JAKCON)
3M 6M 12M
Absolute (%) 8.3 2.8 9.3
Relative to JCI (%) 3.8 -3.3 -5.8
52w high/low (Rp) 2,615 / 2,211
-
10
20
30
40
50
60
70
80
0
100
200
300
400
500
600
11 12 13 14 15 16 17F 18F 19F
Orderbook (Rp tn) Earnings growth (% yoy)
Eveline Liauw
PT Indo Premier Sekuritas
+62 21 5793 1169
Joey Faustian
PT Indo Premier Sekuritas
+62 21 5793 1169
Equity |
Indonesia
| C
onstr
uction
Construction Update
2 Refer to Important disclosures in the last page of this report
Order book growth is slowing after peaking in 2016, as also profit growth
Aggregate new contract and order book of the Big Four SOE contractors (WIKA,
WSKT, PTPP and ADHI) grew at 5-yr CAGR of 30%/32% in 2011-2016,
respectively, with their peak growth of 70%/58% in 2016, thanks to President
Jokowi, who has favored infrastructure development (significantly roads and other
public facilities) in early days of his administration. This is reflected in strong
infrastructure budget of around ~Rp155tn in state budget (APBNP) 2015-18, much
higher compared to previous presidential term of ~Rp107tn in APBN 2010-15. As a
result, big four SOE contractors have enjoyed strong revenue and earnings growth
of CAGR 24% and 44% in 2014-16 (vs. CAGR 13% and 25% in 2012-14),
respectively.
However, we forecast both new contract and order book to slow to 8.3%/45.5%
in 2017F, respectively, due to very high base in FY16, despite sustained high
fiscal budget for infra spending in 2017/2018. Thus, to execute those projects, we
expect high financing constraints on Big four with overall DER to reach 1.1x in
FY17, much higher from FY14 of 0.8x with WSKT having the highest DER of 1.8x
in FY17. Consequently, we forecast strong earnings growth of 73% in 2017F,
followed by slower growth of 20.5% in 2018F and c.16% in 2018-19F. Albeit
slower to prior years, these are robust growth outlook which are well above equity
market growth in Indonesia.
Fig. 1: Infrastructure budget in comparison Fig. 2: Still robust earnings FY17 despite slowing after 2017
0
20
40
60
80
100
120
140
160
180
LKPP2010
LKPP2011
LKPP2012
LKPP2013
LKPP2014
LKPP2015
APBN2016
APBNP2017
RAPBN2018
Energy Transportation Public works and Housing
(Rp tn)
40.7
18.6
31.9
41.0
11.2
46.6
41.2
72.6
20.516.3
(10)
0
10
20
30
40
50
60
70
2010 2011 2012 2013 2014 2015 2016 2017F 2018F 2019F
Net Profit (% yoy) Revenue (% yoy)
Source : Kemenkeu, IndoPremier Source : Companies, IndoPremier
Fig. 3: Growth to slow down after 2016… Fig. 4: … but still above other industry
0
10
20
30
40
50
60
70
0
100
200
300
400
500
600
2010 2011 2012 2013 2014 2015 2016 2017F 2018F 2019F
Total Order Book (Rp Tn) Annual Growth (% yoy)
-40
-20
0
20
40
60
80
100
05 06 07 08 09 10 11 12 13 14 15 16F 17F 18F
Property Construction Cement(Net profit YoY
growth, %)
Source : Companies, IndoPremier Source : Companies, IndoPremier
Construction Update
3 Refer to Important disclosures in the last page of this report
Valuation seems to have fully priced-in slower growth outlook.
Slowing order book growth, rising earnings risks from self-funded (turnkey)
projects, and uncertainty on 2019 election outcome, may have contributed to the
sharp de-rating of the sector in 2017 which have been underperformed JCI by
30% ytd and 40% yoy. Although financing costs have risen sharply, in part due to
contribution of turnkey projects/delayed payments from the government, we
believe the risk is mitigated by improving operating efficiency on the back of still
robust revenue growth in next 3 years which we expect to grow at CAGR 27.3%
on the back of massive orderbook that grew 37.4% CAGR 2013-16A.
Fig. 5: Quarterly operating and net margin improvement in Big Four
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
4Q12 2Q13 4Q13 2Q14 4Q14 2Q15 4Q15 2Q16 4Q16 2Q17
Oper. Margin (%; rolling 4q) Net Margin (%; rolling 4q)
Source : Companies, IndoPremier
We believe outstanding revenue growth will help companies to achieve cost
efficiency and reduce financial cost to revenue which should result in greater
profitability. Over the last three years, Big Four’s loan have increased at CAGR
80% with overall financial cost increased 57% annually (vs. CAGR 29% and 19%
only in 2010-13). This is due to companies’ effort to sustain working capital and
execute orderbooks from robust infrastructure projects. With growing revenue of
31% p.a and moderate loan increase of 29% p.a for 2016-19F, we expect
financial cost to revenue to fall to 30% in 2019 from 34% in 2017, resulting in
improvement in net margin to 6.5% in 2019 from 6.1% in 2016.
Fig. 6: Financial cost of Big four to revenue Fig. 7: Margin to improve along with growing revenue…
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
2010 2011 2012 2013 2014 2015 2016 2017F 2018F 2019F
Financial Cost (Rp Bn; LHS) As % of Revenue (RHS)
8.2 8.3 8.9
9.2 9.7
10.1
12.1 11.9 12.0 12.1
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
0
100
200
300
400
500
600
2010A 2011A 2012A 2013A 2014A 2015A 2016A 2017F 2018F 2019F
Revenue (LHS) Orderbook (LHS) Operating margin (RHS)
(Rp tn)
Source : Companies, IndoPremier Source : Companies, IndoPremier
Construction Update
4 Refer to Important disclosures in the last page of this report
Moreover, price-to-order book and price-to-earnings ratios have fallen to 0.2x and
13x, respectively, from their peaks of >0.3x and 30x, respectively, or returning to
2012 levels (before the era of President Jokowi). As such, we believe valuation
has fully priced-in the slower growth outlook. WIKA is currently our top pick
among the Big Four contractors, as the company shown solid 8M17 new contract
achievement of 71% of FY17 target and healthy DER of 0.7x in FY17F.
Aside from WIKA, we also like ADHI given its improved earnings visibility from its
recent development on its Light Rail Transit (LRT) Jabodetabek project despite not
being paid yet by LRT investor, PT Kereta Api Indonesia (KAI). Note that the
project is worth Rp23tn and expected to finish in 2019, whereas ADHI has spent
around Rp4tn for the project. We expect ADHI to receive its first LRT payment
from KAI in December 2017, while financial closing on syndicate bank loan for KAI
to be completed in 4Q17 or 1Q18, this should result in bulk payment and earnings
jump for ADHI, in our view.
Fig. 8: WIKA’s price to orderbook Fig. 9: ADHI’s price to orderbook
0.0
0.0
0.0
0.0
0.0
0.1
0.1
0.1
0.1
Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17
+2SD
+1SD
AVG
-1SD
-2SD
(x)
0.0
0.0
0.0
0.1
0.1
0.1
0.1
0.1
0.2
0.2
Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17
+2SD
+1SD
AVG
-1SD
-2SD
(x)
Source : Companies, IndoPremier Source : Companies, IndoPremier
Fig. 10: WIKA is trading attractively below -1SD Fig. 11: ADHI is trading below average
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17
+2SD
+1SD
AVG
-1SD
-2SD
(X)
0.0
5.0
10.0
15.0
20.0
25.0
30.0
Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17
+2SD
+1SD
Avg
-1SD
-2SD
(x)
Source : Companies, IndoPremier Source : Companies, IndoPremier
Construction Update
5 Refer to Important disclosures in the last page of this report
Initiating coverage on pre-cast concrete stocks
We initiate with BUY ratings on Wijaya Karya Beton (WTON) and Waskita Beton
(WSBP), the pre-cast concrete subsidiaries of WIKA and WSKT, respectively,
which we believe benefited from having captive market of their parent companies’
strong order books and operating in an industry with limited competition, better
margins and less debt leverage vs. construction companies. We believe these
factors should lower their earnings risk from potential margin pressures from
turnkey projects. WTON is our top pick, partly because it has diversified customer
base, thus lowering the risk in the event the government decides to limit
exposure to parent company to 50% of revenue, which would affect WSBP more.
WSBP and WTON are direct beneficiaries from relationship and extensive network of
their parents, WSKT and WIKA that has seen strong orderbook and new contract
growth of 47% and 59% CAGR 2016-19, much higher than peers at 37% and 41%,
respectively. The contracts would then be translated into 13-15% precast works in
2014-16 which would sustain earnings for the next twelve to eighteen months given
their short term work nature. Moving onwards, we estimate higher precast works of
~15-16% of total parents’ new contract given more escalated roads to be built, that
needs higher portion of precast.
Precast margins also notably better compared to construction, given their
undiversified focus on precast business. This is in contrast with Big Four whose
business are highly diversified with other business such as property, energy and
even toll road which are loss making at the moment.
Fig. 12: WTON’s customer profile Fig. 13: WSBP’s customer profile
WIKA22%
Private local45%
State owned enteprise
30%
Private foreign3%
WSKT and subsidiaries
85%
Other parties 15%
Source : Companies, IndoPremier Source : Companies, IndoPremier
Fig. 14: Dependency with parents to benefit precast
companies Fig. 15: Precast margin is better than construction
13.6%
10.7%
14.7%15.7% 15.7%
16.2%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
-
20
40
60
80
100
120
140
160
2014A 2015A 2016A 2017F 2018F 2019F
Total new contract (WIKA, WSKT) Total new contract (WSBP, WTON)
As % or SOE contractors new contract
(Rp tn)
-
5.0
10.0
15.0
20.0
25.0
2015A 2016A 2017F 2018F 2019F
Precast GPM Precast OPM Precast NPM
Big four GPM Big four OPM Big four NPM
(%)
Source : Companies, IndoPremier Source : Companies, IndoPremier
Construction Update
6 Refer to Important disclosures in the last page of this report
When it comes to precast capacity, WTON maintains its conservative view by
growing only 7% CAGR 2014-16 (vs. WSBP at 82%), resulted in total capacity at
2.5mn ton, slightly below WSBP at 2.7mn ton. Hence the conservative strategy
allows WTON to maintain high utilization rate of 80-90% in last two years, better
than WSBP of 58-64%. Moving forward, WTON only projects precast capacity to
grow 15% CAGR for the next two years, notably less aggressive compared to WSBP
at 20% CAGR. With this conservative scheme, we believe WTON will be able to
maintain utilization rate around 80% in long term, which will help company to be
cost- efficient.
Our top picks
We view the risk-reward profile is currently very attractive for Indonesia’s
construction sector given its still robust earnings growth of in next 2 years, and the
sector’s low valuation, both historically and relative to other sectors. Hence,
construction sector is now trading close to -2SD or the lowest since 2012, resulted
in rather undemanding valuation as the sector is expected to deliver earnings
growth of 73% in 2017F, followed by c.21% in 2018-19F.WSKT is currently trading
close to -2SD following its sharp de-rating from delay in Waskita Toll Road (WTR)
divestment, while ADHI, WIKA and PTPP are trading around -1SD, respectively.
Fig. 18: Construction sector PE forward
5
10
15
20
25
30
35
40
45
Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17
+2SD
+1SD
(X)
AVG
-1SD
-2SD
Source : Companies, IndoPremier
Among Big Four, WIKA and ADHI are our top picks in the sector because of their
solid upcoming projects, e.g: Jabodetabek LRT and Jakarta – Bandung HSR that
provides upside potential to their earnings. We also like the pre-cast concrete
subsidiaries of these companies, with WTON as our pick; because we view their
earnings should be less vulnerable to rising financial costs from turnkey projects. In
comparison, precast industry DER stands at 0.4x only, much lower compared to Big
Four of 0.7x FY16. The low DER will provide room for further leverage and relatively
Fig. 16: WTON vs. WSBP precast capacity Fig. 17: WTON vs. WSBP utilization rate
2.2 2.3
2.5
3.0
3.3
0.8
1.8
2.7
3.3
3.8
-
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2014A 2015A 2016A 2017F 2018F
WTON WSBP(in mn ton/year)
57.9%
64.4%58.9%
67.6%70.8% 72.8%
74.5% 72.2%74.8%
89.6% 89.2% 89.2%
2014A 2015A 2016A 2017F 2018F 2019F
WSBP WTON
Source : Companies, IndoPremier Source : Companies, IndoPremier
Construction Update
7 Refer to Important disclosures in the last page of this report
lower interest expense as both companies (WTON and WSBP) have officially
participate in turnkey projects in accordance with their parent’s projects. However,
this should limited impact on their profitability as companies only picked selective
projects with good returns.
Fig. 19: DER of Big Four 2010-19F Fig. 20: WSBP and WTON’s DER 2015-19F
0.9
0.8 0.7
0.8 0.8
1.0
0.7
1.0
1.3
1.4
-
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
-
0.5
1.0
1.5
2.0
2.5
2010A 2011A 2012A 2013A 2014A 2015A 2016A 2017F 2018F 2019F
WIKA (LHS) WSKT (LHS) PTPP (LHS) ADHI (LHS) Industry (RHS)
(x) (x)
0.6
0.5
0.8
0.8
0.7
0.2 0.3
0.4 0.4 0.4
-
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
2015A 2016A 2017F 2018F 2019F
WSBP WTON(x)
Source : Companies, IndoPremier Source : Companies, IndoPremier
Construction Update
8 Refer to Important disclosures in the last page of this report
Stock Data
Target price (Rp) Rp810
Prior TP (Rp) N/A
Shareprice (Rp) Rp680
Upside/downside (%) +19.1
Sharesoutstanding (m) 8,715.5
Marketcap. (US$ m) 438.1
Free float (%) 23.8
Avg. 6m dailyT/O (US$ m) 0.7
Price Performance
3M 6M 12M
Absolute (%) 15.3 5.4 -17.1
Relative to JCI (%) 10.5 -0.8 -33.6
52w high/low (Rp) 680 - 520
Major Shareholders
Wijaya Karya 60.0%
Public 23.8%
Yayasan Wijaya Karya 10.9%
Estimate Change; Vs. Consensus
2017F 2018F
Latest EPS (Rp) 31.0 43.0
Vs. Prior EPS (%) N/A N/A
Vs. Consensus (%) (1.0) 4.0
Source: Bloomberg
Eveline Liauw
PT Indo Premier Sekuritas
+62 21 5793 1169
Joey Faustian
PT Indo Premier Sekuritas
+62 21 5793 1169
Strong contender
� Diversified client base with plenty of opportunities.
� Nationwide distribution to reduce logistic cost.
� Solid earnings of 30% CAGR 2016-19, but expect longer AR days.
� Initiate with BUY with TP of Rp810.
Diversified client profile with plenty of opportunities. Despite being a
subsidiary of Wijaya Karya (WIKA), Wijaya Karya Beton (WTON) has diversified
customer profile with 48% of clients are private companies, differs from Waskita
Karya Beton (WSBP) which 85% of its revenue came from Waskita Karya (WSKT).
Among the clients are PLN (Perusahaan Listrik Negara) that has been aggressively
expanding in recent years and will continue to do so under order from President
Jokowi to reach its target of 35GW, providing plenty of potential new contracts for
WTON. WTON also expects additional new contract from WIKA’s High Speed
Railway (HSR) of Rp1.5tn in FY18/19F.
Nationwide distribution to reduce logistic cost. WTON has fourteen
production facilities and three quarries that are spread across Indonesia which
reduce WTON’s distribution cost while capturing local demand; this is in contrast
with WSBP that has most of its production in Java. The company plans its
production facility expansion conservatively by only CAGR 15% in 2016-18F,
much slower from its WSBP at CAGR 20%, but will focus to maintain long term
utilization rate to 80-85% for maximum profitability margin.
Solid earnings of 30% CAGR 2016-19F, but slower AR days. WTON has
upgraded its FY17 new contract target to Rp7tn (+11%), that should lead to
higher order book of Rp11tn (+46% yoy). As a result, we believe WTON’s revenue
and earnings to grow strong at CAGR 29% and 30% 2016-19F. On the other
hand, we expect longer AR days as company received two turnkey projects from
WIKA in recent days, although this is harmless for the company as it charges
normal price as part of the contracts that employs turnkey scheme.
Initiate WTON with BUY at TP of Rp810. WTON is trading at PER of 12.4x in
FY18F, 6% premium to WSBP, but 11% discount to WIKA. Even so, we believe
such premium is justified given company’s strong earnings growth and limited
exposure to turnkey projects, differs from WSBP whose revenue mostly
dominated by its parent, Waskita Karya (WSKT). We initiate WTON with BUY and
DCF based TP of Rp810/share, implying 19% upside to current price.
Wijaya Karya Beton (WTON IJ)
13 November 2017
Initiating Coverage
BUY (New)
Year To 31 Dec 2015A 2016A 2017F 2018F 2019F
Revenue (RpBn) 2,653 3,482 4,858 6,068 7,303
EBITDA (RpBn) 328 545 720 885 1,078
EBITDA Growth (%) (33.6) 66.0 32.0 23.0 21.7
Net Profit (RpBn) 174 272 373 470 602
EPS (Rp) 20 31 43 54 69
EPS Growth (%) (47.2) 56.6 36.9 26.1 27.9
Net Gearing (%) (12.9) 13.2 19.8 13.5 2.1
PER (x) 33.6 21.4 15.7 12.4 9.7
PBV (x) 2.6 2.3 2.1 1.8 1.6
Dividend Yield (%) 1.7 0.9 1.4 1.9 2.4
EV/EBITDA (x) 22.2 12.7 10.6 9.2 8.2
Source : WTON, IndoPremier Share Price Closing as of : 09-November-2017
Equity |
Indonesia
| C
onstr
uction
60
70
80
90
100
110
120
Nov-1
6
Nov-1
6
Dec-1
6
Jan-1
7
Feb-1
7
Feb-1
7
Mar-
17
Apr-
17
Apr-
17
May-1
7
Jun-1
7
Jun-1
7
Jul-
17
Aug
-17
Aug
-17
Sep-1
7
Oct-
17
Nov-1
7
WTON-Rebase JCI Index-Rebase
WTON Initiating Coverage
9 Refer to Important disclosures in the last page of this report
Fig. 1: 1Q17 revenue based on ownership Fig. 2: WSBP and WTON precast capacity in comparison
WIKA22%
Private local45%
State owned enteprise
30%
Private foreign3%
2.2 2.3
2.5
3.0
3.3
0.8
1.8
2.7
3.3
3.8
-
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2014A 2015A 2016A 2017F 2018F
WTON WSBP(in mn ton/year)
Source: WTON, IndoPremier
Source: IndoPremier
Fig. 3: Strong utilization rate from its peers Fig. 4: Revenue to grow at CAGR 29% 2016-19F
57.9%
64.4%58.9%
67.6%70.8% 72.8%
74.5% 72.2%74.8%
89.6% 89.2% 89.2%
2014A 2015A 2016A 2017F 2018F 2019F
WSBP WTON
-19%
31%
40%
25%20%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2015A 2016A 2017F 2018F 2019F
Revenue Growth
(Rp bn)
Source: WTON, IndoPremier Source: WTON, IndoPremier
Fig. 5: Net profit to grow at CAGR 30% 2016-19F Fig. 6: Strong and sustainable margin
6.6%
7.8% 7.7% 7.8%8.2%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
-
100.0
200.0
300.0
400.0
500.0
600.0
700.0
2015A 2016A 2017F 2018F 2019F
Net profit Net margin
(Rp bn)
12.4%
14.5%13.9% 14.1% 14.4%
9.0%
11.7%11.2% 11.3% 11.7%
6.6%
7.8% 7.7% 7.8%8.2%
2015A 2016A 2017F 2018F 2019F
Gross margin Operating margin Net margin
Source: WTON, IndoPremier Source: WTON, IndoPremier
WTON Initiating Coverage
10 Refer to Important disclosures in the last page of this report
Well diversified client with plenty of opportunities
Wijaya Karya Beton (WTON) was established in 1960 as a subsidiary of Wijaya
Karya (WIKA). The company produces, deliver and provide installation of its
product, high quality concrete (concrete stress characteristic of minimum
500kg/cm2) that mainly used in railway sleepers, bridge, retaining wall, hydro &
marine structure, building & housing and others.
WTON has three subsidiaries – WIKA Citra Lautan Teduh (99%), WIKA Kobe
(51%) and WIKA Krakatau Beton (60%). WIKA Kobe was built to secure
infrastructure projects finance by Japan bank for International Corporation, while
WIKA Krakatau Beton was a joint venture company with Krakatau Steel (KRAS),
one of state owned enterprise company. WTON went public (IPO) in 2014 and
secured Rp1.3tn during the process. Currently, majority of WTON’s share
ownership is still hold by WIKA (60%), followed by public 24% and Yayasan
Wijaya Karya which is employee based by 11%.
Fig. 7: WTON’s shareholder and subsidiary structure
Source: WTON, IndoPremier
Despite being subsidiary of WIKA, WTON has relatively limited reliance with WIKA
by only 22% of its 1Q17 sales (vs. WSBP’s of 85% from FY16 revenue). In fact,
48% of WTON sales sourced from private companies (local and foreign) that focus
in development of EPC. Among these is Perusahaan Listrik Negara (PLN) that
heavily expanding in recent years and will continue to do so under President’s
Jokowi’s order to reach 35GW plan. WTON also expects additional new contract
from WIKA’s High Speed Railway (HSR) of ~Rp1.5tn in FY18/19F.
Fig. 8: Client profile based on ownership in 1Q17 Fig. 9: Client profile based on line of business in 1Q17
WIKA
22%
Private local45%
State owned enteprise
30%
Private foreign
3%
Infrastructure 48%
Industry5%
Energy44%
Mining0%
Property3%
Source : WTON, IndoPremier Source : WTON, IndoPremier
WTON Initiating Coverage
11 Refer to Important disclosures in the last page of this report
Nationwide distribution to reduce logistic cost
WTON has 14 precast production facilities, 46 batching plants and 3 quarries that
are spread across Indonesia which gives WTON opportunity to reduce distribution
cost while capturing local demand; this is in contrast with WSBP that has most of
its production in Java and Lampung. As business scalability and utilization rate
improves, company should enjoy better margin from high bargaining power
against raw material suppliers.
Fig. 10: WTON’s coverage area
Source: WTON,
WTON has grown its production capacity at 7% p.a in last two years, notably less
aggressive compared to WSBP at 82% CAGR. However, the company enjoyed
better utilization rate of 70-85%, much higher than WSBP of 58-64% in 2014-
16A, thanks to its strategic factories locations that capture local demand.
The company plans its production facility expansion conservatively by only CAGR
15% in 2016-18F, much slower from its WSBP at CAGR 20%, but will focus to
improve long term utilization rate to 80-85% for higher profitability margin as a
result from high bargaining power on raw material suppliers and its insource
quarries factories that provides cost saving for the company. Note that company
has achieved over 100% utilization rate in 1Q17 caused by healthy environment
and strong demand.
Fig. 11: WTON vs. WSBP precast capacity in comparison Fig. 12: WTON vs. WSBP utilization rate in comparison
2.2 2.3
2.5
3.0
3.3
0.8
1.8
2.7
3.3
3.8
-
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2014A 2015A 2016A 2017F 2018F
WTON WSBP(in mn ton/year)
57.9%
64.4%58.9%
67.6%70.8% 72.8%
74.5% 72.2%74.8%
89.6% 89.2% 89.2%
2014A 2015A 2016A 2017F 2018F 2019F
WSBP WTON
Source : WTON, IndoPremier Source : WTON, IndoPremier
WTON Initiating Coverage
12 Refer to Important disclosures in the last page of this report
Solid earnings of 30% CAGR 2016-19F, but slower AR days
WTON has upgraded its FY17 new contract target to Rp7tn (+11%) to reflect
optimism in 2H17. Yet, the company has achieved Rp3.3tn until 7M18, 47% of
new FY17 target. This should lead to higher order book of Rp11tn (+46% yoy),
which represents 3.4x of its FY16 revenue and should give earnings visibility for
the next 2-3 years given its short term work nature of 9-12 months only. As a
result, we believe WTON’s revenue and earnings to grow strong at CAGR 29% and
30% 2016-19F.
On the other hand, we expect longer AR days as company received two turnkey
projects from WIKA in recent days, although this is harmless for the company as
it charges normal price as part of the contracts that employs turnkey scheme.
Moving forward, company will limit and be selective on turnkey projects from
WIKA to maintain its profitability.
Fig. 13: WIKA and WTON new contract Fig. 14: WTON orderbook to grow CAGR of 33% in 2016-19F
10.1%
13.8%
11.2%
16.2%17.3%
18.7%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
-
10,000
20,000
30,000
40,000
50,000
60,000
2014A 2015A 2016A 2017F 2018F 2019F
WIKA WTON As % of WIKA's new contract
(Rp bn)
-
2
4
6
8
10
12
14
16
18
20
2013A 2014A 2015A 2016A 2017F 2018F 2019F
Carry over New contract(Rp tn)
CAGR 2013-16A: 20%
Source : WTON, IndoPremier Source : WTON, IndoPremier
Fig. 15: WTON revenue and earnings forecast Fig. 16: WTON FCF forecast
12.4%
14.5%13.9% 14.1% 14.4%
9.0%
11.7%11.2% 11.3% 11.7%
6.6%
7.8% 7.7% 7.8%8.2%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
-
1,000.0
2,000.0
3,000.0
4,000.0
5,000.0
6,000.0
7,000.0
8,000.0
2015A 2016A 2017F 2018F 2019F
Revenue Net profit Gross margin
Operating margin Net margin
(Rp bn)
(3,931) (3,707)
(190)
4,360
(603)
(176) 202 457
(5,000)
(4,000)
(3,000)
(2,000)
(1,000)
-
1,000
2,000
3,000
4,000
5,000
2016A 2017F 2018F 2019F
WSBP WTON(Rp bn)
Source : WTON, IndoPremier Source : WTON, IndoPremier
WTON Initiating Coverage
13 Refer to Important disclosures in the last page of this report
Initiate WTON with BUY at TP of Rp810
WTON is trading at PER of 12.3x in FY18, trading at 6% premium compared to
WSBP but 11% discount to WIKA. We believe such premium is justified given
company’s strong earnings growth and limited exposure to turnkey projects which
differs from WSBP. We initiate WTON with BUY and DCF based TP of Rp810/share,
implying 19% upside to current price.
Fig. 17: Valuation - Free Cash Flow to the Firm (FCFF) - Two Stages
(Rp bn) 2015A 2016A 2017F 2018F 2019F 2020F 2021F 2022F 2023F
EBIT 238.5 408.3 544.8 685.9 851.1 1,034.0 1,273.2 1,258.2 1,424.2
Tax (34.3) (70.5) (98.4) (122.9) (147.9) (176.0) (211.5) (216.7) (244.5)
After tax cash flow 204.3 337.8 446.4 563.0 703.2 858.0 1,061.8 1,041.5 1,179.7
Depreciation and amort 89.9 137.1 174.9 199.2 226.5 252.3 278.8 305.0 331.4
Minority interest 2.1 (9.1) 6.0 7.6 9.6 12.2 15.5 15.6 18.0
Change in working capital (127.2) (46.0) (138.7) 32.3 153.5 (1,428.7) 810.6 (65.2) (434.2)
Net capital expenditure (416.2) (357.1) (582.0) (469.6) (525.8) (497.7) (511.7) (504.7) (508.2)
FCF for the firm (247.17) 62.51 (93.33) 332.54 567.03 (803.83) 1,655.02 792.16 586.64
Year
0 1 2 3 4 5
Discount factor
1.0 0.9 0.8 0.7 0.6 0.6
PV of FCF
332.54 504.09 (635.30) 1,162.83 494.80 325.76
Value of FCF in the forecasted period 1,858.97
Value of FCF after the forecasted period 5,699.6
Value of the firm 7,558.60
(Net cash)/net debt 427.9
Interest bearing liab 1,339.6
Cash and equiv 911.6
Value of equity 7,130.66
# of shares (bn shares) 8.7
value of equity per share 818.16
Target price 810
BUY
Source : IndoPremier
WTON Initiating Coverage
14 Refer to Important disclosures in the last page of this report
Year To 31 Dec (RpBn) 2015A 2016A 2017F 2018F 2019F
Income Statement
Net Revenue 2,653 3,482 4,858 6,068 7,303
Cost of Sales (2,324) (2,977) (4,182) (5,211) (6,250)
Gross Profit 329 504 676 858 1,053
SG&A Expenses (90) (96) (131) (172) (202)
Operating Profit 239 408 545 686 851
Net Interest (26) (40) (72) (90) (100)
Forex Gain (Loss) (8) 0 0 0 0
Others-Net 1 (16) (8) (10) (11)
Pre-Tax Income 206 352 465 586 740
Income Tax (34) (71) (98) (123) (148)
Minorities 2 (9) 6 8 10
Net Income 174 272 373 470 602
Balance Sheet
Cash & Equivalent 824 342 586 912 1,418 Receivable 582 663 974 1,135 1,043 Inventory 622 694 714 824 957 Other Current Assets 426 740 1,026 1,302 1,552
Total Current Assets 2,455 2,440 3,299 4,173 4,971 Fixed Assets - Net 2,001 2,222 2,629 2,900 3,199 Goodwill 0 0 0 0 0
Non Current Assets 0 0 0 0 0 Total Assets 4,456 4,662 5,929 7,073 8,169 ST Loans 131 350 488 610 734 Payable 557 664 0 1,159 1,354 Other Payables 1,024 730 1,012 1,258 1,510
Current Portion of LT Loans 80 120 120 120 120 Total Current Liab. 1,793 1,864 2,475 3,147 3,718
Long Term Loans 320 200 530 610 640 Other LT Liab. 79 108 131 155 180
Total Liabilities 2,193 2,172 3,137 3,912 4,538 Equity 1,747 1,743 1,743 1,743 1,743 Retained Earnings 458 679 970 1,328 1,789 Minority Interest 58 69 79 89 100
Total SHE + Minority Int. 2,263 2,490 2,792 3,161 3,632 Total Liabilities & Equity 4,456 4,662 5,929 7,073 8,169
Source : WTON, IndoPremier
WTON Initiating Coverage
15 Refer to Important disclosures in the last page of this report
Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Cash Flow
Net Income (Excl.Extraordinary&Min.Int) 172 282 367 463 592 Depr. & Amortization 90 136 175 199 227 Changes in Working Capital 197 (430) (30) 96 249
Others 448 (368) (142) 17 41 Cash Flow From Operating 907 (381) 370 775 1,108
Capital Expenditure (416) (357) (582) (470) (526) Others 37 16 26 23 25
Cash Flow From Investing (379) (341) (556) (446) (501) Loans 333 138 468 202 154 Equity 0 0 0 0 0 Dividends (99) (52) (82) (112) (141) Others (123) (50) (87) (103) (115)
Cash Flow From Financing 111 36 299 (13) (102) Changes in Cash 639 (685) 113 316 505 Financial Ratios
Gross Margin (%) 12.4 14.5 13.9 14.1 14.4
Operating Margin (%) 9.0 11.7 11.2 11.3 11.7 Pre-Tax Margin (%) 7.8 10.1 9.6 9.7 10.1
Net Margin (%) 6.6 7.8 7.7 7.8 8.2 ROA (%) 4.2 6.0 7.0 7.2 7.9 ROE (%) 7.8 11.5 14.1 15.8 17.7 ROIC (%) 7.7 9.9 11.5 12.0 13.3
Acct. Receivables TO (days) 71.9 64.1 60.5 62.3 53.3 Acct. Receivables - Other TO (days) 1.3 1.1 0.9 1.1 1.1
Inventory TO (days) 4.3 4.5 5.9 6.8 7.0 Payable TO (days) 76.8 74.9 66.3 70.6 73.4 Acct. Payables - Other TO (days) 0.0 0.0 0.0 0.0 0.0
Debt to Equity (%) 23.5 26.9 40.8 42.4 41.1 Interest Coverage Ratio (x) 0.3 0.1 0.2 0.2 0.1 Net Gearing (%) (12.9) 13.2 19.8 13.5 2.1
Source : WTON,IndoPremier
XXXXXXXX
16 Refer to Important disclosures in the last page of this report
Stock Data
Target price (Rp) Rp620
Prior TP (Rp) N/A
Shareprice (Rp) Rp410
Upside/downside (%) +51.2
Sharesoutstanding (m) 26,361
Marketcap. (US$ m) 798.9
Free float (%) 40.0
Avg. 6m dailyT/O (US$ m) 3.6
Price Performance
3M 6M 12M
Absolute (%) -10.9 -14.6 -28.7
Relative to JCI (%) -15.7 -20.8 -45.2
52w high/low (Rp) 410 - 338
Major Shareholders
WSKT 60.0%
Public 40.0%
Estimate Change; Vs. Consensus
2017F 2018F
Latest EPS (Rp) 39.0 50.0
Vs. Prior EPS (%) N.A N.A
Vs. Consensus (%) (4.6) (0.8)
Source: Bloomberg
Eveline Liauw
PT Indo Premier Sekuritas
+62 21 5793 1169
Joey Faustian
PT Indo Premier Sekuritas
+62 21 5793 1169
Delivering performance
� Synergy with WSKT to provide strong earnings visibility
� Outer Java expansion to catch new market
� Expects positive net cash flow in FY19
� Share buyback to improve share performance
� Initiate with BUY, TP of Rp620
Synergy with WSKT to provide strong earnings visibility. We believe WSBP’s
dependency with its parent, Waskita Karya (WSKT) will provide potential contracts
for WSBP given WSKT’s strong network to pursue new contracts and its existing
ownership in Waskita Toll Road (WTR). Benefitting from robust order book in FY16
of 156% yoy, we expect WSBP’s revenue and earnings to grow at CAGR 28% and
22% in 2016-19F as well as stable gross margin at 20-21% in 2017-19F as a
result from favorable pricing from WSKT and higher economy of scale.
Outer Java expansion to catch new market. WSBP has aggressively grown its
precast capacity at 82% CAGR 2014-16A, which puts WSBP at higher capacity
compared to Wijaya Karya Beton (WTON), albeit lower utilization rate. The
company is planning to grow its capacity by allocating capex of Rp4tn in 2016-18F
and build factories outer Java to have stronger foothold towards Outer Java which
is expected to give WSBP new market.
Expects positive net cash flow in 2019. WSBP expects to receive payment of
Rp1.8tn from Becakayu section II and III in December 2017 while remaining
(Rp1.2tn) to be paid next year. Company also expects receive payment around
Rp4.5-6tn from WSKT on other projects in FY18, but expect cash flow to turn
positive in 2019 as all turnkey projects are projected to finish.
Rp1tn share buyback to improve share price sentiment. WSBP is planning to
conduct share buyback of Rp1tn with maximum of 7% of its outstanding shares
over the next 18 months in order to stabilize share price which has been
underperformed since IPO. Funding source might come from early receivable
receipt from Semarang-Batang and Pasuruan – Probolinggo which have been
categorized as turnkey.
Initiate with BUY, TP of Rp620. We initiate our coverage on WSBP with BUY
and DCF based TP of Rp620 which implies PER of 12.3x in FY18F. The company is
now trading below its IPO price of Rp490/share, providing attractive point of entry
for the investors. Downside risk may come from delay in payment for projects,
upcoming presidential election in Indonesia and unforeseen delays in WSKT’s
projects.
Waskita Karya Beton (WSBP IJ)
13 November 2017
Initiating Coverage
BUY (New)
Year To 31 Dec 2015A 2016A 2017F 2018F 2019F
Revenue (RpBn) 2,644 4,717 7,288 9,481 11,154
EBITDA (RpBn) 451 1,070 1,910 2,419 2,786
EBITDA Growth (%) 0.0 137.4 78.4 26.7 15.2
Net Profit (RpBn) 334 635 1,016 1,325 1,553
EPS (Rp) 13 24 39 50 59
EPS Growth (%) 0.0 89.9 60.0 30.4 17.2
Net Gearing (%) 49.8 (11.5) 35.5 42.0 (5.9)
PER (x) 32.2 16.9 10.6 8.1 6.9
PBV (x) 8.1 1.5 1.3 1.2 1.0
Dividend Yield (%) 0.0 0.0 1.8 2.8 3.7
EV/EBITDA (x) 4.3 8.1 6.0 4.7 5.8
Source : WSBP, IndoPremier Share Price Closing as of : 09-November-2017
Equity |
Indonesia
| C
onstr
uction
50
60
70
80
90
100
110
120
Nov-1
6
Nov-1
6
Dec-1
6
Jan-1
7
Feb-1
7
Feb-1
7
Mar-
17
Apr-
17
Apr-
17
May-1
7
Jun-1
7
Jun-1
7
Jul-
17
Aug
-17
Aug
-17
Sep-1
7
Oct-
17
Nov-1
7
WSBP-Rebase JCI Index-Rebase
WSBP Initiating Coverage
17 Refer to Important disclosures in the last page of this report
Fig. 1: WSKT vs. WSBP new contract Fig. 2: High dependency to WSKT
18%
8%
17%
15% 15%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
-
10
20
30
40
50
60
70
80
90
2014A 2015A 2016A 2017F 2018F
WSKT WSBP WSBP as % of WSKT
(Rp tn)
WSKT and subsidiaries
85%
Other parties 15%
Source: WSBP, IndoPremier Source: WSBP, IndoPremier
Fig. 3: WSBP precast capacity and utilization rate Fig. 4: Revenue to grow CAGR 33% 2016-19F
58%
64%59% 68%
71%73%
0%
10%
20%
30%
40%
50%
60%
70%
80%
-
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
2014A 2015A 2016A 2017F 2018F 2019F
Installed capacity Used capacity Utilization rate
(mn ton/year)
-
2,000
4,000
6,000
8,000
10,000
12,000
2015A 2016A 2017F 2018F 2019F
Ready mix Precast
(Rp bn)
Source: WSBP, IndoPremier Source: WSBP, IndoPremier
Fig. 5: Earnings to grow CAGR 35% 2016-19F Fig. 6: Flattish net margin due to rising interest expense
12.6%
13.5%
13.9% 14.0% 13.9%
11.5%
12.0%
12.5%
13.0%
13.5%
14.0%
14.5%
-
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2015A 2016A 2017F 2018F 2019F
Net profit Net margin
(Rp bn)
15.9%
22.3%
25.6% 25.1% 24.7%
13.7%
20.2%
23.6% 23.1% 22.7%
12.6%13.5% 13.9% 14.0% 13.9%
2015A 2016A 2017F 2018F 2019F
Gross margin Operating margin Net margin
Source: WSBP, IndoPremier Source: WSBP, IndoPremier
WSBP Initiating Coverage
18 Refer to Important disclosures in the last page of this report
Synergy with WSKT to provide strong earnings visibility in the next 3-4 years
Waskita Beton (WSBP) was established in 2014 as a subsidiary of Waskita Karya (WSKT)
which is arguably one of the biggest State Owned Enterprise (SOE) contractors in Indonesia.
WSBP produces, distributes and provides installation for its product (precast and ready mix
cement) with precast contributed 64% from FY16 revenue. As WSKT’s subsidiary, majority of
WSBP’s revenue is dominated by sales with WSKT and its subsidiaries, whereas only as little
as 15% came from other parties.
We believe the synergy with WSKT will provide much opportunity for WSBP given WSKT’s
strong network to pursue new contracts and its existing toll road projects in Waskita Toll Road
(WTR), another subsidiary of WSKT that owns 14 toll road concessions (8 as majority owner)
with estimated total investment and construction works to reach Rp83tn and Rp55tn until
2019, respectively. Among these are National Strategic Projects, namely: Kayu agung –
Palembang – Betung and Medan – Kualanamu – Tebing Tinggi which is part of Trans Sumatra
toll road, and Batang – Semarang that is section of Trans Java toll road. WSKT’s equity
participation on these projects would almost certainly promise the construction job for WSKT
which would translate to WSBP’s new contract within six months after the official new contract
is awarded to WSKT. Note that precast and ready mix concrete for toll road construction may
account for 30% for grade and 75% for elevated toll roads from total construction cost.
Fig. 7 : FY16 revenue based on products Fig. 8 : FY16 revenue based on source
Precast
64%
Ready mix
36%
WSKT and subsidiaries
85%
Other parties 15%
Source : WSBP, IndoPremier Source : WSBP, IndoPremier
Fig. 9: WSKT's toll road ownership in projects
No. Project name stake (%) total investment (Rp bn) Length (km) End construction
1 Pejagan – Pemalang section I & II, III & IV 99 5,572 57 2018
2 Becakayu section II & III 60 9,012 35 2017
3 Cimanggis – Cibitung 90 8,680 25 2018
4 Kanci – Pejagan 77.7 1,177 35 2017
5 Pasuruan – Probolinggo 80 3,991 31 2019
6 Bocimi 81.6 7,775 54 2019
7 Pemalang – Batang 60 5,446 39 2019
8 Kayu Agung – Palembang – Betung 60 14,435 112 2019
9 Solo – Ngawi 40 5,442 69 2018
10 Ngawi – Kertasono 40 4,067 50 2018
11 Cinere – Serpong 35 2,591 10 2018
12 Medan – Kualanamu – Tebing Tinggi 15 4,072 60 2018
13 Depok – Antasari 25 2,999 22 2017
14 Batang - Semarang 40 7,233 75 2019
Total 82,492 674
Source: Company, IndoPremier
WSBP Initiating Coverage
19 Refer to Important disclosures in the last page of this report
Benefitting from WTR projects, we expect WSBP to obtain potential new contract of around
Rp5tn annually in 2018-19F, much higher compared to 2015 new contract of Rp2.2tn. The
company should also obtain benefit from Jokowi’s infrastructure development plan in 2015-19
that plans to build new roads of 2,650km and toll road of 1,000km.
WSBP booked strong new contract growth of CAGR 75% 2014-16 to Rp12.2tn in 2016, thanks
to solid government commitment to develop infrastructure in Indonesia which led to abundant
WSKT’s new contract growth of CAGR 76% 2014-16 that reached Rp69tn in FY16. Moving
forward, WSKT targets new contract at Rp80tn of new contract FY17 and has achieved 46% as
of 7M17 which prompt us to believe that the company will achieve its FY17 target. WSBP aims
FY17 new contract target at Rp12.3tn,flat yoy, but revised its revenue and earnings estimates
to Rp7.7tn (+4%) and Rp1.1tn (+13%) to reflect higher burn rate from its order book of
Rp15tn in FY16. As of 9M17, WSBP’s new contract stands at Rp8.4tn, in-line with 68%
achievement to FY17 target. With FY17 new contract target and carry over FY16, we estimates
WSBP’s order book to reach Rp20tn in FY17, translating to 4.3x order book to FY16 revenue
and should secure WSBP’s revenue for the next 3-4 years given short term nature of work
orders around 9-12 months only. We also expect faster revenue recognition in 2H17 from
higher burn rate of several projects, namely: Legundi – Bunder, Cimanggis – Cibitung (section
II) and Batang – Semarang.
Outer Java expansion to catch new market
WSBP currently owns 11 precast plants with capacity of 3.25mn ton per year and 62 ready-
mix batching plants for ready mix. 84% of precast factories are located in Java while
remaining (14%) are Sumatera. In last two years, WSBP has aggressively grown its capacity
at 82% CAGR, which puts WSBP at higher capacity compared to its peers, Wijaya Karya Beton
(WTON).
Fig. 12: Precast capacity as of 9M17
No. Location Capacity Region % contribution
1 Gasing 250,000 Sumatera 8%
2 Kalijati 250,000 Java 8%
3 Palembang 200,000 Sumatera 6%
4 Karawang 450,000 Java 14%
5 Cibitung 350,000 Java 11%
6 Sadang 350,000 Java 11%
7 Sidoarjo 400,000 Java 12%
8 Klaten 150,000 Java 5%
9 Bojonegara 200,000 Java 6%
10 Legundi 275,000 Java 9%
11 Subang 350,000 Java 11%
Total 3,225,000
Source : WSBP, IndoPremier
Fig. 10: WSKT and WSBP new contract Fig. 11: WSBP sales compared to WSKT
18%
8%
17%
15%15%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
-
10
20
30
40
50
60
70
80
90
2014A 2015A 2016A 2017F 2018F
WSKT WSBP WSBP as % of WSKT
(Rp tn)
19%20% 20%
24%
0%
5%
10%
15%
20%
25%
30%
-
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
2015A 2016A 2017F 2018F
WSKT WSBP WSBP as % of WSKT
Source : WSBP, IndoPremier Source : WSBP, IndoPremier
WSBP Initiating Coverage
20 Refer to Important disclosures in the last page of this report
The company further plans to grow its capacity by allocating capex of Rp4tn in 2016-18F
which will be used to: 1) build new precast factories in Medan (Sumatera) and Panajam
(Kalimantan) as well as three new locations (Central Java, Palembang and Sulawesi), 2)
upgrade its existing precast plan for bigger capacity. Note that the upcoming precast factory
in Palembang will have the largest capacity compared to other factories in order to capture
growing demand in local region. WSBP also plans additional 42 new batching plants and
purchase of two new quarries in West and Central Java to ensure maintain supply and price of
raw material. We expect WSBP’s expansion plan to outer Java will bring positive impact for the
company as it will provide new market to penetrate and reduce logistic cost for projects
outside Java island.
W
e
b
e
l
i
e
v
e
t
h
e
To expand, the company employs careful planning and approach which involved obtaining a
project in selected region before adding a factory. For instance, WSBP stated plant expansion
in Panajam would depend on the approval of Rp5.4tn Panajam – Balikpapan bridge project
which is handled by WSKT, currently. New precast plant normally takes 6-8 months to build
with initial capex of Rp90-100bn while standard batching plant costs around Rp3-5bn per
location. We believe these new plants would not be in full operation during its first two years
as it mostly built in 2H17, but we expect utilization rate to pick up in 2018 as company
establish better presence in the region.
x
x
Fig. 13: Precast plants and expansion plan
Source : WSBP
Fig. 14: Utilization rate of precast
58%
64%59% 68% 71%
73%
0%
10%
20%
30%
40%
50%
60%
70%
80%
-
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
2014A 2015A 2016A 2017F 2018F 2019F
Installed capacity Used capacity Utilization rate
(mn ton/year)
Source : WSBP, IndoPremier
WSBP Initiating Coverage
21 Refer to Important disclosures in the last page of this report
Expects positive net cash flow in 2019
WSBP still expects negative cash flow in 2017-18, given huge backlog in turnkey projects that
still under construction and turnkey scheme, namely: Kunciran – Serpong, Legundi – Bunder,
Cimanggis – Cibitung section II, Batang – Semarang and LRT Palembang. However, company
expect payment of Rp1.8tn this December for becakayu toll road section II and III, while
remaining payment (Rp1.2tn) to be paid in 2018. WSBP also expect WSKT to pay Rp4.5-6tn
for other projects in 2018. In the meantime, WSBP is planning to add loan of Rp3tn to fund
working capital which may resulted higher DER of 0.8x in FY17F (vs. 0.4x in FY16) which is
still manageable for the company.
Even so, we expect WSBP to generate positive free cash flow (FCF) in 2019 with the
completion of most turnkey projects. Furthermore, recent IPO proceeds of Rp5.2tn may allow
plenty of room for leverage and invest on more projects.
Rp1tn share buyback to improve share price sentiment
WSBP is planning to conduct share buyback amounting to Rp1tn with maximum of 7% of its
outstanding shares, equivalent to 1.8tn shares, over the next 18 months in order to stabilize
share price which has been underperformed since the IPO due to downgrading of Indonesia
construction sector outlook. The action has been approved by WSBP’s shareholders.
Funding source might come from early receivable receipt from faster ramp up on WSKT’s
projects, namely: Semarang-Batang and Pasuruan – Probolinggo toll road which have been
categorized as turnkey. Furthermore, we also believe successful sell off of WTR to provide exit
strategy with premium valuation to WSBP from its investment on Becakayu (Bekasi – Cawang
– Kampung Melayu) toll road and other projects.
Fig. 15: WSBP vs WTON FCF comparison Fig. 16: DER WSBP vs. WTON
(3,931) (3,705)
(695)
4,828
(603)
(176) 202 457
(5,000)
(4,000)
(3,000)
(2,000)
(1,000)
-
1,000
2,000
3,000
4,000
5,000
6,000
2016A 2017F 2018F 2019F
WSBP WTON(Rp bn)
0.6
0.5
0.8 0.8
0.7
0.2 0.3
0.4 0.4 0.4
-
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
2015A 2016A 2017F 2018F 2019F
WSBP WTON(x)
Source : WSBP, IndoPremier Source : WSBP, IndoPremier
WSBP Initiating Coverage
22 Refer to Important disclosures in the last page of this report
Initiate with BUY, TP of Rp620.
Despite arising concern of construction sector, we believe WSBP still have strong earnings
visibility thanks to its parent dependency, WSKT, that has booked the highest new contract
growth of CAGR 76% (vs. peers of only 49% CAGR) in 2014-16 and its existing ownership on
WTR that almost guarantee precast job to WSBP. Furthermore, strong government
commitment towards infrastructure development should also result in abundant new contracts
for SOEs which should translate to higher demand for precast and ready mix concrete. Despite
lower WSKT’s FY17F new contract target of Rp60tn only, we expect WSBP revenue to grow
54% yoy to Rp7.3tn FY17 (CAGR 33% 2016-19F) and earnings to grow 60% yoy to Rp1.0tn
(CAGR 35% 2016-19F) due to higher interest expense. Even so, this growth is still above
other sectors.
We initiate our coverage on WSBP with BUY and DCF based TP of Rp620 which implies 12.3x
PER FY18. The company is now trading at 12% below its IPO price (Rp490/share), providing
attractive point of entry for the investors. Downside risk for the company may come from
upcoming presidential election in Indonesia and unforeseen delays in WSKT’s projects.
Fig. 17: Valuation - Free Cash Flow to the Firm (FCFF) - Two Stages
(Rp bn) 2015A 2016A 2017F 2018F 2019F 2020F 2021F 2022F 2023F
EBIT 363.4 953.1 1,348.2 1,631.6 1,874.0 1,941.0 2,255.3 2,643.9 2,423.8
Tax (11.2) (332.5) (513.8) (617.1) (699.8) (790.0) (917.8) (1,074.1) (1,036.2)
After tax cash flow
352.2 620.5 834.4 1,014.5 1,174.2 1,151.0 1,337.5 1.569.8 1,387.7
Depreciation and amort 87.4 117.1 189.7 232.1 249.2 267.6 287.4 308.5 331.1
Minority interest - - - - - - - - -
Change in working capital - (3,190.1) (4,094.2) (1,342.9) 3,152.1 4,742.6 (917.4) 446.4 (1,561.2)
Net capital expenditure - (1,062.6) (937.6) (228.5) (244.8) (262.1) (280.8) (300.7) (322.0)
FCF for the firm 439.6 (3,515.1) (4,007.6) (325.0) 4,330.8 5,899.0 426.6 2,024.0 (164.5)
Year
0 1 2 3 4 5
Discount factor
1.0 0.9 0.8 0.7 0.6 0.6
PV of FCF
(324.97) 3,872.86 4,717.41 305.10 1,294.34 (94.09)
Value of FCF in the forecasted period 11,825.64
Value of FCF after the forecasted period (2,510.1)
Value of the firm 9,315.50
(Net cash)/net debt 3,889.4
Interest bearing liab 7,140.4
Cash and equiv 3,251.1
Value of equity 5,426.14
# of shares (bn shares) 8.7
value of equity per share 622.59
Target price 620
BUY
Source: IndoPremier
WSBP Initiating Coverage
23 Refer to Important disclosures in the last page of this report
Year To 31 Dec (RpBn) 2015A 2016A 2017F 2018F 2019F
Income Statement
Net Revenue 2,644 4,717 7,288 9,481 11,154
Cost of Sales (2,225) (3,667) (5,424) (7,106) (8,396)
Gross Profit 419 1,050 1,864 2,375 2,758
SG&A Expenses (56) (97) (145) (188) (221)
Operating Profit 363 953 1,720 2,187 2,537
Net Interest (17) 13 (202) (204) (207)
Forex Gain (Loss) (1) 0 0 0 0
Others-Net 0 2 12 10 10
Pre-Tax Income 346 967 1,530 1,993 2,339
Income Tax (11) (333) (514) (668) (786)
Minorities 0 0 0 0 0
Net Income 334 635 1,016 1,325 1,553
Balance Sheet
Cash & Equivalent 98 4,206 3,737 3,251 7,859 Receivable 517 3,052 5,395 6,905 5,134 Inventory 55 232 238 381 409 Other Current Assets 334 643 970 1,265 1,491
Total Current Assets 1,004 8,133 10,340 11,802 14,894 Fixed Assets - Net 987 1,933 2,681 2,677 2,673 Goodwill 0 0 0 0 0
Non Current Assets 2,341 3,648 6,055 7,646 5,725 Total Assets 4,332 13,734 19,100 22,152 23,322 ST Loans 302 1,907 4,009 4,740 3,346 Payable 730 1,542 0 2,969 2,364 Other Payables 1,400 1,317 1,923 2,522 2,964
Current Portion of LT Loans 0 0 1,449 0 0 Total Current Liab. 2,432 4,766 9,430 10,231 8,674
Long Term Loans 459 1,449 1,200 2,400 3,900 Other LT Liab. 110 114 239 270 342
Total Liabilities 3,002 6,329 10,869 12,901 12,916 Equity 856 6,675 6,675 6,675 6,675 Retained Earnings 475 730 1,556 2,576 3,731 Minority Interest 0 0 0 0 0
Total SHE + Minority Int. 1,331 7,405 8,231 9,251 10,406 Total Liabilities & Equity 4,332 13,734 19,100 22,152 23,322
Source : WSBP, IndoPremier
WSBP Initiating Coverage
24 Refer to Important disclosures in the last page of this report
Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Cash Flow
Net Income (Excl.Extraordinary&Min.Int) 334 635 1,016 1,325 1,553 Depr. & Amortization 95 117 190 232 249 Changes in Working Capital 1,194 (2,188) (1,520) (381) 1,387
Others 49 (167) 201 153 171 Cash Flow From Operating 1,672 (1,603) (113) 1,330 3,361
Capital Expenditure (3,423) (2,369) (3,345) (1,819) 1,676 Others 2 40 96 109 102
Cash Flow From Investing (3,421) (2,329) (3,249) (1,710) 1,778 Loans 761 2,595 3,301 483 106 Equity 762 5,819 0 0 0 Dividends 0 0 (190) (305) (397) Others 184 (43) (174) (285) (240)
Cash Flow From Financing 1,707 8,371 2,937 (107) (532) Changes in Cash (42) 4,439 (425) (488) 4,607 Financial Ratios
Gross Margin (%) 15.9 22.3 25.6 25.1 24.7
Operating Margin (%) 13.7 20.2 23.6 23.1 22.7 Pre-Tax Margin (%) 13.1 20.5 21.0 21.0 21.0
Net Margin (%) 12.6 13.5 13.9 14.0 13.9 ROA (%) 7.7 7.0 6.2 6.4 6.8 ROE (%) 25.1 14.5 13.0 15.2 15.8 ROIC (%) 16.1 10.8 8.2 9.2 9.7
Acct. Receivables TO (days) 70.7 137.7 211.1 236.3 196.5 Acct. Receivables - Other TO (days) 0.7 0.4 0.4 0.5 0.5
Inventory TO (days) 40.8 25.6 23.1 23.0 21.3 Payable TO (days) 119.8 113.1 120.8 128.9 115.9 Acct. Payables - Other TO (days) 0.0 0.0 0.0 0.0 0.0
Debt to Equity (%) 57.2 45.3 80.9 77.2 69.6 Interest Coverage Ratio (x) 0.1 0.0 0.2 0.1 0.1 Net Gearing (%) 49.8 (11.5) 35.5 42.0 (5.9)
Source : WSBP, IndoPremier
Head Office
PT INDO PREMIER SEKURITAS
Wisma GKBI 7/F Suite 718
Jl. Jend. Sudirman No.28
Jakarta 10210 - Indonesia
p +62.21.5793.1168
f +62.21.5793.1167
INVESTMENT RATINGS
BUY : Expected total return of 10% or more within a 12-month period
HOLD : Expected total return between -10% and 10% within a 12-month period
SELL : Expected total return of -10% or worse within a 12-month period
ANALYSTS CERTIFICATION.
The views expressed in this research report accurately reflect the analyst;s personal views about any and all of the subject securities or issuers; and no part of the
research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in the report.
DISCLAIMERS
This reserch is based on information obtained from sources believed to be reliable, but we do not make any representation or warraty nor accept any
responsibility or liability as to its accruracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendations contained in this document does not have regard to the specific investment objectives, finacial situation and the
particular needs of any specific addressee. This document is not and should not be construed as an offer or a solicitation of an offer to purchase or subscribe or
sell any securities. PT. Indo Premier Sekuritas or its affiliates may seek or will seek investment banking or other business relationships with the companies in this
report.
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