Sector update:
Construction (Overweight),
Brighter Prospects For 2H16
Construction (Overweight),
Brighter Prospects For 2H16
We
expect new contracts to surge in 2H16, as many infrastructure projects that
were tendered in May will be announced during that period. Up to 5M16, three
SOEs have secured a combined IDR20trn (-1% YoY) worth of new contracts,
relatively flat compared to last year’s levels, since many project
announcements have been delayed to 2H16 due to the revised state budget
discussions. Pembangunan Perumahan expects stronger new contract collection in
June, supported by several infrastructure projects. We remain OVERWEIGHT on the
sector with Adhi Karya as our Top Pick, given its strong earnings visibility
and cheap valuations.
♦ Latest development. Three state-owned
enterprises (SOEs) raked in a combined IDR20trn worth of new contracts in 5M16,
relatively flat compared to last year’s achievement. We believe the figure will
likely improve going forward since many projects winners will be announced in
the following months, with the Government set to accelerate capital spending
disbursement in 2H16. In addition, up to 5M16, the Ministry of Public Works
& Public Housing and the Ministry of Transportation continued to deliver
triple-digit spending growth, which makes us confident that FY16 spending will
be realised much better than FY15’s.
♦ Wijaya Karya (Wika) (WIKA IJ,
NEUTRAL, TP: IDR2,665) recorded IDR7.5trn (+28.7% YoY) new contracts in 5M16,
accounting for 14.3% of its full-year target. The company expects to book
IDR10.2trn (-2.1% YoY) new contracts in 6M16. Although the current
achievement is slower than expected, we believe that Wika would be able to
secure more new contracts in 2H16, supported by toll road projects and the High
Speed Train (HST). The company expects to book IDR17trn from the HST project by
the end of this year.
♦ PTPP set to perform
in 1H16.
Pembangunan Perumahan (PTPP) (PTPP IJ, BUY, TP: IDR4,200) attained only
IDR7.2trn contracts in 5M16, down 26.5% YoY. However, the company expects to
win IDR12trn (-10.4%YoY) worth of new contracts in 1H16. Assuming this is
achieved, it would record IDR4.8trn in June alone, surging by one-third of Jun
2015 levels. This is still in line with our expectation of its new contracts
collection accelerating in 2H16.
♦ Adhi Karya booked
decent performance.
Adhi Karya’s (ADHI IJ, BUY, TP: IDR3,400) new contracts grew 14.5% YoY in 5M16,
accounting for 21.5% of FY16's target. The new contracts mainly come from
SOEs project. We remain positive on Adhi Karya as we believe that its new
contracts will likely spike up in 2H16, and given that the LRT Greater Jakarta
contract will be signed in 2H16. Currently, the company is trading at only
14.2x FY16F P/E, at a more than 30% discount to the sector’s P/E.
♦ Update on revised
state budget.
The revised FY16 state budget will be finalised by the end of this month. Based
on the Government’s latest report, there will not be an infrastructure budget
cut. The Government is sticking to its plan to cut healthcare and education
budgets instead. In addition, the tax amnesty bill is expected to be passed and
announced this month, which should help drive the sector’s momentum and
potentially increase government revenue.
♦
Maintain
OVERWEIGHT.
We continue to like the construction sector with Adhi Karya as our Top Pick,
due to its strong earnings visibility and its position as the cheapest
state-owned contractor in the market.
Best
regards,
Dony Gunawan
Assistant Vice
President
Research Analyst – Construction
PT. RHB Securities
Indonesia
