RHB Indonesia Morning Cuppa - 15 July 2016- (Infrastructure)

Good morning,

Infrastructure: Acceleration in Capital Spending Continues

With infrastructure development has become one of the main core investment story, the government continues to progress well in term of execution of its budget. Government has spent IDR44.4trn in 1H16’s capital spending, surged +65.3% YoY from 1H15. While the growth appears to be very strong, 1H16 accounted for 19.5% of FY16 capital spending budget of IDR227trn (Revised State Budget 2016). We believe this is still inline with seasonality and continue to expect more acceleration going forward especially given encouraging monthly trend. On a monthly basis, capital spending reached IDR17.2trn in June’16, +70.0% YoY higher than June’15. Hence, we see that the government spending is intact with the plan and believe that the upward momentum will continues. The recent tax amnesty approval will also ensure more certainty over infrastructure funding going forward, which will continue to support the construction sector as a whole.

Strong new contract collection. Waskita Karya (WSKT IJ) has managed to deliver outstanding new contract achievement. In 1H16, the company has successfully secured IDR40tn new contract and already met management’s and our FY16F new contract estimates. This figures is in fact more than triple compare to 1H15. Most of Waskita new contracts are still dominated by toll road projects which is owned by its subsidiary toll road. Other big projects that is obtained in 1H16 was LRT Palembang worth IDR12trn, which is bigger than our initial expectation of only IDR7trn. Having said that, we believe that the company will likely to increase its FY16F target since they still have ample projects from toll road trans java and potential electric transmission phase II in Sumatera worth around IDR7trn. (Dony Gunawan)

Link to Daily report: Indonesia Morning Cuppa - 150716