Sector update:
Construction (Overweight)
Infrastructure Development On Track
Construction (Overweight)
Infrastructure Development On Track
Indonesian Government
continues to prioritise infrastructure development in the country by
maintaining its infrastructure budget in the revised State Budget Proposal
2016. It also aims to increase capital injection (PMN) into SOEs this year
which would focus on the electricity programme, with PLN set to receive 44% of
2016’s total PMN. Moreover, 5M16’s capital spending showed a stronger
performance vs previous year’s levels and most infrastructure projects are
progressing well. We keep our OVERWEIGHT sector call, with Adhi Karya and
Waskita Karya as our Top Picks.
♦ YTD progress. 5M16’s capital
spending accounted for 13.5% of FY16’s capital spending budget, up 62.5% YoY
from 5M15 levels. On a monthly basis, May 2016’s capital spending grew 13.0%
YoY. Additionally, 86 out of President Joko Widodo’s (Jokowi) 225 priority
projects have started with the remainder still in the planning process. For the
electricity project, the Government has handed out 17,800 megawatts (MW) worth
of contract out of 35,000MW and will endeavour to realise the remaining target
by year-end. The President has also instructed the ministers to speed up the
planning process of these priority projects, which we believe should directly
benefit state-owned enterprises (SOEs) given that most of them are the main
contractors of several top-priority projects.
♦ Infrastructure budget
still intact.
Infrastructure is still the spotlight in Indonesia. Based on the latest revised
budget proposal, we see that the Government is unlikely to cut the IDR313.5trn
infrastructure spending. Instead, it will likely focus on reducing other
spending budget such as material, operational, education and healthcare this
year. We see this as favourable for the construction sector amid the slow tax
revenue collection YTD.
♦ Impact of
Government’s capital injection into SOEs. The Government will likely distribute
IDR53.3trn PMN to SOEs this year, from the initial plan of only IDR40.4trn. Perusahaan
Listrik Negara (PLN) would receive the largest amount, representing 44% of the
total PMN budget – more than double its initial plan. We expect Pembangunan
Perumahan (PTPP) (PTPP IJ, BUY, TP: IDR4,200) and Wijaya Karya (Wika) (WIKA IJ,
NEUTRAL, TP: IDR2,665) to be the main beneficiaries since both companies aim to
clinch several power plant projects. PTPP and Wika have also obtained
IDR2.25trn and IDR4trn respectively to ramp up the infrastructure projects. PMN
should help strengthen their working capital and balance sheets, but we expect
the impact would be more visible next year.
♦ Update on LRT Inner
City project.
Following the agreement between Jakarta Governor and the Minister of
Transportation on track gauge and funding sources, Jakarta Inner City Light
Rail Transit (LRT) Phase I – which connects Kelapa Gading and Rawamangun – will
start construction on 22 Jun. Based on Jakarta Propertindo (JakPro), Jakarta
Governor has advised that the LRT construction will be supported by the Korea Railway
Network Authority (KRNA), while SOEs such as Adhi Karya (ADHI IJ, BUY, TP:
IDR3,400), Wika and Waskita Karya (WSKT IJ, BUY, TP: IDR2,355) are competing
for this project, although we think Adhi Karya would be the top contender.
Meanwhile, we believe the Government will likely accelerate the construction
progress of LRT Greater Jakarta, which has been assigned to Adhi Karya. Given
the President’s order, we believe Adhi will likely receive certainty on the
project in the near term and record it as a new contract in 2H16.
♦ Main risks. A shortfall in tax
revenue could force the Government to cut its infrastructure spending.
♦ Still bullish on the
sector.
We still like the sector as we see acceleration in infrastructure development
such as capital spending disbursement and the rollout of several infrastructure
projects. Adhi Karya and Waskita Karya are our top sector picks.
Kindly click the following link for the full report: Infrastructure Development On Track
Best regards,
Dony Gunawan
Assistant Vice
President
Research Analyst – Construction
PT. RHB Securities
Indonesia
