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Indonesia Industry Focus

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

DBS Group Research . Equity 5 Jul 2017

Adjusting expectations JCI : 5,825.10


 Decelerating new contract growth and rising Analyst
capital needs cap sector’s upside potential; Chong Tjen-San +60 3 26043972
turning Neutral on the sector tjensan@alliancedbs.com
 Contractors with ample balance sheet capacity
Tiesha PUTRI +6221 30034931
stand a better chance of winning more projects
tiesha.narandha@id.dbsvickers.com
 Execution and earnings are key catalysts. Top
picks: PTPP and WTON
Turning Neutral on Indonesia’s construction sector; the STOCKS
stock-picking game continues. We are turning Neutral on
the sector (from Positive previously) as we expect new contract Price Mkt Cap Target Price Performance (%)
Rp US$m Rp 3 mth 12 mth Rating
growth to decelerate while the higher capital needs pose a risk
to profitability. We advise investors to stay selective. We like Waskita Karya 2,270 2,306 2,400 (2.1) (6.8) HOLD
PTPP due to its attractive valuation at 0.34x EV/order book, Pembangunan
3,330 1,545 4,100 2.8 (7.2) BUY
lower than peers. PTPP also has a smaller capex commitment Perumahan
Wijaya Karya 2,220 1,491 2,050 (4.7) (15.6) HOLD
compared to its peers, and a less leveraged balance sheet to
Wijaya Karya Beton 605 395 760 (21.5) (33.7) BUY
support its future earnings and new contract growth. As the
government and project owners accelerate the execution of Source: AllianceDBS, DBSVI, Bloomberg Finance L.P.
infrastructure projects, we believe precast producers, including Closing price as of 5 Jul 2017
WTON, are in a sweet spot.
Waskita Karya : Waskita Karya is a stated owned construction
company engaging in a wide variety of construction activities
Contractors with ample balance sheet capacity stand a including highways, bridges, ports, airports, and LRT.
better chance of winning more projects. Job opportunities Pembangunan Perumahan : PT PP (Persero) is Indonesia's leading
are aplenty for contractors given Indonesia’s massive need for construction company with business portfolio encompassing from
infrastructure. Nonetheless, funding remains a challenge with building and civil infrastructure constructions.
fiscal deficit being capped at 3% by law while the government Wijaya Karya : Wijaya Karya is a construction company with interests
in EPC, civil, building works, precast and realty.
has been taking a break from injecting capital into SOEs. A
Wijaya Karya Beton : Wika beton (a subsidiary of Wikaya Karya) is a
number of funding alternatives are taking place but mostly
leader in precast in Indonesia with c.40% market share.
require the contractors to also invest in the infrastructure
projects or work under a turnkey scheme. Capital requirements
Construction companies’ PE valuation range since 2012 (x)
to win a project will continue to rise, hence we prefer
75
contractors with ample balance sheet capacity, established JVs
65
with foreign players and good cash flow management.
55
45
Where we differ. Consensus' blanket overweight stance on
35
the sector implies an expectation that earnings delivery will be
25
smooth for all listed state-owned contractors, which may not
be the case as some contractors are facing land acquisition 15

issues and funding constraints. We also expect new contracts 5


WSKT PTPP WIKA WTON
to peak out this year and decline by 6% in 2018. On contrary
to consensus Buy call on all listed state-owned contractors, we Source: AllianceDBS, DBSVI
believe selective investing in the sector is the best approach
given the peaking new contract growth and differing risk
profile among the contactors. Our top picks in the sector are
PTPP and WTON.

ed-TH / sa- MA, PY


Industry Focus

We identify three key issues that will shape the sector's


performance for the rest of the year:

1) The speed of project execution. The three contractors


under our coverage are now sitting on a record-high
order book. After two years of stellar new contract
growth, we expect the pace of project awards for the big
three state-owned contractors (Wijaya Karya, PT PP and
Waskita Karya) to decelerate in the coming months given
the already high new contract base last year (Rp157tr vs
Rp84tr in 2015). That said, the focus will shift to project
delivery, and consequently earnings.

2) Land acquisition funding. A number of land-intensive toll


road projects have been awarded by the government and
there are more new toll road concessions that are in
talks. We identify over 2,500 km toll roads in the
pipeline, exceeding the government’s initial target of
developing 1,000 km new toll roads by 2019.

Land acquisition for infrastructure projects are typically


funded by the government, but the disbursement of the
funds has been delayed since last year due to
bureaucratic hurdles.

A new scheme that allows the project owner to pre-


finance the land acquisition cost while awaiting the
government to disburse the funds has been adopted
since then. However, this has also become an additional
burden for the project owners’ balance sheets.

We believe the fund disbursement would be a positive


catalyst for the sector to speed up land acquisition
activities and project delivery.

3) Asset recycling and securitisation, particularly for Waskita


Karya (WSKT), which has the highest exposure to toll
road projects. WSKT has been actively acquiring stakes in
greenfield toll road projects with the aim of selling them
after the construction works complete. This strategy has
also been adopted by other listed contractors, albeit at a
much less aggressive pace.

A timely and value-accretive divestment will be a positive


catalyst for the contractors. In addition, we estimate that
a potential new contract worth Rp80tr would come from
JSMR. However, given JSMR’s hefty funding needs, the
execution of its securitisation and divestment plans are
important to ensure that its new projects would take off.

Page 2
Industry Focus

New contract growth to peak out; execution to take the awarded the Rp15.8tr Jakarta-Bandung HSR civil works
spotlight construction contract. As new contracts are peaking out this
year, project execution and earnings delivery would take the
The three state-owned contractors under our coverage spotlight.
booked Rp47.5tr worth of new contracts in 5M17, a 71%
increase y-o-y. This was driven largely by SOE and to some New contract trend
extent private contracts. We nonetheless anticipate the new Rp tr
contract growth to slow down in the coming months with the 180.0 163.9
three contractors only guiding for a 4% increase in new 160.0
157.4

contracts for FY17. 140.0


120.0
5M17 new contracts 100.0
84.4
80.0
Rp tr 80.0 70.0
60.5
25.0 46% 50% 60.0 54.8
43.2 40.6
45% 32.1
40.0 32.6
20.0 40% 17.6 20.2 22.6
31% 33% 20.0
35% 25.3 27.0
15.0 30% -
25% WIKA PTPP WSKT Total
19%
10.0 20% FY14A FY15A FY16A FY17F*
15%
5.0 20.0 12.6 10% *based on management’s target
14.9
7.6 7.2 13.0 1.6 2.3 5% Source: Company, AllianceDBS, DBSVI
- 0%
WIKA PTPP WSKT WTON
5M16 new contracts 5M17 new contracts % of FY17 guidance (RHS) New contract growth trend
140%
*based on management’s target 118%
120% 117%
Source: Company, AllianceDBS, DBSVI
100%
87%
Among the three state-owned contractors under our 80% 70%
coverage, PTPP is guiding for the highest new contract 60%
43% 42% 40%
growth of 25%, coming from a relatively low base last year 40% 34% 25%
where it won Rp32.6tr new contracts over the year (vs. WSKT 20% 21% 14%
19%
3% 4%
at Rp70tr and WIKA at Rp54.8tr). 0%
-1% WIKA PTPP WSKT Total
-20%
WSKT announced its ambitious new contract growth of 14% -21%
-40%
to Rp80tr after more than doubling its new contracts last
FY14A FY15A FY16A FY17F*
year. This forecast is above our expectations. WSKT has been
able to secure large order books in the past two years by *based on management’s target
shifting its business model from a pure civil contractor to toll Source: Company, AllianceDBS, DBSVI
road developer. The company currently owns 18 toll road
concessions through its subsidiary Waskita Toll Road. We Due to the government’s fiscal constraint, the rule of the
estimate that most of the construction contracts were game has changed. In the past, contractors were largely
awarded and included in WSKT’s 2016 order book. Unlike last dependent on government-funded projects (with the
year where its new contract target was relatively secured, the exception of PTPP which in the past won a number of projects
company has to resume its toll road acquisition spree. This from private property developers), specifically infrastructure
means that a strong and sustainable new contract growth will projects under Ministry of Public Works and Housing and
likely come at the expense of its balance sheet strength. In Ministry of Transportation. Nowadays, balance sheet strength
our view, this is a key negative given its already poor is becoming increasingly important as more big-ticket
operating cashflow. projects are implemented using the Public-Private Partnership
(PPP) scheme. That said, contractors typically had to acquire
Meanhile, WIKA expects its new contracts to decline by 21% equity stakes in the project to be able to win the civil work
due to the high base last year where the company was contracts.

Page 3
Industry Focus

Government-funded projects that are up for bidding remain Rp76.2tr backlog contracts, of which 21% comes from the
aplenty, but are more prone to delay, especially if the state’s Jakarta-Bandung high-speed railway project (where WIKA has
revenue collection falls short of target. Meanwhile, the an effective stake of 23%). Meanwhile, PTPP has Rp58.1tr
government’s strategy to decentralise its infrastructure budget backlog contracts.
from ministries to regional government also means a smaller
chance for large-scale state-owned contractors, i.e. WIKA, Among the three contractors, PTPP’s order book is more
PTPP and WSKT, to win the projects due to their relatively diverse and least concentrated to a single or one type of
small ticket size, slower execution and tighter competition project. Note that the majority of WKST’s order book are
against regional players. highly leveraged to toll road projects in Java while 21% of
WIKA’s order book is from the Jakarta-Bandung high-speed
New contracts from government-funded projects railway project.
Rp tr
35.0 Contractors’ revenue visibility
30.0 6.1 Rp tr (x)
25.0 100.0 4.0
5.1 3.3
90.0 3.5
20.0 80.0
15.6 2.7 3.0
15.0 9.9 70.0
4.0 60.0 2.5 2.5
10.0
50.0 92.9 2.0
7.9 10.9 40.0
5.0 10.7 76.2 1.5
2.7 30.0 58.1 37.7
- 1.0
20.0
2014A 2015A 2016A 22.8 21.9 0.5
10.0
WIKA WSKT PTPP - -
WIKA PTPP WSKT
Source: Company, AllianceDBS, DBSVI
Outstanding order book* (LHS)
Revenue FY17F (LHS)
Outst. order book/revenue FY17F (RHS)
Contribution of government-funded projects* to total
new contract *As et end of May 2017
Source: Company, AllianceDBS, DBSVI
45% 43%
40%
35% Land acquisition risk – same old story?
35%
31% 30%
30%
25% 22%
24% The three contractors under our coverage recorded a strong
20% 20% 21%
20%
19% new contract growth of 86% y-o-y in FY16. Nonetheless,
15%
15% 19% execution was slower than expected, particularly in 4Q16 with
10% combined revenue of WSKT, WIKA and PTPP (ex-property and
5% toll road operations) in the quarter only growing by 21% y-o-
- y, decelerating from the 40% growth booked in 9M16. The
WIKA WSKT PTPP Total deceleration was mostly due to WIKA and PTPP, whose
2014 2015 2016 revenue ex-property grew by only 6% and 2% y-o-y
respectively.
*Excluding projects funded by SOE
Source: Company, AllianceDBS, DBSVI
Based on our checks, land acquisition issue remained the key
hurdle as most of the contracts awarded in the past 12
Record-high order book to support revenue visibility
months are land-intensive toll road projects. In our view, aside
from technical issues, the project execution to some extent
On the positive side, the three contractors under our coverage
hinges on the disbursement of land acquisition funds. Our
are now sitting on a record-high order book. WSKT is leading
discussions with industry players suggest that land clearing
with Rp92.9tr outstanding order book supported by the
process is typically faster when the funding is ready.
greenfield toll road acquisition spree by its 70%-owned
subsidiary Waskita Toll Road. In second position is WIKA with

Page 4
Industry Focus

Under the 2016 revised state budget and 2017 state budget, especially with fiscal deficit being capped at 3% by law. In
the government allocated Rp16tr and Rp20tr respectively to addition, the government is no longer actively injecting capital
fund land acquisitions for infrastructure projects. As at the into SOEs. Alternative funding such as Private-Public
time of writing, a large part of the budget has yet to be Partnership (PPP) is required to enable the project to take off,
disbursed due to bureaucratic and regulatory hurdles. As a but bureaucratic bottlenecks and complexity of land
result, toll road concession owners are asked to cover for the acquisition issues may push these projects backward. The
land costs to speed up execution. government may also be more active in leveraging on foreign
funding in line with One Belt One Road where the Jakarta-
Land acquisition bailout fund from project owners Bandung High Speed Rail is being financed by the China
Rp tr Development Bank.
25.0 86% 100%
20.2 90% We narrow down our list to a number of transport-based
20.0 80%
16.4 infrastructure projects that in our view are the most plausible
70%
15.0 60% to be executed in the next 12 months based on our checks
43% 50% with contractors and project owners.
35%
10.0 40%
5.4 30%
7.0 7.1
Toll road – Rp80tr potential new contracts in 2017-2019
5.0 20%
4.7 10%
- - The government continues its aggressive rollout of new toll
Jasa Marga* Hutama Karya** Waskita Karya*
road projects although toll roads entering land acquisition or
Total equity (LHS) Bailout fund (LHS) Bailout fund/total equity (RHS) construction phases already far exceed the initial goal of
Source: Company, AllianceDBS, DBSVI 1,000 km. At the end of last year, Indonesia’s leading toll
road operator Jasa Marga (JSMR) announced its plan to
Our discussions with project owners suggest that further expand its toll road network by another 800 km. This
reimbursement will likely take time as the claim must be toll road expansion plan, if realised, will translate to c. Rp80tr
verified by two government agencies, Audit Board (BPK) and worth of new jobs for contractors in 2017-2019.
State’s Asset Management Agency (BLU LMAN). It is also
worth noting that the budget allocation can only cover 57% In our previous sector reports, we had noted that among all
of land acquisition cost estimated by Ministry of Public Work infrastructure projects, toll roads have shown the best
and Housing. Hence, the concession owners will likely progress among all of the government’s infrastructure
continue to pre-finance the shortage to speed up the project initiatives, supported by land acquisition reform, capital
execution. injection to infra-related SOEs and given the less complex
designing and civil work process. Based on our discussion
We have highlighted that more capital is required by with JSMR, a number of new toll roads will be rolled out in
contractors to grow their order books – either to acquire the near future. However, due to JSMR’s hefty funding needs,
some stakes in the infrastructure projects they bid for or to most of the projects will adopt contractor pre-financing (CPF)
work under semi-turnkey or turnkey projects. Given the high scheme (also known as “turnkey”) where contractors will only
capital needs, the disbursement of the land acquisition receive the payment once the toll road construction is entirely
budget will help to ease the cash flow burden of the project completed. We see a risk that these projects would command
owners and allow them and the contractors to execute more a lower profit margin compared to non-CPF toll road projects
projects. won in the past due to the higher working capital
requirement.
Projects up for bidding
Port – eyes on Patimban project
In our past report (Indonesia Construction: Bridging ASEAN
connectivity gap through port build-out), we listed down a Port projects, on the other hand, have moved slower than our
number of transport-based infrastructure projects in the expectation. Two key issues are funding and the higher
government’s pipeline. Job opportunities remain aplenty for complexity of the projects, particularly on the design. Two
contractors given Indonesia’s massive need for infrastructure port projects are currently in the tender process with one of
upgrade. We however note that funding remains a challenge them being the mega Patimban port project in West Java

Page 5
Industry Focus

worth US$3bn (c. Rp40tr). Japan will likely finance most of On the subsequent page, we present our new contract
the projects with the loan deal expected to be signed this estimates after taking into account the contribution from the
year. Based on our channel check, local contractors can win at central government’s annual capex spending.
least 40% of the total contract value, or approximately
Rp16tr, while the remaining will likely be awarded to foreign New contracts – what can surprise on the upside? For power
contractors, depending on the loan term. plant projects, competition is tighter as state-owned
contractors also compete with private players, both from local
In a recent Belt and Road Forum in Beijing, there are also two and foreign countries. As at end of December 2016, only
port projects offered to China for financing, namely Kuala power plants with total capacity of 14.6 GW were still in the
Tanjung port and Bitung port. The projects will comprise initial phase (planning and procurement). Assuming US$1.5m
several phases. Both ports are estimated to cost Rp34tr each. investment per megawatt, this would translate to potential
new contracts of Rp291.9tr. However, a big chunk of the
High-speed and urban railway – some changes to the initial investment is related to EPC while for the civil works, the size
plans is typically less than 30% of the total investment. Given the
high complexity of power plant projects and intense
The likelihood of government expanding the planned Jakarta- competition from more experienced foreign EPC players, we
Bandung high-speed railway network to Surabaya appears to only take into account the civil works with 50% winning rate
be lower now. Instead, it is mulling over revitalising the for the three contractors. An increase in winning rate is
existing railway by building an elevated track. Nevertheless, possible if the contractors actively participate as an equity
the potential new order book from this railway revitalisation investor in the power plant projects.
project would still be sizeable at Rp80tr.
Progress of 35 GW programme (as at end of 2016)
The plan to build an LRT in Bandung was also called off. Operational,
Based on our checks, the project will likely be replaced by 707 Start
metro capsule which has a lower investment cost (c. Rp1tr).
Planning,
Meanwhile, there has been a discussion on LRT development 5,824
in Surabaya. A feasibility study for the project is currently
Construction,
taking place, however the contract size is estimated to only 10,291
reach Rp3.8tr. Another urban railway project scheduled to Procurement,
8,810
start this year is MRT phase 2. The MRT track will be entirely
Power
underground and span 14 km from Hotel Indonesia Purchase
Roundabout to Ancol. The project is estimated to cost at least Agreement,
10,063
Rp22.5tr. Note that WIKA has constructed 15% of the
underground portion for the current Jakarta MRT line and
should be a front runner for this portion. Source: PLN

We expect 2018 new contracts to start declining. New


contracts of the big three state-owned contractors have
surged from a mere Rp60.5tr in FY14 to Rp157.3tr in FY16,
supported by higher government infrastructure spending,
both through ministerial spending and the multiplier of capital
injection to SOEs. In 2017, the big three state contractors only
guided for a 4% y-o-y growth after almost doubling their
new contracts y-o-y in 2016. With the government being less
active in injecting capital into SOEs and given that the
contractors already have a sizable outstanding order book to
be delivered over the next 1-2 years, we think a further surge
in new contracts is less likely.

Page 6
Industry Focus

Potential new contracts from 35 GW programme We also note that there are a number of refinery projects with
Ca p a c i ty (M W) estimated total investment of Rp596tr listed as the
Planning 5,824 government’s priority projects. These projects are overseen by
Procurement 8,810 a special committee called KPPIP (Committee for Acceleration
To ta l 1 4 ,6 3 4 of Priority Infrastructure Delivery which reports directly to
President. We have yet to include the potential contracts from
Ke y a s s u mp ti o n s : these projects while awaiting more clarity on the project
Investment (USD/mn) 1.50 funding. Recently, Pertamina announced its plan to delay the
Civil work portion 25% project completion to after 2020 due to financing issues.
USDIDR 13,300
Potential new contract (Rp bn) 72,987 Given the high complexity of the refinery projects, we think
Big 3 state-owned contractors' winning rate 50% only a small part of the contract size can be awarded to the
Po te n ti a l n e w c o n tra c t fo r b i g 3 s ta te -o wn e d
listed state-owned contractors. If this projects go through, we
c o n tra c to rs (R p b n ) 3 6 ,4 9 4 believe the contract can provide potential upside to WIKA,
Co n tra c t a wa rd e d p e r a n n u m a s s u mi n g : which has better experience in refinery projects compared to
3 years contract award (Rp bn) 12,165 PTPP and WSKT.
2 years contract award (Rp bn) 18,247
Source: PLN, AllianceDBS, DBSVI

New contracts from government-funded projects


Go ve rnm e nt -funde d ne w co nt ra ct s (Rp bn)
2014A 2015A 2016A 2017F 2018F 2019F
WIKA 2.7 10.7 10.9 10.6 11.1 11.8
WSKT 7.9 9.9 15.6 15.2 15.9 16.9
PTPP 4.0 5.1 6.1 5.9 6.2 6.6
To ta l n e w c o n tra c ts 1 4 .6 2 5 .7 3 2 .7 3 1 .7 3 3 .3 3 5 .4
Growth y-o-y 75% 27% -3% 5% 6%

Gov't capex budget 160.8 252.8 206.6 194.3 201.8 211.9


Go v't c a p e x s p e n d i n g 1 3 8 .3 2 0 9 .0 1 6 6 .4 1 6 1 .4 1 6 9 .5 1 8 0 .1
Actual spending/budget 86% 83% 81% 83% 84% 85%

Gov't capex growth y-o-y


Budget 57% -18% -6% 4% 5%
Actual 51% -20% -3% 5% 6%
Actual t-1 vs. budget 83% -1% 17% 25% 25%

WI KA, WSKT a n d PTPP's ma rke t s h a re * 11% 12% 20% 20% 20% 20%
* New contracts of WIKA+WSKT+PTPP / gov't capex spending
Source: Company, AllianceDBS, DBSVI

Page 7
Industry Focus

Identifiable projects in 2017F – 2018F


Investment
Project Location
(Rp bn)

Toll road
Jasa Marga's toll road expansion plan Indonesia 80,000

Railway
Bandung-Surabaya railway revitalisation West Java, East Java 80,000
Bandung Metro Capsule West Java 1,000
Surabaya LRT East Java 3,800
Jakarta MRT Phase 2* Jakarta 3,375

Port
Patimban Port Stage 1 Phase 1* West Java 7,052
Kuala Tanjung Port Phase 2* North Sumatra 3,200

Power
2018F Indonesia 18,247

Government-funded projects
2018F state budget Indonesia 33,281

Total 229,955
2018F new contract assuming two years of contract award 149,955

New contracts
FY15A 84,380
FY16A 157,337
FY17F 159,787
FY18F 149,955

New contract growth y-o-y


FY16A 86%
FY17F 2%
FY18F -6%
* Civil work portion only
Source: Company, various media sources, AllianceDBS, DBSVI

Page 8
Industry Focus

On to the next catalysts


4) PTPP’s 2Q17 earnings release
Below we highlight five upcoming events and two mega After recording a weaker-than-expected construction
projects that will likely become the key catalysts for the sector revenue in the past two consecutive quarters mainly due
and the individual companies. to land acquisition issue, 2Q17 will be an important
quarter to regain investor’s confidence on PTPP’s ability
1) 2018 Fiscal Budget proposal (August 2017) to execute its large outstanding order book. In May 2017
The government is scheduled to submit the budget analyst briefing, the management assured investors that
proposal to parliament in August 2017. The amount the the revenue should catch up in 2Q17 with a target
government allocates for infrastructure development and revenue of Rp10tr in 1H17. This implies Rp7.1tr revenue
state-owned enterprises (if any) will be important to target in 2Q17 vs. Rp2.9tr achieved in 1Q16.
gauge the direction of contractors’ order book growth in
2018. 5) Jasa Marga’s securitisation and subsidiary IPO plan
JSMR is planning to expand its toll road network up to
2) Waskita Toll Road divestment 800 km by 2019, on top of the c. 600 km greenfield toll
WSKT plans to further divest its stake, while Waskita Toll roads in its existing pipeline. Due to the hefty investment
Road also plans to sell 3-4 toll roads this year. The needed, any fund-raising activities, particularly the
contractor has shifted its business model to become a toll securitisation of its mature toll roads and divestment of
road developer, which is highly capital intensive. While its subsidiaries, will help to ensure that its existing and
the impact on WSKT will depend on the toll road’s upcoming pipelines can be executed timely.
valuation, the divestment proceeds should help to ease
WSKT’s cash flow burden. 6) Patimban port
The location of Patimban port has been approved by the
3) CDB loan disbursement for Jakarta-Bandung high-speed government. More clarity on the project should come
railway (HSR) project after the signing of the loan commitment from Japan,
The construction of Jakarta-Bandung HSR has come to a which is expected to take place in July 2017. The tender
halt after the groundbreaking ceremony in January 2016 of the project is ongoing. Based on our checks, two
due to prolonged delay on financial close. The loan contractors under our coverage, PTPP and WIKA, are
agreement was finally signed in May 2017. Nonetheless, vying for the project.
the disbursement will be pending the verification of land
acquisition progress by an independent auditor. WIKA, 7) Jakarta-Surabaya railway revitalisation
which leads the local consortium for the project, expects Given the sizeable project size, that is Rp80tr or
the loan to be disbursed and the construction works to approximately 51% of the combined FY16 new contract
resume in July 2017. The resumption of the project will achievement of WIKA, PTPP and WSKT, more clarity on
be positive for both WIKA and WTON. the project would be positive catalyst for the sector.

Page 9
Industry Focus

What is consensus expecting? Valuation and recommendation

Consensus is expecting 47% y-o-y revenue growth in FY17 for Construction sector’s 12-month forward PE
the big three state-owned contractors with net profit growing 30
slower at 33% y-o-y. As a comparison, the big three state-
owned contractors booked 34% y-o-y revenue growth and 25 +2sd

54% headline net profit growth in FY16.


+1sd
20

Current consensus’ earnings forecasts imply an expectation that Avg.


15
consolidated EBIT and net margin would shrink in FY17. A
‐1sd
similar trend was also implied on consensus’ 2018 earnings 10
forecast. We believe this is because the consensus expects ‐2sd
competition among contractors to tighten, coupled with higher 5

Apr-12

Apr-13

Apr-14

Apr-15

Apr-16

Apr-17
Jul-12

Jul-13

Jul-14

Jul-15

Jul-16
Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17
financing needs. The magnitude of net margin decline in 2017

Oct-12

Oct-13

Oct-14

Oct-15

Oct-16
based on consensus expectation is the largest on WSKT,
followed by WIKA. Source: Bloomberg Finance L.P, AllianceDBS, DBSVI

Consensus’ 2017 net profit revision Construction sector’s 12-month forward PE relative to JCI
35% 30 40%
28% 30%
30% 27%
25 20%
25%
10%
20% 16% 20 0%
15%
15% -10%
15 -20%
10%
6% -30%
5% 0% 3%
1% 1% 10 -40%
-1%
0% -50%
WSKT WIKA -0.2% PTPP WTON
-5% 5 -60%
-3%
Oct-12

Oct-13

Oct-14

Oct-15
Jan-12

Jan-13

Jan-14

Jan-15

Jan-16
Apr-12

Apr-13

Apr-14

Apr-15

Apr-16
Jul-12

Jul-13

Jul-14

Jul-15

Jul-16
-10% -6%

Past 12 months YTD Post FY16 audited results Post 1Q17 results
Construction PE premium to JCI (RHS) Construction PE
Source: Bloomberg Finance L.P JCI PE Avg. construction PE premium to JCI (RHS)

Source: Bloomberg Finance L.P, AllianceDBS, DBSVI


Consensus’ 2018 net profit revision
40% We are turning Neutral on Indonesia’s construction sector from
28%
Positive previously. The sector’s PE multiple has derated
30%
significantly in the past few months. However, we do not see
20% 17% any significant catalyst that will support a broad-based upward
14% 12% re-rating in the near future.
10% 5%
1% -4% -1% 3%
0% We expect new contract growth to decelerate in the coming
WSKT WIKA PTPP
-1% WTON months and we think government-funded projects are unlikely
-10% to provide significant upside potential to our order book
-20%
forecasts as the government continues to decentralise
-18%
infrastructure development. As the government seeks funding
Past 12 months YTD Post FY16 audited results Post 1Q17 results
alternatives and push the PPP scheme, capital requirement to
Source: Bloomberg Finance L.P win a project will continue to rise up to the point where
contractors have to choose between growing their order books
(at the expense of higher interest expense and margins) or
coping with a declining order book.

We like PTPP due to its attractive valuation and promising


growth outlook. The company now trades at 0.34x EV/order

Page 10
Industry Focus

book, lower than WSKT at 0.61x. It is also worth noting that Where we differ
PTPP has a smaller capex commitment compared to WSKT, and
a relatively less leveraged balance sheet to support its future We are less bullish on the sector compared to the street,
earnings and new contract growth. We forecast PTPP’s net particularly on WIKA and WSKT. The consensus Buy call on all
profit to grow at a CAGR of 27% in 2016A-2018F. listed state-owned contractors (refer to the table below)
suggests that a broad-based execution improvement is expected
While WIKA’s EV/order book multiple is on par with PTPP, it is to lift the share prices of all state-owned contractors. On the
now trading at 17.5x 17F PE (vs. PTPP at 15.4x 17F PE). Given contrary, given the peaking new contract growth and differing
the higher PE multiple and downside risk on earnings, we prefer risk profile among the contractors, we believe selective investing
to wait for the Jakarta-Bandung HSR progress to accelerate in the sector is the best approach.
before turning more positive on the stock.
DBS vs. consensus’ recommendation
As work on the projects commence, WTON is in a sweet spot as No . o f Co n s e n s u s ' re c o mme n d a ti o n DB S'
it starts to receive new orders from contractors/project owners. a n a l ys t B UY HO LD SELL re c o mme n d a ti o n
We view WTON as a good proxy to the infrastructure sector WIKA 32 25 7 0 HOLD
given its strong presence across Indonesia. PTPP 29 29 0 0 BUY
WSKT 29 25 4 0 HOLD
WTON 16 14 1 1 BUY
EV/order book Source: AllianceDBS, DBSVI, Bloomberg Finance L.P.
Rp tr (x)
100.0
0.61
0.70 Our FY17 net profit forecasts for WIKA and WSKT are one of
0.60 the lowest on the street. We have a HOLD call among consensus
80.0
0.41 0.50 Buy calls on both companies.
60.0 0.40
0.34 56.8 WIKA. WIKA’s FY17 net profit largely depends on the
0.26 0.30
40.0
0.20
construction progress of Jakarta-Bandung high-speed railway.
20.0 Assuming 6.3% net margin and 37% progress for FY17, the
20.0 19.9 0.10
76.2 58.1 92.9 project (ex-precast) should contribute Rp183bn net profit to
- -
WIKA PTPP WSKT Avg. WIKA or 30% of management’s net profit target for FY17. We
Outstanding order book* (LHS) EV** (LHS) EV/outst. order book* (RHS)
see downside risk on WIKA’s net profit given that the
construction work is expected to resume only in July 2017.
*As at end of March 2017; ** As of 5 July 2017
Source: Company, AllianceDBS, DBSVI Our FY17 net profit forecast for WIKA is 9% lower than
consensus as we expect higher capital requirement and debt to
Gross and net gearing* support its new contract and earnings growth.
1.40 1.28
1.20 WSKT. Our net profit forecasts for WSKT are 9%/27% lower
1.00 relative to consensus as we have factored in potential start-up
0.83
0.80
losses from its toll road business.
0.60 0.54
0.47
0.32 Summary of net profit forecast changes
0.40 0.25 F Y 17F net prof it F Y 18F net prof it
0.20
-0.08 -0.16 O ld New Change Old New Change
0.00
WSKT 1,824 2,168 19% 1,745 2,209 27%
-0.20 WIKA PTPP WSKT WTON
WIKA 1,111 1,140 3% 1,530 1,595 4%
-0.40
PTPP 1,331 1,341 1% 1,645 1,644 0%
Gross gearing Net gearing WTON 366 366 0% 418 418 0%
A ggregat e 4,632 5,016 8% 5,338 5,865 10%
*As at end of March 2017
Source: Company, AllianceDBS, DBSVI Source: AllianceDBS, DBSVI

Page 11
Industry Focus

Summary of recommendation and TP changes


T arget Price
Rec ommendat ion
Old New Change
WSKT 2,950 2,400 -19% Maintain Hold
WIKA 2,780 2,050 -26% Maintain Hold
PTPP 4,950 4,100 -17% Maintain Buy
WTON 1,050 760 -28% Maintain Buy

Source: AllianceDBS, DBSVI

DBS’s net profit forecast relative to consensus


1.20
1.05
0.99 0.96 0.99
1.00 0.92 0.91 0.94

0.80 0.73

0.60 FY17F
FY18F
0.40

0.20

-
WSKT WIKA PTPP WTON

Source: AllianceDBS, DBSVI, Bloomberg Finance L.P

Key risks

Delay in project execution due to technical, land acquisition


and funding issues, and bureaucratic hurdle.

Tax revenue shortfall. The government has set a target to


increase tax revenue by 17% this year to Rp1,499tr. Failure to
meet this target could lead to spending cuts and delays in
project execution.

Political headwinds. Conflicting interest between government


and opposing parties may impede reform momentum. A case
in point is the delay in SOE capital injection last year.

Tightening competition among contractors, especially in 2018


where we project aggregate new contracts to decline. This
may lead to a drop in margins.

Further slowdown in property sector. PTPP, and to a lesser


extent WIKA, have exposure to the property sector.

Page 12
Industry Focus

Valuation summary
M a rk e t D ilut e d EV/
C ap P ric e R ec. TP P E ( x) P / B ( x) E B IT D A ( x) R OA E EP S C A GR EV/ N et
o rde r G e a ring
( ID R bn) ( ID R ) F Y 17 F Y 18 F Y 17 F Y 18 F Y 17 F Y 18 F Y 17 F Y 18 F Y 16 A - 18 F bo o k ** ( x)

Wijaya Karya 19,913 2,270 HOLD 2,050 17.5 12.5 1.6 1.5 9.1 7.4 10% 12% 6% 0.26 Net Cash

P T P P (P ersero ) 20,646 3,330 B UY 4,100 15.4 12.6 1.9 1.7 8.6 7.4 13% 14% 12% 0.34 Net Cash

Waskita Karya 30,813 2,270 HOLD 2,400 14.2 13.9 2.4 2.1 13.0 12.4 18% 16% 14% 0.61 0.83

A dhi Karya* 7,763 2,180 N/R N/A 12.8 8.8 1.3 1.1

Wijaya Karya B eto n 5,273 605 B UY 760 14.4 12.6 1.9 1.7 8.4 7.4 14% 15% 24% 1.07 0.25

S im ple a v e ra ge 14 .8 12 .1 1.8 1.6 9 .7 8 .7 14 % 14 %

We ight e d a v e ra ge 15 .1 12 .7 2 .0 1.7 9 .5 8 .6 13 % 13 %

*Non-rated; based on Bloomberg consensus


**Order book as at end of May 2017
Source: AllianceDBS, DBSVI, Bloomberg Finance L.P

Page 13
Industry Focus

Company Guides

Page 14
Indonesia Company Guide
Waskita Karya
Version 6 | Bloomberg: WSKT IJ | Reuters: WSKT.JK Refer to important disclosures at the end of this report

DBS Group Research . Equity 5 Jul 2017

HOLD Further fund raising needed


Last Traded Price ( 5 Jul 2017): Rp2,270 (JCI : 5,865.40)
Price Target 12-mth: Rp2,400 (6% upside) (Prev Rp2,950) Funding risk reduced post sale of stake in Waskita Toll Road but
further fund raising is needed. Waskita Karya (WSKT) has shifted
Analyst to a more capital-intensive business model with 18 toll road
Chong Tjen-San +60 3 26043972 tjensan@alliancedbs.com concessions in its portfolio (of which 10 concessions are majority
Tiesha PUTRI +6221 30034931 tiesha.narandha@id.dbsvickers.com owned by WSKT through Waskita Toll Road or WTR). Hefty
funding will be required to keep growing its order book and
What’s New earnings at the current pace. WSKT recently raised Rp3.5tr cash
 Funding risk reduced post sale of stake in Waskita through a 29% stake sale in WTR to SMI and a state-owned
pension fund Taspen. We view this positively as it would help to
Toll Road but further fund raising required
reduce funding concerns and ease potential start-up losses.
 Maintain HOLD with a lower SOP-based TP of Nonetheless, further fund raising or divestments would be
Rp2,400 needed. Post divestment to Taspen and SMI, we estimate that
WSKT would still need more than Rp7.2tr cash to fund its equity
 Toll road divestment is key catalyst portion for its toll road concessions over the next three years.

Where we differ. We are one of the few houses in the market


with a HOLD call compared to Buy calls on the stock. Our
Price Relative
earnings forecast for FY17F/FY18F are 8%/27% below
consensus as we have factored in potential start-up losses from
WSKT’s toll road business. We are also concerned on its
persistent negative operating cash flow arising from increasing
contribution of turnkey projects. We believe consensus may be
over estimating the ease of further equity raising to fund its toll
road expansion. This is especially in light of diminishing
prospects of more capital injections by the government.
Forecasts and Valuation
Potential catalysts. WSKT plans to further divest its stake in
FY Dec (Rp m) 2015A 2016A 2017F 2018F
WTR, while its subsidiary Waskita Toll Road also plans to sell 3-4
Revenue 14,153 23,788 37,666 49,997
EBITDA 2,041 3,527 5,332 6,674
toll roads this year. While the impact on WSKT will depend on
Pre-tax Profit 1,398 2,481 3,688 4,113 the toll road’s valuation, divestment proceeds should help to
Net Profit 1,048 1,713 2,168 2,209 ease WSKT’s cash flow burden.
Net Pft (Pre Ex.) 955 1,713 2,168 2,209
Net Pft Gth (Pre-ex) (%) 90.4 79.4 26.6 1.9 Valuation:
EPS (Rp) 77.2 126 160 163 We valued WSKT’s construction business at 10x FY17F EPS (-
EPS Pre Ex. (Rp) 70.4 126 160 163
EPS Gth Pre Ex (%) 35 79 27 2 1.5SD below sector historical mean PE), precast business at 15x
Diluted EPS (Rp) 77.2 126 160 163 FY17F EPS and toll road concessions using the DCF method.
Net DPS (Rp) 15.4 25.2 32.0 32.5 Our sum-of-the-parts TP of Rp2,400 implies 15x FY17F PE.
BV Per Share (Rp) 703 816 950 1,081
PE (X) 29.4 18.0 14.2 13.9
PE Pre Ex. (X) 32.3 18.0 14.2 13.9 Key Risks to Our View:
P/Cash Flow (X) 46.8 nm nm nm Failure to divest its toll roads could result in lower earnings and
EV/EBITDA (X) 16.4 14.5 13.0 12.4 an overstretched balance sheet.
Net Div Yield (%) 0.7 1.1 1.4 1.4
P/Book Value (X) 3.2 2.8 2.4 2.1 At A Glance
Net Debt/Equity (X) 0.3 0.9 1.7 2.1
Issued Capital (m shrs) 13,574
ROAE (%) 17.0 16.6 18.1 16.0
Mkt. Cap (Rpbn/US$m) 30,813 / 2,306
Earnings Rev (%): 7 19 27 Major Shareholders (%)
Consensus EPS (Rp): N/A 181 230
Other Broker Recs: B: 25 S: 0 H: 4 Republic of Indonesia 68.0
Free Float (%) 32.0
Source of all data on this page: Company, AllianceDBS, DBSVI, 3m Avg. Daily Val (US$m) 2.7
Bloomberg Finance L.P
ICB Industry : Industrials / Construction & Materials

ASIAN INSIGHTS VICKERS SECURITIES


ed: JS / sa:MA, PY
Company Guide
Waskita Karya

WHAT’S NEW

Cutting TP to Rp2,400; further toll road divestment is key catalyst

Order book at record high, boosting its revenue visibility to because of its smaller geographical presence, less extensive
2.5 years. We estimate WSKT’s outstanding order book stood product range and narrower clientele. Lastly, we value
at Rp92.9tr as at end of May 2017 after winning Rp14.9tr WSKT’s toll road concessions using DCF. We apply 10%
worth of new contracts in 5M17. WSKT’s sizeable backlog WACC and 0% long-term growth as we run our DCF until
which mainly comprises of Trans Java toll roads and the end of the concession period. Note that we have yet to
Palembang LRT offers revenue visibility for 2.5 years. take into account WSKT’s five newly acquired toll roads into
our calculation i.e. Kuala Tanjung – Tebing Tinggi – Parapat
Revised up new contract assumptions and earnings. Due to
(143 km), Cileunyi – Sumedang – Dawuan (60 km), Cibitung
the strong new contract flows in 4Q17, we raised our FY17F
– Cilincing (35 km), Krian – Legundi – Blunder – Manyar (38
new contract assumption to Rp78tr (from Rp40tr previously).
km) and Kaya Agung – Palembang – Betung (112 km), as we
With a higher order book, we revised up our FY17F/FY18F net
await more details on these concessions.
profit by 19%/27%. Despite the upward revision, our
earnings forecast for FY17F/FY18F are 8%/27% below Looking beyond this year’s strong earnings outlook. We
consensus as we have factored in potential start-up losses maintain our Hold call on WSKT. We think the stock is fairly
from WSKT’s toll road business. valued at current price, trading at 14.2x 17F PE with net
profit CAGR of 14% in 2016-2018F. Despite the strong
Cutting TP to Rp2,400. We updated our sum of parts (SOP)
earnings growth outlook this year (we forecast 27% net
valuation, resulting in a lower TP of Rp2,400, from Rp2,950
profit growth in FY17F), we reserve our concern over the
previously. We value WSKT’s ex-precast and toll road business
company’s cash flow generation and its high capex
at 10x PE 17F (1.5SD below sector’s historical mean). Our PE
commitment to fund its toll road concessions. We believe
multiple is at discount to sector’s historical mean PE given the
hefty funding is needed to keep growing its order book and
nature of WSKT’s business where the big chunk of the
earnings at the current pace. Further divestment of its toll
construction earnings can only be converted to cash upon the
road concession at a favourable price is key catalyst for the
divestment of its toll road concession.
stock.
We pegged Waskita’s precast business, WSBP, at 15x PE
FY17F, a 20% discount to our target multiple for Wijaya
Karya Beton (WTON). We think the discount is justified

Operating cash flow and capex trend and forecasts Gearing trend and forecasts
Rp bn (x)
20,000 2.50
2.05 2.10
13,983
15,000 2.00 1.84
10,661 1.68
1.50
10,000 7,086 1.50
6,261
1.14
5,000 0.87
1,210 658 1.00 0.83
(89) 0.54
0
2014A 2015A 2016A 2017F 2018F 0.50 0.26
(5,000) (1,747)
(3,201)
-
(10,000) (7,762) 2014A 2015A 2016A 2017F 2018F
Operating cash flow Capex Net gearing Gross gearing

Source: Company, AllianceDBS, DBSVI Source: Company, AllianceDBS, DBSVI

WSKT’s sum of parts (SOP) valuation


WSKT's Equity value
Equity value Equity value
effective (adj. to % of TP Remarks
(Rp bn) per share
ownership ownership)
WSKT ex-precast and toll Based on target PE of 10x; -1.5SD below
18,118 100% 18,118 1,335 56%
road business sector historical mean
Precast (WSBP IJ) 14,389 60% 8,633 636 27% Based on target PE of 15x
Toll road (WTR) 5,366 395 16% DCF; 10% WACC
Target price (Rp/share) 2,400
Implied PE 17F (x) 15.0
Source: AllianceDBS, DBSVI

ASIAN INSIGHTS VICKERS SECURITIES


Page 16
Company Guide
Waskita Karya

Earnings revision
2017F 2018F
Old New % change Old New % change
Revenue 32,055 37,666 18% 37,900 49,997 32%
Gross profit 4,687 6,111 30% 5,381 7,699 43%
EBIT 3,767 4,932 31% 4,281 6,141 43%
Net Profit 1,824 2,168 19% 1,745 2,209 27%

GP margin (%) 14.6 16.2 14.2 15.4


EBIT margin (%) 11.8 13.1 11.3 12.3
Net margin (%) 5.7 5.8 4.6 4.4

New contracts (Rp bn) 40,000 78,000 95% 25,000 67,939 172%
Cum. order book (Rp bn) 116,219 155,514 34% 114,361 184,788 62%
Net interest exp. 641 1,245 94% 783 2,029 159%

Source: AllianceDBS, DBSVI

ASIAN INSIGHTS VICKERS SECURITIES


Page 17
Company Guide
Waskita Karya

New Contract Wins (Rp bn)


CRITICAL DATA POINTS TO WATCH

Critical Factors

A shift in business model. Following the toll road acquisition


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

All eyes on toll road divestment. The change in business model


makes toll road divestments crucial for WSKT given the high Construction Gross Margin (%)
capital requirements to build the toll roads. Assuming a capital
structure of 70% debt and 30% equity for its toll roads, we
estimate that WSKT would need to raise Rp7.2tr cash over the
next three years to fund its equity stakes. With the current
shareholding structure of Waskita Toll Roads, we estimate
WSKT would have to raise debt by c.Rp25tr. This would further
exacerbate its weak operating cash flow position. Given the
potential surge in interest expense, its earnings outlook could
be at risk. We believe toll road divestments will remain a key
focus from 2017 onwards.

New wins from government or external parties. The award of Source: Company, AllianceDBS, DBSVI
new contracts had been a key positive driver of WSKT’s share
price. This was evident where the strong growth in new
contracts in 2015-2016 drove the shares’ outperformance in the
same period. However, we think the concern over the
sustainability of its new contract wins has outweighed the
excitement over its recent new contract wins, especially since
most of the growth in its order book has been driven by its
internal toll road projects instead of the government or external
projects. Note that internal toll road projects are riskier in nature
as the profit would only fully translate into cash upon the
divestment of the concessions – a process that would likely take
additional time. This has caused WSKT’s share price to
underperform the market despite the company’s relatively
strong new contract and earnings growth (refer to Appendix 1)
in the past few months.

ASIAN INSIGHTS VICKERS SECURITIES


Page 18
Company Guide
Waskita Karya

Appendix 1:
A look at the company's listed history – what drives its share price?

WSKT share price vs. peers*


Dec 18, 2012 = 1.0
WSKT share price (LHS) WSKT share price vs. peers* (RHS)
3,000 E 2.5

2,500
C 2.0

2,000 B
1.5
A D
1,500
1.0
1,000

0.5
500

0 -
Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16
*Based on the average return of the listed state-owned contractors
Source: Company, AllianceDBS, DBSVI

A: Rupiah fluctuation WSKT’s share price vs. growth in new contracts


WSKT’s share price was hit by concerns over profitability after 3,000 200%
the sharp depreciation of Rupiah in mid-2013. Investors saw 2,500 150%
infra project’s cost overrun as a key risk, which could lead to a 2,000
100%
decline in contractors’ profitability. The risk was deemed 1,500
50%
higher on WSKT as it was more reliant on government 1,000
contracts compared to peers. 500 0%

- -50%
Dec-12

Dec-13

Dec-14

Dec-15

Dec-16
Sep-13

Sep-14

Sep-15

Sep-16
Jun-13

Jun-14

Jun-15

Jun-16
Mar-13

Mar-14

Mar-15

Mar-16

Mar-17
WSKT’s share price vs. Rupiah
900 16,000
800 15,000 WSKT share price (LHS) T12M new contract growth y-o-y (RHS)
700 14,000
600 Source: Company, AllianceDBS, DBSVI, Bloomberg Finance L.P.
13,000
500
12,000
400
300
11,000 C: Earnings momentum
200 10,000
The company delivered strong earnings in 1H16, fueled by
100 9,000
0 8,000
enlarged capital post rights issue. In addition, strong earnings
momentum (with consensus upgrading earnings forecasts by
43% in the same period) led to a rally in its share price.
WSKT share price (LHS) USDIDR (RHS)

Source: Bloomberg Finance L.P. WSKT’s share price vs. consensus’ earnings forecasts
3,000 190
2,800
B: Share price moved in line with new contract growth 2,600
170
150
WSKT’s new contracts grew strongly by 70% y-o-y in FY16, 2,400
2,200 130
outperforming its peers, PT PP (PTPP) and Wijaya Karya (WIKA), 2,000
110
1,800
whose new contracts were flat y-o-y. 1,600 90
1,400
70
1,200
1,000 50

WSKT share price (LHS) Consensus EPS 16F (RHS) Consensus EPS 17F (RHS)

Source: Bloomberg Finance L.P.

ASIAN INSIGHTS VICKERS SECURITIES


Page 19
Company Guide
Waskita Karya

D: Fiscal revenue and state budget. The government’s plan to


cut spending in 2016 following weak revenue collection
caused state-owned contractors’ share price, including WSKT,
to de-rate.

WSKT and construction sector return vs. JCI


Dec 18, 2012 = 1.0

7.0
6.5
6.0
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16
Sector performance relative to JCI WSKT's share price return relative to JCI

Source: Company, AllianceDBS, DBSVI

E: Concern over cash flow and balance sheet capacity appears


to be the reasons that halted WSKT’s share price rally in the
past one year.

WSKT’s share price return relative to JCI vs. free cash flow
Rp bn
7.0 10,000
6.0 5,000
5.0
0
4.0
(5,000)
3.0
(10,000)
2.0
1.0 (15,000)

- (20,000)
Dec-12 Dec-13 Dec-14 Dec-15 Dec-16

WSKT's share price return relative to JCI FCFE (RHS)

Source: Company, AllianceDBS, DBSVI

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Page 20
Company Guide
Waskita Karya

Leverage & Asset Turnover (x)


Balance Sheet:
Further fund raising needed. As at end-March 2017, WSKT had
a net debt of Rp6.7tr, translating to gross and net gearing of
1.28x and 0.83x respectively. 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 Rp32tr capex this
year, most of which is for toll road expansion.

Share Price Drivers:


Award of large-sized infrastructure contracts. The award of
Capital Expenditure
large-sized, multi-year projects will improve WSKT’s revenue Rpbn

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


rating of its share price.

Toll road divestment. After divesting a 29% stake in Waskita


Toll Road to SMI and Taspen, WSKT is planning to raise more
funds by further divesting its stakes in WTR and conducting
rights issue. Both corporate actions are targeted to take place
this year and are crucial for WSKT given its high capex needs.

Key Risks: ROE (%)


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.

Delay in toll road divestment. A delay in toll road divestment


would be negative for WSKT. As it continues to acquire new
greenfield toll road concessions to grow its order book, a Forward PE Band (x)
timely fund raising is needed to make sure that the projects do
not stall due to cash flow constraints.

Company Background
PT Waskita Karya Tbk (WSKT) is a state-owned contractor
engaged in a wide variety of construction activities including
toll roads, bridges, ports and buildings. It is the most leveraged
proxy to the Indonesian construction sector, deriving c. 95% of
its revenues from construction.

PB Band (x)

Source: Company, AllianceDBS, DBSVI

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Page 21
Company Guide
Waskita Karya

Key Assumptions
FY Dec 2014A 2015A 2016A 2017F 2018F
New Contract (Rp bn) 22,625 32,084 69,974 78,000 67,940
Carry Over Contr. (Rp bn) 10,516 19,746 34,049 77,514 116,849
Construction GPM (%) 10.1 13.0 16.1 15.0 14.0
Precast Gross Margin (%) 18.2 15.9 22.2 20.0 19.0
Toll road start-up losses (287) (1,282)

Segmental Breakdown
FY Dec 2014A 2015A 2016A 2017F 2018F
Revenues (Rpbn)
Construction 9,484 12,052 22,373 30,120 40,340
Building rentals/Property 0.30 0.60 46.8 46.8 46.8
Precast 803 2,069 1,149 7,219 8,862
Energy 0.0 0.0 1.80 0.0 0.0 Revenue contribution
Others 0.0 31.8 218 280 748 from toll road operation
Total 10,287 14,153 23,788 37,666 49,997 business.
Gross Profit (Rpbn)
Construction 963 1,561 3,591 4,518 5,648
Building rentals/Property 0.30 0.60 17.7 17.7 17.7
Precast 146 328 255 1,444 1,684
Energy 0.0 0.0 1.70 0.0 0.0
Others 0.0 0.0 102 131 350
Total 1,109 1,889 3,968 6,111 7,699
Gross Profit Margins (%)
Construction 10.1 13.0 16.1 15.0 14.0
Building rentals/Property 99.7 100.0 37.9 37.9 37.9
Precast 18.2 15.9 22.2 20.0 19.0
Energy N/A N/A 94.9 N/A N/A
Others N/A 0.0 46.8 46.8 46.8
Total 10.8 13.4 16.7 16.2 15.4

Income Statement (Rpbn)


FY Dec 2014A 2015A 2016A 2017F 2018F
Revenue 10,287 14,153 23,788 37,666 49,997
Cost of Goods Sold (9,178) (12,232) (19,821) (31,555) (42,298)
Gross Profit 1,109 1,921 3,968 6,111 7,699
Other Opng (Exp)/Inc (431) (518) (788) (1,179) (1,558)
Operating Profit 678 1,403 3,180 4,932 6,141
Other Non Opg (Exp)/Inc 20.5 159 103 0.0 0.0
Associates & JV Inc 197 10.1 (7.4) 0.0 0.0
Net Interest (Exp)/Inc (140) (267) (795) (1,245) (2,029)
Exceptional Gain/(Loss) 0.0 92.8 0.0 0.0 0.0
Pre-tax Profit 756 1,398 2,481 3,688 4,113
Tax (254) (350) (667) (1,019) (888)
Minority Interest 0.30 0.10 (99.8) (500) (1,016)
Preference Dividend 0.0 0.0 0.0 0.0 0.0
Net Profit 502 1,048 1,713 2,168 2,209
Net Profit before Except. 502 955 1,713 2,168 2,209
EBITDA 934 2,041 3,527 5,332 6,674
Growth
Revenue Gth (%) 6.2 37.6 68.1 58.3 32.7
EBITDA Gth (%) 27.3 118.5 72.9 51.2 25.2
Opg Profit Gth (%) 18.9 106.9 126.6 55.1 24.5
Net Profit Gth (Pre-ex) (%) 36.3 90.4 79.4 26.6 1.9
Margins & Ratio
Gross Margins (%) 10.8 13.6 16.7 16.2 15.4
Opg Profit Margin (%) 6.6 9.9 13.4 13.1 12.3
Net Profit Margin (%) 4.9 7.4 7.2 5.8 4.4
ROAE (%) 19.7 17.0 16.6 18.1 16.0
ROA (%) 4.7 4.9 3.7 3.0 2.4
ROCE (%) 8.2 7.8 7.1 6.9 7.5
Div Payout Ratio (%) 20.0 20.0 20.0 20.0 20.0
Net Interest Cover (x) 4.8 5.3 4.0 4.0 3.0
Source: Company, AllianceDBS, DBSVI

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Company Guide
Waskita Karya

Quarterly / Interim Income Statement (Rpbn)


FY Dec 1Q2016 2Q2016 3Q2016 4Q2016 1Q2017

Revenue 3,072 5,013 5,923 9,780 7,142


Cost of Goods Sold (2,552) (4,043) (4,986) (8,239) (6,107)
Gross Profit 520 970 937 1,541 1,034
Other Oper. (Exp)/Inc 58.2 (143) (114) (430) (45.4)
Operating Profit 578 827 823 1,111 989
Other Non Opg (Exp)/Inc (151) (1.5) 26.1 70.2 (90.9)
Associates & JV Inc (35.2) 27.4 (14.3) 14.7 6.90
Net Interest (Exp)/Inc (132) (190) (225) (249) (287)
Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0
Pre-tax Profit 260 663 610 947 618
Tax (136) (205) (105) (222) (168)
Minority Interest 3.20 0.80 (157) 53.4 (43.1)
Net Profit 127 459 348 779 407
Net profit bef Except. 127 459 348 779 407
EBITDA 447 900 906 1,273 1,004

Growth
Revenue Gth (%) (54.4) 63.2 18.2 65.1 (27.0)
EBITDA Gth (%) (65.0) 101.3 0.7 40.5 (21.1)
Opg Profit Gth (%) (26.1) 43.1 (0.4) 35.0 (11.0)
Net Profit Gth (Pre-ex) (%) (78.0) 260.5 (24.1) 123.6 (47.8)
Margins
Gross Margins (%) 16.9 19.3 15.8 15.8 14.5
Opg Profit Margins (%) 18.8 16.5 13.9 11.4 13.8
Net Profit Margins (%) 4.1 9.2 5.9 8.0 5.7

Balance Sheet (Rpbn)


FY Dec 2014A 2015A 2016A 2017F 2018F

Net Fixed Assets 622 1,923 3,275 16,859 26,988


Invts in Associates & JVs 735 1,572 2,071 2,071 2,071
Other LT Assets 1,080 11,009 19,197 19,197 19,197
Cash & ST Invts 1,700 5,522 10,664 3,122 942
Inventory 327 442 1,819 1,800 2,412
Debtors 6,842 7,824 19,795 31,748 42,142
Other Current Assets 1,237 2,018 4,605 7,021 9,260
Total Assets 12,542 30,309 61,425 81,817 103,011

ST Debt 1,917 3,483 15,344 15,344 15,344


Creditor 5,272 8,773 14,653 22,735 30,478
Other Current Liab 539 1,409 1,464 1,464 1,464
LT Debt 1,246 4,547 9,890 19,875 30,536
Other LT Liabilities 803 2,394 3,300 3,300 3,300
Shareholder’s Equity 2,759 9,547 11,070 12,895 14,670
Minority Interests 5.90 157 5,704 6,204 7,219
Total Cap. & Liab. 12,542 30,309 61,425 81,817 103,011

Non-Cash Wkg. Capital 2,594 102 10,101 16,370 21,873


Net Cash/(Debt) (1,463) (2,508) (14,570) (32,097) (44,939)
Debtors Turn (avg days) 220.2 189.1 211.9 249.7 269.7
Creditors Turn (avg days) 186.9 217.9 218.5 219.0 232.5
Inventory Turn (avg days) 12.1 11.9 21.1 21.2 18.4
Asset Turnover (x) 1.0 0.7 0.5 0.5 0.5 Net gearing to increase
Current Ratio (x) 1.3 1.2 1.2 1.1 1.2 from capex at its toll
road subsidiary.
Quick Ratio (x) 1.1 1.0 1.0 0.9 0.9
Net Debt/Equity (X) 0.5 0.3 0.9 1.7 2.1
Net Debt/Equity ex MI (X) 0.5 0.3 1.3 2.5 3.1
Capex to Debt (%) 10.4 11.7 2.4 39.7 23.2
Source: Company, AllianceDBS, DBSVI

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Company Guide
Waskita Karya

Cash Flow Statement (Rpbn)


FY Dec 2014A 2015A 2016A 2017F 2018F

Pre-Tax Profit 756 1,398 2,480 3,687 4,112


Dep. & Amort. 38.0 468 251 400 532
Tax Paid (254) (350) (667) (1,019) (888)
Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0
Chg in Wkg.Cap. (417) 2,417 (10,099) (6,269) (5,503)
Other Operating CF (211) (3,275) 272 0.0 0.0
Net Operating CF (88.7) 658 (7,762) (3,201) (1,747)
Capital Exp.(net) (329) (938) (611) (13,983) (10,661)
Other Invts.(net) 0.0 0.0 0.0 0.0 0.0
Invts in Assoc. & JV (755) (498) (172) 0.0 0.0
Div from Assoc & JV 1.10 0.0 0.0 0.0 0.0
Other Investing CF 0.0 (5,491) (8,772) 0.0 0.0
Net Investing CF (1,083) (6,927) (9,555) (13,983) (10,661) We expect operating
Div Paid (110) (100) (210) (343) (434) cash flow to remain
Chg in Gross Debt 1,782 (729) 17,227 9,985 10,661 negative due to the
Capital Issues 59.2 5,348 0.0 0.0 0.0 high contribution of
Other Financing CF (3.1) 5,580 5,442 0.0 0.0 turnkey projects.
Net Financing CF 1,728 10,099 22,459 9,642 10,228
Currency Adjustments (1.2) 5.90 0.60 0.0 0.0
Chg in Cash 556 3,836 5,143 (7,542) (2,181)
Opg CFPS (Rp) 34.0 (130) 172 226 277
Free CFPS (Rp) (43.2) (20.7) (617) (1,266) (914)
Source: Company, AllianceDBS, DBSVI

Target Price & Ratings History

Source: AllianceDBS, DBSVI


Analyst: Chong Tjen-San
Tiesha PUTRI

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Page 24
Indonesia Company Guide
Pembangunan Perumahan
Version 6 | Bloomberg: PTPP IJ | Reuters: PTPP.JK Refer to important disclosures at the end of this report

DBS Group Research . Equity 5 Jul 2017

BUY All eyes on project execution


Last Traded Price ( 5 Jul 2017): Rp3,330 (JCI : 5,825.10)
Price Target 12-mth: Rp4,100 (23% upside) (Prev Rp4,950) Maintain BUY. Pembangunan Perumahan (PTPP)’s share price
has underperformed the JCI by 23% YTD on the back of choppy
Analyst execution in the past two quarters due to delays in land
Chong Tjen-San +60 3 26043972 tjensan@alliancedbs.com acquisitions and rollout of contracts. Revenue ex-property grew
Tiesha PUTRI +6221 30034931 tiesha.narandha@id.dbsvickers.com by only 15% y-o-y in 1Q17 despite value of new contracts
growing by 68% y-o-y during the same period as land
What’s New acquisition issues had hindered construction works. During the
 New contract flow in line with 5M17 new contract recent analyst meeting, management reaffirmed that revenue
wins representing 33% of our full-year forecast should catch up in 2Q17 as progress on land acquisitions has
picked up pace.
 Maintain BUY with lower TP of Rp4,100
Orderbook provides revenue visibility for 2.7 years. We estimate
that PTPP’s order backlog stood at Rp58tr as at the end of May
2017. In May 2017, the company won new contracts worth
Price Relative Rp12.6tr, representing 33%/31% of our/management’s new
contract forecast. The management has guided for 25% growth
in new contracts in FY17 (vs. our forecast of 19%), the highest
growth among our coverage. We are confident that PTPP will be
able to record an increase in new contracts awarded over the
next two years supported by its enlarged equity base post IPO.
Where we differ. Our Buy call is in line with consensus.
Potential catalysts. A better progress of toll road land
acquisitions should help to boost earnings and restore investor
Forecasts and Valuation
confidence after two quarters of posting weaker-than-expected
FY Dec (Rp m) 2015A 2016A 2017F 2018F
earnings. In addition, having a long standing experience in port
Revenue 14,217 16,459 21,911 26,878
EBITDA 1,678 2,071 3,019 3,879 construction, we think PTPP stands a chance to win the mega
Pre-tax Profit 1,288 1,704 2,207 2,747 project at Patimban Port. The tender of the project is underway.
Net Profit 740 1,023 1,341 1,644 Positive newsflow on the financing and execution of the project
Net Pft (Pre Ex.) 740 1,023 1,341 1,644 should lead to a re-rating of its share price. Potential M&A as a
Net Pft Gth (Pre-ex) (%) 38.8 38.2 31.1 22.5 precursor to the listing of PTPP’s subsidiaries represent another
EPS (Rp) 153 211 216 265 catalyst.
EPS Pre Ex. (Rp) 153 211 216 265
EPS Gth Pre Ex (%) 39 38 2 23 Valuation:
Diluted EPS (Rp) 153 165 216 265 We cut our TP to Rp4,100 (from Rp4,950) as we lower our
Net DPS (Rp) 36.5 39.5 51.7 63.4 target PE multiple to 19x PE (20% premium to the sector’s
BV Per Share (Rp) 911 1,580 1,757 1,970 historical mean PE). PTPP is trading at 15.4x/12.6x 17F/18F PE,
PE (X) 21.8 15.8 15.4 12.6 on par with peers despite its stronger balance sheet to fuel
PE Pre Ex. (X) 21.8 15.8 15.4 12.6 new contract growth in the coming years.
P/Cash Flow (X) 625.1 16.3 42.0 22.4
EV/EBITDA (X) 10.2 7.0 8.6 7.4 Key Risks to Our View:
Net Div Yield (%) 1.1 1.2 1.6 1.9 Prolonged slowdown in property sector. PTPP has both direct
P/Book Value (X) 3.7 2.1 1.9 1.7 and indirect exposure to the property sector. A prolonged
Net Debt/Equity (X) 0.0 CASH 0.3 0.5 slowdown in the economy and demand for property can
ROAE (%) 22.0 14.4 13.0 14.2 negatively impact earnings and cash flows.
Earnings Rev (%): 0 1 0 At A Glance
Consensus EPS (Rp): N/A 220 280 Issued Capital (m shrs) 6,200
Other Broker Recs: B: 29 S: 0 H: 0
Mkt. Cap (Rpbn/US$m) 20,646 / 1,545
Source of all data on this page: Company, AllianceDBS, DBSVI, Major Shareholders (%)
Bloomberg Finance L.P Republic of Indonesia (%) 51.0
Free Float (%) 49.0
3m Avg. Daily Val (US$m) 6.3
ICB Industry : Industrials / Construction & Materials
CRITICAL DATA POINTS TO WATCH

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ed: JS / sa:MA, PY
Company Guide
Pembangunan Perumahan

New Contract Win (Rp bn)

Critical Factors
Maintaining positive new contract growth momentum post rights
issue. PTPP successfully raised Rp4.4tr cash through a rights issue in
December 2016. It intends to use 76% of the proceeds to fund
equity investments in infrastructure projects, among which are
Kuala Tanjung Multi-Purpose Terminal and Industrial Estate, five toll
roads (such as Balikpapan-Samarinda toll road, Manado-Bitung toll
road, Pandaan-Malang toll road), a 2x200MW power plant in
Sumatra, and low-cost apartments, while the remaining 24% will
be used for working capital. With ample cash post rights issue, the Carry Over Contract (Rp bn)
company should be able to take on more projects in FY17. This
year, the company is eyeing new contracts worth Rp40.6tr,
representing 25% increase y-o-y.

Beneficiary of Indonesia’s port build-out. PTPP has over the years


developed a niche in port construction in Indonesia. According to
Bapennas, Indonesia would need as much as Rp59tr to develop and
expand 24 ports from 2015-2019. Among the larger projects is the
multi-year expansion projects at Kuala Tanjung port (Rp18.4tr). The
port was initially built by PTPP, hence this would raise the
company's competitive edge to secure work contracts once the New Contract
projects are out for tender. 14,000 35%
12,600
12,000 30%
This year, Pelindo I-IV, state-run port operators that will carry out a 31%
10,000 9,000 25%
significant part of the government’s port development plan, have
8,000 20%
allocated capex of more than Rp13tr for port expansion. Progress 7,000 22%

on the mega project at Patimban Port is also important to watch as 6,000


4,300 4,300
17% 15%
11%
the company eyes the construction contract. More clarity on the 4,000 11% 10%

funding of the project is expected to come this year, while 2,000 5%


construction is scheduled to start in 2018. - -
1M17 2M17 3M17 4M17 5M17

Redirecting focus to government-related infrastructure projects. We PTPP's new contracts (Rp bn) as % of FY17 target

estimate that 15%-20% of PTPP’s backlog is from private property


Contractors’ revenue visibility
developers. The pace of project execution may be slower amid the
Rp tr (x)
still subdued property market, and may potentially negatively affect 100.0 4.0
3.3
the company’s contract burn rate and earnings. Since 2016, 90.0 3.5
80.0
management has redirected its focus to government-related 70.0
2.7 3.0
infrastructure projects, including the higher margin EPC projects. 60.0 2.5 2.5
50.0 2.0
Currently, PTPP has three power plant projects in its order book 40.0
92.9
76.2 1.5
with total capacity of 420 MW. The company plans to bid for more 30.0 58.1 37.7 1.0
20.0
small-scale power plant projects in the future. With this strategy, 10.0
22.8 21.9 0.5
the company expects to clinch 30% higher new EPC contracts in - -
WIKA PTPP WSKT
FY17 from FY16’s Rp6tr.
Outstanding order book* (LHS)
Revenue FY17F (LHS)
Outst. order book/revenue FY17F (RHS)
Subsidiaries’ IPOs. Management is still pursuing inorganic growth
ahead of the planned IPO of its subsidiaries. Recently, it acquired Source: Company, AllianceDBS, DBSVI
three companies through its precast and power business. The IPOs
will likely be in 2H17 at the soonest, awaiting green light from the
parliament and government.

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Company Guide
Pembangunan Perumahan

Appendix 1: A look at the company's listed history – what drives its share price?

PTPP’s share price vs. peers*


Dec 18, 2012 = 1.0
PTPP share price (LHS) PTPP share price vs. peers (RHS)
5,000 1.6
A
4,500 1.4
4,000
1.2
3,500
3,000 1.0
C
2,500 0.8
B
2,000 D 0.6
1,500
0.4
1,000
500 0.2

0 -
Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16

*Based on the average return of the listed state-owned contractors


Source: Company, AllianceDBS, DBS Vickers

A: Rupiah depreciation C: Higher exposure to power plant projects and awards of big
PTPP’s share price along with the other state-owned ticket infrastructure projects
contractors were under pressure due to concerns over cost Earnings recovery in 2Q16 was strong with core profit surging
overruns, particularly related to government’s infrastructure by 260% y-o-y, mainly driven by EPC business (power plant
projects. A portion of raw materials are imported, hence construction). Furthermore, the management shared its plan to
Rupiah depreciation may impact margins and earnings expand its higher margin EPC business. PTPP’s share price re-
negatively. However, PTPP has been least affected compared rated upwards following the award of two mega toll road
to other state-owned contractors due to its lower exposure to projects in June 2016.
government infrastructure projects in the past.
PTPP’s share price vs. new contract
PTPP’s share price vs. USDIDR
5,000 40,000
5,000 16,000 35,000
15,000 4,000 30,000
4,000
14,000 3,000 25,000
13,000 20,000
3,000 2,000
12,000 15,000
2,000 1,000 10,000
11,000
5,000
10,000
1,000 - 0
9,000
Sep-13

Sep-14

Sep-15

Sep-16
Jun-13

Jun-14

Jun-15

Jun-16
Mar-13

Mar-14

Mar-15

Mar-16

Mar-17
Dec-12

Dec-13

Dec-14

Dec-15

Dec-16

- 8,000
Dec-12

Dec-13

Dec-14

Dec-15
Sep-13

Sep-14

Sep-15
Mar-13
Jun-13

Mar-14
Jun-14

Mar-15
Jun-15

Mar-16
Jun-16

PTPP share price (LHS) T12M new contract, Rp bn (RHS)


PTPP share price (LHS) USDIDR (RHS)
Source: Company, AllianceDBS, DBS Vickers
Source: Bloomberg Finance L.P.
D: Slow project execution and concern over investment in
B: Fiscal revenue collection and state budget property sector
The government’s plan to cut spending in 2016 following PTPP’s order book replenishment has picked up pace since mid-
weak revenue collection caused state-owned contractors’ 2016 after winning a number of infrastructure projects. However,
share prices, including PTPP, to de-rate. construction progress had been slow due to land acquisition
issues, causing earnings to fell short of market expectations. In
addition, PTPP’s equity injection into its property arm PP Properti
(PPRO) through a rights issue created some concerns among
investors, given the still weak property market.

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Company Guide
Pembangunan Perumahan

Leverage & Asset Turnover (x)


Balance Sheet:
Strong balance sheet enables PTPP to take on more projects.
PTPP is in a net cash position after receiving rights issue
proceeds of Rp4.4tr in December 2016. We forecast PTPP’s debt
to rise with gross gearing of 0.12x in FY17 as the company
starts to fund its equity investments in a number of
infrastructure projects.

Subsidiaries’ IPOs. Management is still pursuing inorganic


growth ahead of the planned IPO of its subsidiaries - PP Perlatan
(construction equipment rental), PP Urban (low cost housing
Capital Expenditure
and precast concrete) and PP Energi (power plant). Recently, it
acquired three companies through its precast and power
business. The IPOs will likely be in 2H17 at the soonest, awaiting
green light from the parliament and government. Management
seeks to raise Rp7tr from these IPOs.

Share Price Drivers:


Award of a large-sized, multi-year infrastructure contracts. The
award of large-sized, multi-year contracts will further improve
PTPP’s revenue and earnings visibility, and ultimately lead to re-
rating of its share price. ROE (%)

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 23% in FY16. We estimate that 15%-20%
of PTPP’s outstanding order book are contracts from private
developers. A prolonged slowdown in the property market
may pose risks to PTPP’s earnings and cash flows.

Slow execution of infrastructure project. Delay in project


execution due to land acquisition and technical issues or Forward PE Band (x)
funding constraints such as government’s budget cut may
cause revenue and earnings to fall short of our projections.

Company Background
PTPP is Indonesia's leading construction company with a
portfolio ranging from building engineering to infrastructure
construction projects. It has established a solid reputation in
the construction of high-rise buildings and ports.

PB Band (x)

Source: Company, AllianceDBS, DBSVI

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Company Guide
Pembangunan Perumahan

Key Assumptions
FY Dec 2014A 2015A 2016A 2017F 2018F
New Contract Win (Rp bn) 20,240 27,074 32,600 38,760 44,244
Carry Over Contract (Rp 22,278 29,867 39,600 48,400 48,861

Segmental Breakdown
FY Dec 2014A 2015A 2016A 2017F 2018F
Revenues (Rpbn)
Construction 10,662 11,611 11,815 11,174 11,275
Real Estate and Property 645 1,573 2,180 2,258 2,845
EPC 1,091 928 2,366 5,264 8,644
Others 29.3 106 97.9 3,215 4,114
Total 12,427 14,217 16,459 21,911 26,878
Gross Profit (Rpbn)
Construction 1,414 1,244 1,422 1,229 1,240
Real Estate and Property 267 680 1,175 1,135 1,431
EPC 143 206 377 684 1,124
Others (91.8) (124) (518) 355 480
Total 1,732 2,007 2,456 3,404 4,275
Gross Profit Margins (%)
Construction 13.3 10.7 12.0 11.0 11.0
Real Estate and Property 41.3 43.3 53.9 50.3 50.3
EPC 13.1 22.2 15.9 13.0 13.0
Others (313.1) (117.1) (529.0) 11.0 11.7
Total 13.9 14.1 14.9 15.5 15.9

Income Statement (Rpbn)


FY Dec 2014A 2015A 2016A 2017F 2018F
Revenue 12,427 14,217 16,459 21,911 26,878
Cost of Goods Sold (10,878) (12,210) (14,003) (18,507) (22,604)
Gross Profit 1,550 2,007 2,456 3,404 4,275
Other Opng (Exp)/Inc (281) (410) (487) (714) (799)
Operating Profit 1,268 1,597 1,968 2,690 3,476
Other Non Opg (Exp)/Inc (94.2) (50.5) (69.4) 0.0 0.0
Associates & JV Inc 72.4 67.0 155 0.0 0.0
Net Interest (Exp)/Inc (326) (326) (350) (483) (729)
Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0
Pre-tax Profit 921 1,288 1,704 2,207 2,747
Tax (387) (442) (552) (760) (970)
Minority Interest (0.1) (105) (128) (106) (133)
Preference Dividend 0.0 0.0 0.0 0.0 0.0
Net Profit 533 740 1,023 1,341 1,644
Net Profit before Except. 533 740 1,023 1,341 1,644
EBITDA 1,326 1,678 2,071 3,019 3,879
Growth
Revenue Gth (%) 6.6 14.4 15.8 33.1 22.7
EBITDA Gth (%) 22.1 26.6 23.4 45.8 28.5
Opg Profit Gth (%) 18.2 25.9 23.2 36.7 29.2
Net Profit Gth (Pre-ex) (%) 26.8 38.8 38.2 31.1 22.5
Margins & Ratio
Gross Margins (%) 12.5 14.1 14.9 15.5 15.9
Opg Profit Margin (%) 10.2 11.2 12.0 12.3 12.9
Net Profit Margin (%) 4.3 5.2 6.2 6.1 6.1
ROAE (%) 25.0 22.0 14.4 13.0 14.2
ROA (%) 4.0 4.4 4.1 4.0 4.2
ROCE (%) 13.0 12.8 9.1 9.0 10.3
Div Payout Ratio (%) 25.3 33.2 33.0 31.3 29.3
Net Interest Cover (x) 3.9 4.9 5.6 5.6 4.8
Source: Company, AllianceDBS, DBSVI

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Company Guide
Pembangunan Perumahan

Quarterly / Interim Income Statement (Rpbn)


FY Dec 1Q2016 2Q2016 3Q2016 4Q2016 1Q2017

Revenue 2,588 3,885 4,374 5,613 2,917


Cost of Goods Sold (2,228) (3,338) (3,765) (4,672) (2,526)
Gross Profit 360 547 608 941 391
Other Oper. (Exp)/Inc (105) (119) (124) (139) (155)
Operating Profit 255 428 484 802 236
Other Non Opg (Exp)/Inc (19.4) 30.6 (42.8) (37.8) (14.4)
Associates & JV Inc 5.80 26.9 21.3 101 15.3
Net Interest (Exp)/Inc (21.4) (66.5) (69.4) (193) 26.5
Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0
Pre-tax Profit 220 419 393 672 263
Tax (90.4) (138) (145) (179) (102)
Minority Interest (31.7) (23.3) (36.2) (36.8) (31.4)
Net Profit 98.2 257 212 457 130
Net profit bef Except. 98.2 257 212 457 130
EBITDA 261 507 486 903 313

Growth
Revenue Gth (%) (52.5) 50.1 12.6 28.3 (48.0)
EBITDA Gth (%) (67.9) 93.8 (4.0) 85.7 (65.3)
Opg Profit Gth (%) (63.8) 67.5 13.1 65.7 (70.6)
Net Profit Gth (Pre-ex) (%) (72.9) 162.0 (17.8) 115.9 (71.5)
Margins
Gross Margins (%) 13.9 14.1 13.9 16.8 13.4
Opg Profit Margins (%) 9.9 11.0 11.1 14.3 8.1
Net Profit Margins (%) 3.8 6.6 4.8 8.1 4.5

Balance Sheet (Rpbn)


FY Dec 2014A 2015A 2016A 2017F 2018F

Net Fixed Assets 710 2,989 4,178 10,849 13,946


Invts in Associates & JVs 147 272 486 486 486
Other LT Assets 245 467 2,225 2,225 2,225
Cash & ST Invts 2,611 3,302 9,424 2,671 1,272
Inventory 2,675 2,499 2,656 3,473 4,241
Debtors 7,244 8,829 10,920 14,537 18,737
Other Current Assets 947 800 1,345 1,345 1,345
Total Assets 14,579 19,159 31,233 35,585 42,252

ST Debt 1,577 1,722 3,698 3,698 3,698


Creditor 7,022 7,372 10,237 13,387 17,097
Other Current Liab 1,263 1,677 1,943 1,943 1,943
LT Debt 1,455 1,827 3,048 3,048 4,548
Other LT Liabilities 928 1,414 1,510 1,510 1,510
Shareholder’s Equity 2,334 4,410 9,796 10,893 12,216
Minority Interests 1.00 737 1,000 1,106 1,240
Total Cap. & Liab. 14,579 19,159 31,233 35,585 42,252

Non-Cash Wkg. Capital 2,583 3,080 2,739 4,023 5,283


Net Cash/(Debt) (421) (247) 2,678 (4,074) (6,974)
Debtors Turn (avg days) 200.2 206.3 219.0 212.0 225.9
Creditors Turn (avg days) 224.7 216.6 231.2 237.2 250.6
Inventory Turn (avg days) 75.1 77.8 67.7 61.5 63.4
Asset Turnover (x) 0.9 0.8 0.7 0.7 0.7
Current Ratio (x) 1.4 1.4 1.5 1.2 1.1
Quick Ratio (x) 1.0 1.1 1.3 0.9 0.9
Net Debt/Equity (X) 0.2 0.0 CASH 0.3 0.5
Net Debt/Equity ex MI (X) 0.2 0.1 CASH 0.4 0.6
Capex to Debt (%) 5.3 11.8 19.3 103.8 42.4
Z-Score (X) 2.3 2.1 1.7 1.6 1.5
Source: Company, AllianceDBS, DBSVI

ASIAN INSIGHTS VICKERS SECURITIES


Page 31
Company Guide
Pembangunan Perumahan

Cash Flow Statement (Rpbn)


FY Dec 2014A 2015A 2016A 2017F 2018F

Pre-Tax Profit 921 1,288 1,704 2,207 2,747


Dep. & Amort. 57.1 80.6 103 329 403
Tax Paid (387) (442) (552) (760) (970)
Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0
Chg in Wkg.Cap. (719) (497) 341 (1,284) (1,259)
Other Operating CF 410 (403) (608) 0.0 0.0
Net Operating CF 282 25.8 987 492 921
Capital Exp.(net) (160) (420) (1,305) (7,000) (3,500)
Other Invts.(net) (192) (83.3) (124) 0.0 0.0
Invts in Assoc. & JV (78.2) (125) (440) 0.0 0.0
Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0
Other Investing CF (95.1) (33.7) 42.8 0.0 0.0
Net Investing CF (525) (662) (1,826) (7,000) (3,500)
Div Paid (126) (106) (177) (245) (321)
Chg in Gross Debt 369 405 2,663 0.0 1,500
Capital Issues 0.0 0.0 4,412 0.0 0.0
Other Financing CF 0.0 884 1.50 0.0 0.0
Net Financing CF 243 1,182 6,899 (245) 1,179
Currency Adjustments 11.3 71.1 39.9 0.0 0.0
Chg in Cash 11.3 617 6,100 (6,753) (1,400)
Opg CFPS (Rp) 207 108 133 286 352
Free CFPS (Rp) 25.3 (81.5) (65.8) (1,050) (416)
Source: Company, AllianceDBS, DBSVI

Target Price & Ratings History

Source: AllianceDBS, DBSVI


Analyst: Chong Tjen-San
Tiesha PUTRI

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Page 32
Indonesia Company Guide
Wijaya Karya
Version 6 | Bloomberg: WIKA IJ | Reuters: WIKA.JK Refer to important disclosures at the end of this report

DBS Group Research . Equity 5 Jul 2017

HOLD Positives priced in


Last Traded Price ( 5 Jul 2017): Rp2,220 (JCI : 5,825.10)
Price Target 12-mth: Rp2,050 (-8% downside) (Prev Rp2,780) Maintain HOLD with a lower TP. We maintain our HOLD call on
WIKA with a lower TP of Rp2,050. We are encouraged by the
Analyst steady progress of WIKA’s infrastructure projects, which we
Chong Tjen-San +60 3 26043972 tjensan@alliancedbs.com believe is one of the key reasons for its YTD share price
Tiesha PUTRI +6221 30034931 tiesha.narandha@id.dbsvickers.com outperformance relative to peers. However, we think WIKA’s
earnings outlook largely hinges on its signature Jakarta-Bandung
What’s New high-speed railway (HSR) project whose progress has remained
 Strong 5M17 new contracts signed, representing slow. Despite financial close having been reached in May 2017,
the disbursement of the loan from China Development Bank is
53%/46% of our/management’s FY17F target
still being delayed, pending the audit of land acquisition
 Revise down TP to Rp2,050; maintain HOLD progress. We would like to see better progress on the HSR
project along with the planned transit-oriented development
(TOD) before turning more positive on the stock.
Price Relative Sizeable backlog provides revenue visibility. WIKA clinched new
contracts worth Rp20tr in 5M17 (+164% y-o-y). This represents
53%/46% of our/management’s new contract forecasts for
FY17F. We estimate that WIKA had Rp76.2tr backlog as at end
of May 2017, providing revenue visibility of 3.3 years.

Where we differ. Our FY17F net profit forecast is 9% lower


than consensus as we expect higher capex and debt levels. Due
to fiscal constraints faced by the government and selected
Forecasts and Valuation infrastructure companies, we believe contractors have to raise
FY Dec (Rp m) 2015A 2016A 2017F 2018F their capex budgets and debt levels in order to grow their order
Revenue 13,620 15,669 22,844 37,126 books going forward.
EBITDA 1,681 2,231 2,718 4,388
Pre-tax Profit 1,098 1,596 2,055 3,014
Net Profit 625 1,012 1,140 1,595
Potential catalyst. The disbursement of loan from China
Net Pft (Pre Ex.) 625 1,012 1,140 1,595 Development Bank would accelerate the progress of the Jakarta-
Net Pft Gth (Pre-ex) (%) 2.8 61.9 12.6 39.9 Bandung HSR project and improve WIKA’s earnings outlook. In
EPS (Rp) 102 158 127 178 addition, more clarity on the TOD concept and funding, which is
EPS Pre Ex. (Rp) 102 158 127 178 expected to compensate for the low IRR for the HSR project,
EPS Gth Pre Ex (%) 3 56 (20) 40 would be a positive catalyst for WIKA.
Diluted EPS (Rp) 102 113 127 178
Net DPS (Rp) 20.9 14.1 22.8 25.7 Valuation:
BV Per Share (Rp) 711 1,266 1,370 1,522
PE (X) 21.8 14.0 17.5 12.5 We revise down our TP to Rp2,050, now pegged to 16x FY17F
PE Pre Ex. (X) 21.8 14.0 17.5 12.5 EPS (equal to the sector’s mean PE).
P/Cash Flow (X) 57.3 nm nm nm
EV/EBITDA (X) 9.3 5.7 9.1 7.4 Key Risks to Our View:
Net Div Yield (%) 0.9 0.6 1.0 1.2
P/Book Value (X) 3.1 1.8 1.6 1.5 Delay in project rollout. Any delay in project rollout, especially
Net Debt/Equity (X) 0.2 CASH 0.3 0.7 the mega project Jakarta-Bandung HSR, should lead to lower-
ROAE (%) 15.1 12.9 9.6 12.3 than-expected revenue and earnings.
Earnings Rev (%): 49 3 4
Consensus EPS (Rp): N/A 143 173 At A Glance
Other Broker Recs: B: 26 S: 0 H: 6 Issued Capital (m shrs) 8,970
Source of all data on this page: Company, AllianceDBS, DBSVI, Mkt. Cap (Rpbn/US$m) 19,913 / 1,491
Bloomberg Finance L.P. Major Shareholders (%)
Republic of Indonesia (%) 65.2
Free Float (%) 33.8
3m Avg. Daily Val (US$m) 2.8
ICB Industry : Industrials / Construction & Materials

ASIAN INSIGHTS VICKERS SECURITIES


ed: CK / sa:MA, PY
Company Guide
Wijaya Karya

WHAT’S NEW

Revise up FY17F new contract and earnings

Earnings revision. WIKA won new contract worth Rp20tr in


5M17 vs. our initial FY17 new contract forecasts of Rp37.6tr.
Among the largest wins were Serang-Panimbang toll road
(Rp3.5tr) and Cengkareng-Batu Ceper-Kunciran toll road
(Rp2.2tr). Taking into account stronger than expected new
contract achievement in 5M17, we revise up our FY17F new
contract forecasts by 15% to Rp43tr. Our new contract
forecast for FY17 implies a 21% y-o-y decline, in line with
management’s expectation. We raise our FY17F/FY18F net
profit forecast by 3%/4%. Our revised new profit forecast
implies 13%/40% net profit growth in FY17F/FY18F.

Summary of earnings revision


2017F 2018F
( in Rp bn)
Old Ne w Cha nge Old Ne w Cha nge
Revenue 22,703 22,844 1% 33,019 37,125 12%
Gross profit 2,746 2,860 4% 3,951 4,461 13%
EBIT 2,041 2,154 6% 3,043 3,538 16%
Net Profit 1,111 1,140 3% 1,530 1,595 4%

GP margin (%) 12.1 12.5 12.0 12.0


EBIT margin (%) 9.0 9.4 9.2 9.5
Net margin (%) 4.9 5.0 4.6 4.3

New Contract Win 37,564 43,027 15% 37,652 37,771 0%


Carry Over Contract 56,970 59,996 5% 62,372 74,484 19%
Total Orderbook (cumulative) 92,512 102,356 11% 98,002 111,588 14%

Capex 2,000 3,850 93% 3,000 3,850 28%


Net interest income (exp.) (299) (390) 30% (607) (819) 35%

Source: AllianceDBS, DBSVI

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Page 33
Company Guide
Wijaya Karya

New Contract Win (Rp bn)


CRITICAL DATA POINTS TO WATCH

Critical Factors

New contracts had peaked; eyes on project execution. After the


award of the Jakarta-Bandung high-speed railway contract in 2016,
we expect WIKA’s new contracts to decline by 21% y-o-y in FY17F.
Nonetheless, we acknowledge that the company’s revenue visibility
has improved strongly with a contract backlog of Rp84.8tr,
providing revenue visibility of 3.3 years. As new contract growth
has peaked, we believe project execution and earnings delivery Contract Backlog (Rp bn)
would be the key focus going forward. This hinges a great deal on
the HSR contract which forms 21% of its total orderbook and has
only achieved less than 5% progress thus far.

Progress of Jakarta-Bandung high-speed project. In 2016, WIKA


was awarded the civil work contract of the Jakarta-Bandung high-
speed railway (HSR) worth Rp15.8tr. We estimate that this project
contributed c.21% of WIKA’s total backlog (as at end of May
2017). The mega project is now running behind schedule after
breaking ground in Jan 2016 due to land acquisition issues. The
project is scheduled to be delivered in mid-2019. The resumption of Blended Gross Margin (%)
Jakarta-Bandung HSR construction, expected in July 2017, is
important for WIKA in boosting its earnings growth.

Transit oriented development to compensate for HSR’s low IRR. The


HSR consortium plans to develop a transit-oriented development
(TOD) 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 has appointed three world-
class property and urban development consultants (Aedas, Atkins New Contract
and Surbana Jurong) back in Jan 2016, and more details on the 25.0 46% 50%
42%
TOD plan will be revealed this year. This should shed more light on 38%
45%

how the consortium plans to compensate for HSR’s low IRR 20.0 40%
35%
(estimated FIRR is in the range of 6.5%-10.8%). The HSR 27%
15.0 30%
consortium plans to team up with private developers given the high 25%
capital requirement to develop new townships. Nonetheless, we 10.0 20%
believe WIKA Realty, WIKA’s property arm, would play an 13%
15%
important role in the development. 5.0 10%
5%
5.6 11.8 16.6 18.2 20.0
- -
Government’s tax collection. 20%-40% of WIKA’s annual new 1M17 2M17 3M17 4M17 5M17
contracts for the period 2012-2016 were infrastructure projects
New contract, Rp tr (LHS) as % of FY17F (RHS)
funded by the government. Slow tax collection may lead to fiscal
budget shortfalls and some delay in government’s projects. This New Contract Based on Project Owner
may results in lower-than-expected contract wins and earnings for Rp tr
WIKA. 60.0

50.0

40.0
43.4 Ex-Gov't
30.0 Gov't

20.0
14.5
10.0 14.5 14.9
10.8 11.4
- 3.3 2.7
2013 2014 2015 2016

Source: Company, AllianceDBS, DBSVI

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Page 34
Company Guide
Wijaya Karya

Appendix 1: A look at Company's listed history – what drives its share price?

WIKA’s share price vs. peers*


Dec 18, 2012 = 1.0
WIKA share price (LHS) WIKA share price vs. peers* (RHS)
4,000 1.2

3,500
1.0
B
3,000
0.8
2,500

2,000 0.6

1,500 A2 0.4
1,000
A1 0.2
500

0 -
Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16

*Based on the average return of the listed state-owned contractors


Source: Company, AllianceDBS, DBSVI

A: New contract achievement WIKA’s share price


WIKA’s share price underperformed its peers in 2013-2014 as Rp Gov't of Indonesia assigned PLN called off
WIKA was selected as one WIKA to lead consortium of SOE plan to develop
the company booked lower-than-expected new contracts 4,000
of the contractors to build in Jakarta-Bandung HSR project mega power
phase 1 of MRT project in plant Java 5
during the period. In 2013, WIKA’s new contracts fell short of 3,500
Jakarta
management’s target by 11% or c.Rp2tr. In 2014, WIKA only 3,000

managed to secure Rp17.6tr worth of new contracts in FY14 (- 2,500

1% y–o-y) vs. management’s guidance of Rp25.8tr. 2,000

1,500 Jakarta-Bandung HSR project


stalled after ground breaking
WIKA’s share price vs. new contract 1,000 ceremony in January 2015.

500
4,000 80,000
0
3,500 70,000 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16
3,000 60,000 Source: Company, AllianceDBS, DBSVI
2,500 50,000
2,000 40,000
1,500 30,000
1,000 20,000
500 10,000
0 0
Sep-13

Sep-14

Sep-15

Sep-16
Jun-13

Jun-14

Jun-15

Jun-16
Mar-13

Mar-14

Mar-15

Mar-16

Mar-17
Dec-12

Dec-13

Dec-14

Dec-15

Dec-16

WIKA share price (LHS) T12M new contract, Rp bn (RHS)

Source: Company, AllianceDBS, DBSVI

B: Progress of mega projects


WIKA’s share price movement has been largely influenced by
the state of mega project that it bid for or won, i.e. Jakarta
MRT phase 1, Jakarta-Bandung high-speed railway and Mega
Power Plant Java 5.

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Page 35
Company Guide
Wijaya Karya

Leverage & Asset Turnover (x)


Balance Sheet:
Stronger capital post rights issue. WIKA had Rp6.9tr debt at the
end of Mar 2017. However, the company is in a net cash
position of Rp1.1tr. We expect WIKA’s net gearing to rise to
0.3x by the end of 2017 from -0.1x as at the end of March
2017.

Listing of WIKA Gedung and WIKA Realty. 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%
Capital Expenditure
stake in WIKA Gedung through an IPO, which is expected to Rpbn

raise Rp1tr. WIKA also plans to list its property business, WIKA
Realty, in 2017.

Share Price Drivers:


Progress on HSR project. Improved clarity on the HSR project
could act as a positive catalyst for WIKA. Among the key events
to watch for are: i) land acquisition progress, and ii)
disbursement of loan from China Development Bank.

Faster land acquisition progress. Further reform on land ROE (%)


acquisition which can accelerate the construction progress of
infrastructure projects would be positive for WIKA’s earnings
and share price.

Key Risks:
Delay in infrastructure project execution. Any 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 cashflow generation in the medium term. Aside Forward PE Band (x)
from being the contractor, WIKA typically owns some stakes in
the assets being built. This exposes WIKA to the risk of
deteriorating cashflow generation, as such a business model
requires high capital investments and normally generates
negative cashflows in the early years of operations.

Company Background
Wijaya Karya is a construction company with interests in EPC,
civil, building works, precast and realty.

PB Band (x)

Source: Company, AllianceDBS, DBSVI

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Page 36
Company Guide
Wijaya Karya

Key Assumptions
FY Dec 2014A 2015A 2016A 2017F 2018F
New Contract Win (Rp bn) 17,632 25,222 54,764 43,027 37,771
Contract Backlog (Rp bn) 23,784 23,302 28,526 59,329 73,817

Segmental Breakdown
FY Dec 2014A 2015A 2016A 2017F 2018F
Revenues (Rpbn)
Construction 4,731 5,984 7,476 15,014 26,492
EPC 3,179 3,370 2,875 2,058 3,440
Industrial (Precast) 3,271 2,830 3,292 4,743 5,551
Property 1,283 1,436 2,026 1,029 1,643
Total 12,463 13,620 15,669 22,844 37,126
Gross Profit (Rpbn) We assume HSR
Construction 371 593 878 1,763 2,995 construction would
EPC 273 424 341 247 413 contribute 32% and
Industrial (Precast) 544 400 532 686 790 33% to WIKA’s FY17F
Property 237 238 476 165 263 and FY18F revenue
respectively.
Total 1,425 1,655 2,227 2,860 4,461
Gross Profit Margins (%)
Construction 7.8 9.9 11.7 11.7 11.3
EPC 8.6 12.6 11.9 12.0 12.0
Industrial (Precast) 16.6 14.1 16.2 14.5 14.2
Property 18.4 16.6 23.5 16.0 16.0
Total 11.4 12.1 14.2 12.5 12.0

Income Statement (Rpbn)


FY Dec 2014A 2015A 2016A 2017F 2018F
Revenue 12,463 13,620 15,669 22,844 37,126
Cost of Goods Sold (11,039) (11,965) (13,442) (19,984) (32,665)
Gross Profit 1,425 1,655 2,227 2,860 4,461
Other Opng (Exp)/Inc (393) (429) (527) (707) (923)
Operating Profit 1,032 1,226 1,700 2,154 3,538
Other Non Opg (Exp)/Inc (131) (38.6) (61.0) (61.0) (61.0)
Associates & JV Inc 363 283 341 352 356
Net Interest (Exp)/Inc (124) (372) (384) (390) (819)
Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0
Pre-tax Profit 1,139 1,098 1,596 2,055 3,014
Tax (395) (395) (448) (718) (1,199)
Minority Interest (136) (78.0) (135) (198) (220)
Preference Dividend 0.0 0.0 0.0 0.0 0.0
Net Profit 608 625 1,012 1,140 1,595
Net Profit before Except. 608 625 1,012 1,140 1,595
EBITDA 1,393 1,681 2,231 2,718 4,388
Growth
Revenue Gth (%) 4.9 9.3 15.0 45.8 62.5
EBITDA Gth (%) 21.1 20.7 32.7 21.8 61.5
Opg Profit Gth (%) 8.0 18.8 38.7 26.7 64.3
Net Profit Gth (Pre-ex) (%) 6.7 2.8 61.9 12.6 39.9
Margins & Ratio
Gross Margins (%) 11.4 12.1 14.2 12.5 12.0
Opg Profit Margin (%) 8.3 9.0 10.9 9.4 9.5
Net Profit Margin (%) 4.9 4.6 6.5 5.0 4.3
ROAE (%) 18.0 15.1 12.9 9.6 12.3
ROA (%) 4.3 3.5 4.0 3.3 3.5
ROCE (%) 9.1 7.9 7.5 6.2 8.0
Div Payout Ratio (%) 28.1 20.6 12.5 18.0 14.5
Net Interest Cover (x) 8.3 3.3 4.4 5.5 4.3
Source: Company, AllianceDBS, DBSVI

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Page 37
Company Guide
Wijaya Karya

Quarterly / Interim Income Statement (Rpbn)


FY Dec 1Q2016 2Q2016 3Q2016 4Q2016 1Q2017

Revenue 2,727 3,307 3,306 6,330 3,813


Cost of Goods Sold (2,435) (2,869) (2,919) (5,220) (3,401)
Gross Profit 292 439 387 1,110 413
Other Oper. (Exp)/Inc (87.0) (141) (107) (193) (118)
Operating Profit 205 298 280 917 295
Other Non Opg (Exp)/Inc (0.7) 11.8 1.80 (73.8) 12.7
Associates & JV Inc 28.4 77.7 62.1 172 129
Net Interest (Exp)/Inc (60.4) (87.6) (86.6) (150) (57.1)
Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0
Pre-tax Profit 172 300 258 866 379
Tax (77.9) (88.7) (92.3) (190) (114)
Minority Interest (22.5) (26.5) (20.3) (66.0) (20.1)
Net Profit 71.7 185 145 610 245
Net profit bef Except. 71.7 185 145 610 245
EBITDA 370 462 416 1,016 553

Growth
Revenue Gth (%) (50.7) 21.3 0.0 91.5 (39.8)
EBITDA Gth (%) (46.7) 24.8 (10.0) 144.4 (45.5)
Opg Profit Gth (%) (61.7) 45.5 (6.0) 227.1 (67.9)
Net Profit Gth (Pre-ex) (%) (69.4) 157.9 (21.6) 320.9 (59.8)
Margins
Gross Margins (%) 10.7 13.3 11.7 17.5 10.8
Opg Profit Margins (%) 7.5 9.0 8.5 14.5 7.7
Net Profit Margins (%) 2.6 5.6 4.4 9.6 6.4

Balance Sheet (Rpbn)


FY Dec 2014A 2015A 2016A 2017F 2018F

Net Fixed Assets 2,676 3,184 3,466 7,043 10,338


Invts in Associates & JVs 1,897 1,898 2,608 2,960 3,316
Other LT Assets 1,855 1,960 3,470 3,470 3,470
Cash & ST Invts 2,301 2,560 9,270 3,177 1,119
Inventory 817 1,031 1,248 1,890 3,079
Debtors 4,416 6,278 7,533 15,406 27,640
Other Current Assets 1,948 2,691 3,501 3,677 3,860
Total Assets 15,909 19,602 31,097 37,622 52,823

ST Debt 1,691 1,796 5,388 5,388 5,388


Creditor 3,903 4,323 4,680 9,856 17,744
Other Current Liab 2,882 4,479 4,538 4,755 4,983
LT Debt 1,275 1,646 1,289 1,289 6,789
Other LT Liabilities 1,281 1,921 2,703 2,703 2,703
Shareholder’s Equity 3,888 4,375 11,352 12,287 13,651
Minority Interests 989 1,063 1,147 1,345 1,565
Total Cap. & Liab. 15,909 19,602 31,097 37,622 52,823

Non-Cash Wkg. Capital 395 1,198 3,065 6,362 11,852


Net Cash/(Debt) (665) (882) 2,593 (3,501) (11,058)
Debtors Turn (avg days) 116.0 143.3 160.9 183.3 211.6
Creditors Turn (avg days) 117.0 127.7 124.6 134.6 156.9
Inventory Turn (avg days) 32.4 28.7 31.5 29.1 28.2
Asset Turnover (x) 0.9 0.8 0.6 0.7 0.8 We expect the
Current Ratio (x) 1.1 1.2 1.5 1.2 1.3 company to return to
net debt position on
Quick Ratio (x) 0.8 0.8 1.2 0.9 1.0
the back of rising
Net Debt/Equity (X) 0.1 0.2 CASH 0.3 0.7
capex and working
Net Debt/Equity ex MI (X) 0.2 0.2 CASH 0.3 0.8 capital requirement.
Capex to Debt (%) 34.9 20.4 4.3 57.7 31.6
Source: Company, AllianceDBS, DBSVI

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Page 38
Company Guide
Wijaya Karya

Cash Flow Statement (Rpbn)


FY Dec 2014A 2015A 2016A 2017F 2018F

Pre-Tax Profit 1,139 1,098 1,596 2,055 3,014


Dep. & Amort. 129 211 251 273 555
Tax Paid (370) (479) (448) (718) (1,199)
Assoc. & JV Inc/(loss) (363) (283) (341) (352) (356)
Chg in Wkg.Cap. (665) (811) (1,878) (3,297) (5,490)
Other Operating CF (49.2) 503 (299) 0.0 0.0
Net Operating CF (178) 238 (1,120) (2,039) (3,477)
Capital Exp.(net) (1,036) (701) (285) (3,850) (3,850)
Other Invts.(net) (316) (12.0) (67.9) 0.0 0.0
Invts in Assoc. & JV (48.6) 282 (366) 0.0 0.0 Our capex assumption
Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 is 50% lower than
Other Investing CF 132 106 (92.6) 0.0 0.0 management’s
Net Investing CF (1,268) (325) (811) (3,850) (3,850) guidance but 56%
Div Paid (171) (129) (125) (205) (231) higher than consensus
Chg in Gross Debt 638 479 2,654 0.0 5,500 forecasts.
Capital Issues 448 0.0 6,108 0.0 0.0
Other Financing CF 1,446 (4.0) 0.0 0.0 0.0
Net Financing CF 2,360 346 8,638 (205) 5,269
Currency Adjustments 0.0 0.0 3.00 0.0 0.0
Chg in Cash 914 259 6,710 (6,094) (2,058)
Opg CFPS (Rp) 79.2 171 119 140 224
Free CFPS (Rp) (197) (75.2) (220) (657) (817)
Source: Company, AllianceDBS, DBSVI

Target Price & Ratings History

Source: AllianceDBS, DBSVI


Analyst: Chong Tjen-San
Tiesha PUTRI

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Indonesia Company Guide
Wijaya Karya Beton
Version 6 | Bloomberg: WTON IJ | Reuters: WTON.JK Refer to important disclosures at the end of this report

DBS Group Research . Equity 5 Jul 2017

BUY Excellent proxy for construction


Last Traded Price ( 5 Jul 2017): Rp605 (JCI : 5,825.10) growth
Price Target 12-mth: Rp760 (26% upside) (Prev Rp1,050)
Maintain BUY. As infrastructure projects move to execution
Analyst phase, we believe Wijaya Karya Beton (WTON) is in a sweet spot
Chong Tjen-San +60 3 26043972 tjensan@alliancedbs.com
Tiesha PUTRI +6221 30034931 tiesha.narandha@id.dbsvickers.com as it starts to receive precast orders from contractors or project
owners. Faster execution of infrastructure projects, and
improving revenue visibility with contract backlog already
What’s New reaching 1.1x of our FY17 revenue forecast should support an
 Maintain BUY with a new TP of Rp760 upward re-rating of WTON’s share price. The company currently
trades at attractive PE valuations of 14x/13x on FY17F/18F
 Improving revenue visibility with contract backlog
earnings, at the lower end of its trading range. We maintain our
already reaching 1.1x of our FY17 revenue forecast BUY call with a lower TP of Rp760, providing 26% potential
 Building competitive edge by offering one-stop upside.
service Banking on WIKA’s large order book. In 5M17, WTON clinched
Rp2.3tr worth of new contracts (+48% y-o-y), representing
33% of management’s target. We are confident that WTON will
Price Relative be able to achieve its target of Rp7tr in FY17 supported by
contracts from its parent company Wijaya Karya (WIKA). With
stronger balance sheet post rights issue in 4Q16, WIKA has
more capacity to take on larger-scale projects, which should
further boost WTON’s earnings outlook.
Where we differ. Our Buy call and earnings is in line with
consensus.
Potential catalyst. The disbursement of loans from China
Forecasts and Valuation Development Bank would accelerate the construction progress
FY Dec (Rp m) 2015A 2016A 2017F 2018F of Jakarta-Bandung HSR project and boost WTON’s earnings
Revenue 2,653 3,482 4,743 5,551 and order flows. On a macro level, a steady rollout of
EBITDA 322 529 729 835 infrastructure projects will eventually filter down to precast
Pre-tax Profit 206 353 490 559 players like WTON. We also expect 2Q17 revenue to be stronger
Net Profit 174 272 367 418 as projects that were delayed in 1Q17 have picked up pace.
Net Pft (Pre Ex.) 174 272 367 418
Net Pft Gth (Pre-ex) (%) (47.1) 56.7 34.5 14.1 Valuation:
EPS (Rp) 20.0 31.3 42.0 48.0
EPS Pre Ex. (Rp) 20.0 31.3 42.0 48.0 We revise down our TP to Rp760. We pegged our TP to 18x
EPS Gth Pre Ex (%) (47) 57 35 14 FY17F, a 10% premium to our revised target multiple for
Diluted EPS (Rp) 20.0 31.3 42.0 48.0 WIKA (on par with its historical mean).
Net DPS (Rp) 5.99 9.38 12.6 14.4
BV Per Share (Rp) 253 278 311 346
Key Risks to Our View:
PE (X) 30.3 19.4 14.4 12.6
PE Pre Ex. (X) 30.3 19.4 14.4 12.6 Delays in project rollout, particularly for the Jakarta-Bandung
P/Cash Flow (X) 11.5 nm 15.5 10.2 HSR, would result in lower-than-expected earnings for WTON.
EV/EBITDA (X) 15.7 10.7 8.4 7.4
Net Div Yield (%) 1.0 1.5 2.1 2.4 At A Glance
P/Book Value (X) 2.4 2.2 1.9 1.7 Issued Capital (m shrs) 8,715
Net Debt/Equity (X) CASH 0.1 0.3 0.3
Mkt. Cap (Rpbn/US$m) 5,273 / 395
ROAE (%) 8.0 11.8 14.3 14.6
Major Shareholders (%)
Earnings Rev (%): 0 0 0 PT Wijaya Karya (Persero) Tbk 60.0
Consensus EPS (Rp): N/A 42.9 51.6
Other Broker Recs: B: 14 S: 1 H: 1 KKMS 8.8
Treasury Stock 4.3
Source of all data on this page: Company, AllianceDBS, DBSVI, Free Float (%) 26.9
Bloomberg Finance L.P
3m Avg. Daily Val (US$m) 0.46
ICB Industry : Industrials / Construction & Materials

ASIAN INSIGHTS VICKERS SECURITIES


ed: JS/ sa:MA, PY
Company Guide
Wijaya Karya Beton

WHAT’S NEW

Building competitive edge

Building competitive edge by offering one-stop service. WTON 1Q17, leading to a delay in precast concrete installment and
targets to increase revenue contribution from precast concrete revenue recognition for WTON in the same period.
installation service from 4% in FY16 to 25% over the next five
years. The company plans to offer a one stop service to South Lampung factory. WTON recently commissioned its new
customers, from precast production to installation, to factory in South Lampung. The factory location enables the
strengthen its competitive position in the market. Our checks company to transport precast concrete via sea freight, which is
with management suggests that this one-stop package typically generally cheaper compared to land transport. Based on our
commands higher margins compared to regular sales. discussions with management, ASPs for precast sourced from
However, this may delay the revenue recognition and hence the South Lampung factory to Balikpapan (East Kalimantan) is
stretch WTON’s inventory days. We note that for regular sales, 3-6% lower compared to those sourced from the West Java
revenue is typically recorded once the precast concrete is factory. With this strategically located factory, we believe
shipped, whereas for one-stop package, revenue is recorded WTON will be able to benefit from the government’s push to
only when the precast concrete is installed at the project decentralise infrastructure development to areas outside Java.
owner’s site. A case in point was the Medan-Kuala Namu
railway project. The project faced some technical issues in

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Company Guide
Wijaya Karya Beton

Gross margin (%)


CRITICAL DATA POINTS TO WATCH

Critical Factors
Clear beneficiary of Jakarta-Bandung HSR. The Jakarta-Bandung
high-speed railway (HSR) project is estimated to require 3-3.5m
tons of precast concrete in 2017-2019 with a contract value of
Rp6tr – Rp9tr. WTON expects to win at least Rp2tr – Rp3tr of the
total contract size. 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 Production capacity ('000 tons)
stations. We expect the HSR project to contribute 13%/22% to our
FY17/FY18 revenue and EBIT forecasts.

First-mover advantage in ex Java market. WTON has continued to


expand its coverage to markets outside Java where there are fewer
competitors. In these areas, the company often serves as the only
large-scale precast producer, allowing it to maintain higher pricing
and margins compared to those in Java. Based on our channel
checks, WTON’s state-run competitors will still be focusing on
expanding in the Java market in the near future. Therefore, we are
confident that WTON’s position outside Java markets will remain Sales volume ('000 tons)
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 FY16, net margin of ex Java market was 500bps higher than
Java’s.

Best proxy to domestic construction boom. We believe WTON is in


a sweet spot to benefit from the government’s ambitious
infrastructure buildout plan given that it has the most extensive
product offerings and geographical reach. It is worth noting that
24% of WTON’s total installed capacity (610,000 ton p.a.) is
located outside Java, the largest among peers. As the government Utilisation rate (%)
plans to place more focus on infrastructure development outside
Java, we believe WTON would be the biggest beneficiary of this
shift.

Based on our analysis, supply and demand dynamics for the


domestic precast market would still be favourable in the next three
years if the government manages to execute priority infra projects
in a timely manner. We forecast a total precast supply of 4.75m
tons p.a. from the four largest precast-arms of listed state-owned
contractors by the end of 2017. To estimate the demand, we
selected power plants and transportation-based projects listed in
the government’s priority project list and Jakarta-Bandung HSR. Source: Company, AllianceDBS, DBSVI
Based on our estimates, these infra projects would require 15.3m
tons of precast within three years or 5.1m tons p.a. Hence, we
believe that the demand and supply dynamics of the industry is still
in favour of players like WTON.

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Company Guide
Wijaya Karya Beton

Appendix 1: A look at the company's listed history – what drives its share price?

WTON’s share price vs. peers*

1,600 B 2.00
1,400 C1 C2
A 1.80
1,200 D 1.60
1,000
1.40
800
1.20
600
400 1.00
200 0.80
- 0.60

WTON share price (LHS) WTON vs. construction (RHS)

*Based on the average return of the listed state-owned contractors


Source: Company, AllianceDBS, DBSVI

A: Strong pricing power WTON share price vs. revenue from state-owned
WTON’s share price rally post IPO in April 2014 was driven by contractors
its strong earnings growth. WTON had a strong competitive 1,600 500
position with market share of 38.6% in 2013, while the 1,400 450
second largest player only commanded 15.9% market share. 1,200 400
This allows the company to enjoy strong pricing power and 1,000 350
margin expansion. 800 300
600 250
400 200
B: Intensifying competition 200 150
Slower than expected rollout of government’s infrastructure - 100
projects along with intensifying competition, especially among Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Oct-16
state-owned precast producers, caused WTON’s share price to
WTON share price (LHS) Revenue from SOE contractors, Rp bn (RHS)
de-rate in 2015. In FY15, WTON saw its revenue declining by
19% on the combination of declining ASP and revenue Source: Company, AllianceDBS, DBSVI
contribution from state-owned contractors. State-owned
contractors such as Waskita Karya, Hutama Karya and PTPP C: Jakarta-Bandung high-speed railway (HSR)
started to expand precast production capacity and opted to Despite the declining order book from state-owned contractors,
source their precast requirements internally. This caused the appointment of its parent company, WIKA, as one of the
revenue contribution from state-owned contractors to decline main contractors for the mega project Jakarta-Bandung HSR is
by 43% y-o-y in FY15 with contribution to WTON’s positive for WTON. Initially, the management indicated a
consolidated sales shrinking from 13% to 9%. Meanwhile, we potential contract worth Rp6tr – Rp9tr from the mega project.
reckon intense competition resulted in WTON lowering its This positive news caused WTON’s share price to rally following
selling price to maintain market share. The following chart the ground breaking of the project in early 2016 (C1). However,
shows the correlation between WTON’s share price and after a prolonged series of negotiations with China, the
revenue contribution from state-owned contractors. management guided that it would likely get a significantly lower
contract target of Rp2tr – Rp3tr as it was unable to meet some
of the product specifications. This along with the delay in HSR
construction caused the share price to de-rate (C2).
D: Delay in project execution
Delay in execution of infrastructure project caused WTON’s
revenue to fall short of market expectations. In 1Q17, WTON’s
revenue was flat y-o-y while net profit grew a marginal 2%
despite its large contract backlog.

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Company Guide
Wijaya Karya Beton

Leverage & Asset Turnover (x)


Balance Sheet:
Robust balance sheet to fund expansion plan. As at end of Mar
2017, WTON had Rp782bn of interest-bearing debt, bringing its
gross and net gearing to 0.3x. The company has allocated a
capex budget of Rp680bn for FY17 which will be funded by the
combination of internal cash and debt. The company also plans
to sell treasury stocks to the public starting this year. Assuming
the treasury stocks are sold at Rp665 /share, proceeds raised
would be Rp236bn.

Share Price Drivers:


Capital Expenditure
Award of large-sized, multi-year contracts. Among the potential Rpbn

contracts are the Jakarta-Bandung HSR and Giant Sea Wall.


There is also a clear pipeline of multi-year contracts from its
parent WIKA which could amount to Rp1.5tr.

Better progress of Jakarta-Bandung HSR construction. The


construction progress of the Jakarta-Bandung HSR project is
running behind schedule after breaking ground in January
2016. Construction work has finally resumed after months of
delay but the consortium has to wait for loan disbursement
from China Development Bank before it is able to accelerate the ROE (%)
construction progress. Better progress for the project would be
a re-rating catalyst for WTON’s earnings and share price.

Key Risks:
Delay in government’s infrastructure project rollout,
particularly for the Jakarta-Bandung HSR, would result in
lower-than-expected order book and profit for WTON.
Delays in infrastructure project execution will cause WTON’s
revenue to fall short of expectations, and also lower WTON’s
profitability given its high operating leverage.
Forward PE Band (x)
Increasing competition in the Java market. Major SOE
contractors are looking to increase their precast production
capacities, particularly in the Java market. Intensifying
competition may weaken WTON’s pricing power in Java and
erode its margins. In FY16, Java contributed 56% and 38% of
WTON’s consolidated revenue and earnings respectively.

The bulk of WTON’s cost of goods sold (COGS) is in USD. Steel


and cement make up 30% and 20% of WTON’s COGS
respectively. Additionally, some overhead costs for its
production facilities are also in USD, which exposes WTON’s PB Band (x)
profitability to currency fluctuations. Nevertheless, the
company has mitigated this risk by signing umbrella contracts
for its key raw materials, enabling it to lock in prices for three
months.

Company Background
WTON is the dominant market leader in precast concrete with
over 30% market share.

Source: Company, AllianceDBS, DBSVI

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Company Guide
Wijaya Karya Beton

Key Assumptions
FY Dec 2014A 2015A 2016A 2017F 2018F
Gross margin (%) 14.9 12.4 14.5 14.5 14.2
Production capacity ('000 2,200 2,300 2,500 3,000 3,300
Sales volume ('000 tons) 1,464 1,413 1,520 2,074 2,427
Utilisation rate (%) 66.5 61.4 60.8 69.1 73.6

Segmental Breakdown
FY Dec 2014A 2015A 2016A 2017F 2018F
Revenues (Rpbn)
Concrete 3,228 2,591 3,349 4,569 5,348
Service 49.7 61.7 133 174 203
Total 3,277 2,653 3,482 4,743 5,551
Operating Profit (Rpbn)
Concrete 396 231 392 534 613
Service 12.7 7.40 15.9 20.8 24.4
Total 409 238 408 555 637
Operating Profit Margins
Concrete 12.3 8.9 11.7 11.7 11.5
Service 25.5 12.0 12.0 12.0 12.0
Total 12.5 9.0 11.7 11.7 11.5

Income Statement (Rpbn)


FY Dec 2014A 2015A 2016A 2017F 2018F
Revenue 3,277 2,653 3,482 4,743 5,551
Cost of Goods Sold (2,790) (2,324) (2,977) (4,057) (4,761)
Gross Profit 487 329 504 686 790
Other Opng (Exp)/Inc (76.9) (90.2) (96.2) (131) (153)
Operating Profit 410 238 408 555 637
Other Non Opg (Exp)/Inc (3.4) (6.4) (16.0) 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) (40.2) (66.0) (79.3)
Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0
Pre-tax Profit 413 206 353 490 559
Tax (89.1) (34.3) (70.5) (122) (139)
Minority Interest 6.10 2.10 (9.1) 0.0 0.0
Preference Dividend 0.0 0.0 0.0 0.0 0.0
Net Profit 329 174 272 367 418
Net Profit before Except. 329 174 272 367 418
EBITDA 492 322 529 729 835
Growth
Revenue Gth (%) 24.0 (19.1) 31.3 36.2 17.0
EBITDA Gth (%) 25.1 (34.5) 64.2 37.9 14.4
Opg Profit Gth (%) 22.0 (41.9) 71.2 35.8 14.8
Net Profit Gth (Pre-ex) (%) 35.3 (47.1) 56.7 34.5 14.1
Margins & Ratio
Gross Margins (%) 14.9 12.4 14.5 14.5 14.2
Opg Profit Margin (%) 12.5 9.0 11.7 11.7 11.5
Net Profit Margin (%) 10.0 6.6 7.8 7.7 7.5
ROAE (%) 23.4 8.0 11.8 14.3 14.6
ROA (%) 9.8 4.2 6.0 7.2 7.2
ROCE (%) 15.5 6.9 10.6 11.9 12.2
Div Payout Ratio (%) 30.0 30.0 30.0 30.0 30.0
Net Interest Cover (x) NM 9.2 10.2 8.4 8.0
Source: Company, AllianceDBS, DBSVI

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Company Guide
Wijaya Karya Beton

Quarterly / Interim Income Statement (Rpbn)


FY Dec 4Q2015 1Q2016 2Q2016 3Q2016 4Q2016

Revenue 1,104 733 786 723 1,240


Cost of Goods Sold (964) (642) (676) (618) (1,041)
Gross Profit 140 91.0 110 105 199
Other Oper. (Exp)/Inc (29.7) (17.8) (23.4) (22.5) (32.5)
Operating Profit 110 73.2 86.2 82.7 166
Other Non Opg (Exp)/Inc (1.4) 0.60 0.20 1.40 (18.3)
Associates & JV Inc 0.0 0.0 0.0 0.0 0.0
Net Interest (Exp)/Inc (9.4) (4.2) (9.1) (11.4) (15.5)
Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0
Pre-tax Profit 99.2 69.7 77.3 72.7 132
Tax (12.6) (16.3) (15.3) (16.1) (22.9)
Minority Interest (0.5) (3.1) (2.9) (1.6) (1.5)
Net Profit 86.1 50.2 59.1 55.1 108
Net profit bef Except. 86.1 50.2 59.1 55.1 108
EBITDA 109 73.8 86.4 84.1 148

Growth
Revenue Gth (%) 67.9 (33.6) 7.3 (8.0) 71.5
EBITDA Gth (%) 101.9 (32.0) 17.0 (2.6) 75.9
Opg Profit Gth (%) 105.2 (33.5) 17.8 (4.1) 101.0
Net Profit Gth (Pre-ex) (%) 151.7 (41.7) 17.7 (6.9) 96.2
Margins
Gross Margins (%) 12.7 12.4 13.9 14.5 16.0
Opg Profit Margins (%) 10.0 10.0 11.0 11.4 13.4
Net Profit Margins (%) 7.8 6.9 7.5 7.6 8.7

Balance Sheet (Rpbn)


FY Dec 2014A 2015A 2016A 2017F 2018F

Net Fixed Assets 1,671 1,998 2,219 2,726 2,989


Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0
Other LT Assets 4.10 3.70 3.20 3.20 3.20
Cash & ST Invts 1,039 824 343 121 69.4
Inventory 458 623 695 900 1,058
Debtors 476 570 654 935 1,094
Other Current Assets 155 439 750 846 908
Total Assets 3,802 4,456 4,662 5,529 6,121

ST Debt 565 212 470 670 670


Creditor 420 558 664 835 981
Other Current Liab 525 1,025 730 941 1,078
LT Debt 1.20 320 200 200 200
Other LT Liabilities 88.5 79.2 108 108 108
Shareholder’s Equity 2,143 2,205 2,422 2,707 3,015
Minority Interests 59.5 58.2 68.5 68.5 68.5
Total Cap. & Liab. 3,802 4,456 4,662 5,529 6,121

Non-Cash Wkg. Capital 144 49.3 704 905 1,001


Net Cash/(Debt) 472 292 (327) (749) (800)
Debtors Turn (avg days) 50.0 72.0 64.1 61.1 66.7
Creditors Turn (avg days) 50.3 79.9 78.5 70.4 72.6
Inventory Turn (avg days) 87.9 88.2 84.6 74.9 78.3
Asset Turnover (x) 1.0 0.6 0.8 0.9 1.0
Current Ratio (x) 1.4 1.4 1.3 1.1 1.1
Quick Ratio (x) 1.0 0.8 0.5 0.4 0.4
Net Debt/Equity (X) CASH CASH 0.1 0.3 0.3
Net Debt/Equity ex MI (X) CASH CASH 0.1 0.3 0.3
Capex to Debt (%) 139.6 88.8 72.0 78.2 52.9
Z-Score (X) 3.8 2.8 3.1 2.9 2.8
Source: Company, AllianceDBS, DBSVI

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Company Guide
Wijaya Karya Beton

Cash Flow Statement (Rpbn)


FY Dec 2014A 2015A 2016A 2017F 2018F

Pre-Tax Profit 412 206 352 489 558


Dep. & Amort. 84.8 89.9 135 174 197
Tax Paid (125) (34.3) (70.5) (122) (139)
Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0
Chg in Wkg.Cap. (283) 94.4 (654) (201) (96.1)
Other Operating CF 103 102 158 0.0 0.0
Net Operating CF 192 458 (79.2) 339 519
Capital Exp.(net) (790) (472) (482) (680) (460)
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) (482) (680) (460)
Div Paid (20.0) (98.6) (52.2) (81.7) (110)
Chg in Gross Debt 13.0 (103) 138 200 0.0
Capital Issues 1,193 0.0 0.0 0.0 0.0
Other Financing CF 37.4 0.80 (5.8) 0.0 0.0
Net Financing CF 1,224 (201) 80.2 118 (110)
Currency Adjustments 0.0 0.0 0.0 0.0 0.0
Chg in Cash 625 (215) (481) (223) (51.2)
Opg CFPS (Rp) 54.4 41.8 66.0 62.0 70.5
Free CFPS (Rp) (68.6) (1.6) (64.4) (39.1) 6.74
Source: Company, AllianceDBS, DBSVI

Target Price & Ratings History

Source: AllianceDBS, DBSVI


Analyst: Chong Tjen-San
Tiesha PUTRI

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Page 47
Industry Focus

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

Completed Date: 5 Jul 2017 18:52:21 (SGT)


Dissemination Date: 6 Jul 2017 09:01:12 (SGT)

Sources for all charts and tables are AllianceDBS, DBSVI unless otherwise specified.

GENERAL DISCLOSURE/DISCLAIMER
This report is prepared by AllianceDBS Research Sdn Bhd (''AllianceDBS''), PT DBS Vickers Sekuritas Indonesia (''DBSVI''). This report is solely
intended for the clients of DBS Bank Ltd, 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 (''AllianceDBS''), PT DBS Vickers Sekuritas Indonesia (''DBSVI'').

The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS
Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively,
the “DBS Group”) 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 and the DBS Group is under no
obligation to update the information in this report.

This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned
schedule or frequency for updating research publication relating to any issuer.

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.

Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.

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.

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Industry Focus

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
compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s)
primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of
the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the
real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the
management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or
his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has
procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of
research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking
function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment banking
function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the DBS
Group.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES


1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), DBSV HK or their subsidiaries and/or other affiliates do not
have a proprietary position in the securities recommended in this report as of 31 May 2017.
2. Neither DBS Bank Ltd, DBS HK nor DBSV HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research
Report.

Compensation for investment banking services:


3. 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.

Disclosure of previous investment recommendation produced:


4. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other
investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12
months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by
DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.

1
An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child
(natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of
the analyst.
2
Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial
accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or
investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer
or a new listing applicant.  

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Industry Focus

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 or on behalf of, and is attributable to 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.)

For any query regarding the materials herein, please contact Paul Yong (CE. No. ASE988) at equityresearch@dbs.com.

Indonesia This report is being distributed in Indonesia by PT DBS Vickers Sekuritas 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.

United Kingdom This report is produced by AllianceDBS Research Sdn Bhd (''AllianceDBS''), PT DBS Vickers Sekuritas Indonesia (''DBSVI'')
which is regulated by the Securities Commission Malaysia.

This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd, ("DBSVUK"). DBSVUK is authorised and
regulated by the Financial Conduct Authority in the United Kingdom.

In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, 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 DBSVUK. This communication is directed at
persons having professional experience in matters relating to investments. Any investment activity following from this
communication will only be engaged in with such persons. Persons who do not have professional experience in matters
relating to investments should not rely on this communication.

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Industry Focus

Dubai This research report is being distributed in The Dubai International Financial Centre (“DIFC”) by DBS Bank Ltd., (DIFC Branch)
rd
having its office at PO Box 506538, 3 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 (''AllianceDBS''), PT DBS Vickers Sekuritas Indonesia (''DBSVI'').
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)
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8 Jalan Munshi Abdullah 50100
Kuala Lumpur, Malaysia.
Tel.: +603 2604 3333 Fax: +603 2604 3921 email : general@alliancedbs.com

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