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Good morning, Strong Earnings Visibility To Drive Stellar Performance We rollover our valuation to FY17 and increase our FY16/FY17 core EPS growth to 63.1%/35% YoY from 41%/31.1% YoY respectively. Maintain BUY and upgrade our TP to IDR3,675 (from IDR2,355, 35% upside) derived from 23x FY17F P/E. Our call is based on:
1. The strongest earning visibility amongst
SOEs, backed by Waskita’s YTD strong new contract collection;
2. Toll road construction will still be the
growth engine;
3. Being able to benefit from ramped up public
spending as an SOE.
¨ Strong
earnings visibility ahead. We see a very strong new contract
achievement from Waskita Karya (Waskita). It successfully met its and our
FY16 new contract estimates of IDR40trn in 1H16, ie >3x 1H15’s numbers.
Most of its new contracts are still dominated by toll road projects, which
are owned by a subsidiary. Another big project secured in 1H16 was the
IDR12trn light rapid transit (LRT) project in Palembang, which is larger than
our initial expectation of only IDR7trn. Hence, we raise our FY16 new contract
assumption to IDR50trn (+56.3% YoY) – a rather conservative estimate – since
it still has ample projects from the Trans-Java toll road and potential
electric transmission phase II in Sumatera worth ~IDR7trn. Thus, we believe
it has the most solid earnings visibility of the state-owned enterprises
(SOEs).
¨ Robust
growth.
We expect Waskita’s earnings to surge 63.1% YoY (FY16) and 35% YoY (FY17),
supported by toll road projects and other infrastructure works like the LRT.
We believe that toll road projects will still be its main focus, where the
majority of the toll roads under construction for the Trans-Java were built
by the company. This is in line with the Government’s plan to connect Jakarta
to Surabaya via toll roads by end-2019.
¨ Government
support.
The Government continues to progress well in terms of its budget execution.
It has spent IDR44.4trn in 1H16’s capital spending, up 65.3% YoY from 1H15’s
numbers. While growth appears to be very strong, 1H16 accounted for only
19.5% of FY16’s IDR227trn capital spending budget (revised State Budget
2016). This is still in line with seasonality, and we expect increased
acceleration going forward especially, given the encouraging monthly trend.
¨ As
capital spending reached IDR17.2trn in June, up 70% YoY higher than Jun 2015,
we see that the Government’s spending is aligned and believe that the upward
momentum will continue. As a state-owned contractor, Waskita is a direct
beneficiary since its projects are dominated by infrastructure initiatives.
¨ Risks. Key risks to our
call are government spending cuts, hurdles in the land clearing process and
cash flow for toll roads operations.
¨ Maintain
BUY with new IDR3,675 TP (from IDR2,355). We recommend a
strong BUY on this counter with a new IDR3,675 TP. We rollover our valuation
to FY17 and still use an unchanged P/E of 23x, +1SD from the industry’s
4-year average rolling forward P/E. (Dony Gunawan)
Link
to Daily report: Indonesia Morning Cuppa - 180716
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Economic Update:
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Exports Continue to Improve in June
¨ Indonesia’s
exports contracted by a smaller magnitude of 4.4% y-o-y
in Jun,
from -9.8% in May. This was driven by softer
declines in both oil & gas and non-oil & gas exports, reflecting a
slight pick-up in demand for Indonesia’s exports during the month.
¨ Imports, meanwhile, contracted by a higher
magnitude of 7.4% y-o-y in Jun, from -4.1% in May. The smaller
contraction in imports was due to a deeper drop in the non-oil & gas and
a reversal into a contraction in crude oil imports. These were, however,
partly offset by
a smaller contraction in oil products and gas imports.
¨ In
June, the trade account continued to record a surplus of USD0.9bn, higher than the
previous month. This leds to a higher trade surplus in 2Q 2016, suggesting
the country’s current account deficit (CAD) in the balance of payments could
improve during the quarter. However, higher seasonal primary income deficit
could offset the improvement in trade balance.
¨ Moving forward, the global economy still faced with many
downside risks and it is in its seventh year of growth in the current
cycle in 2016 where the late stage of an economic growth cycle tends to be
associated with higher downside risk. This suggests that Indonesia’s exports
will likely remain challenging and we expect the country’s real export to
grow marginally by 0.9% in 2016, compared with -2.0% in 2015. (Rizki
Fajar)
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Media Highlights:
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Economics
Indonesia recorded
6m foreign tourists after its visa free policy
Corporates
Astra allocates IDR4.5trn for
infrastructure expansion
Pembangunan Perumahan to issue 1.77bn
shares
PGN and Pertagas to partner up for
Duri-Dumai gas pipe construction
Bank MNC aims IDR1trn funds from capital
injection
Medco receive IDR1.25trn from bonds
issuance
Semen Baturaja’s sales increased by 4%
Best regards,
Helmy Kristanto
Director
Head of Indonesia Research
PT. RHB Securities Indonesia
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