Company update:
(WTON IJ, BUY, TP: IDR1,070),
A Stellar Year
(WTON IJ, BUY, TP: IDR1,070),
A Stellar Year
We upgrade our
recommendation to BUY (from Neutral) with a new TP of IDR1,070 (from IDR870,
20% upside), as we fine-tune our assumptions and rollover our valuation to
FY17F. Our valuation is based on:
1. Potential jobs stemming from railway
developments outside of Java;
2. Spill-over jobs from HST projects in
FY17;
3. Potentially benefiting from Wika’s JV
to build three toll roads.
¨ Opportunities from
railway developments in the outer islands. As one of the biggest suppliers of
railway sleepers in Indonesia, Wijaya Karya Beton (Wika Beton) will benefit
from the Government’s plan to build 3,258km of railway tracks across the
country in five years. Since 2015, its products have been used to support the
Trans Sulawesi Railway project which will connect Makassar to Pare-Pare. For
the first phase, the Government will build railway tracks from Makassar to
Barru (it ordered IDR230bn in railway sleepers from Wika Beton). Next year,
Indonesia is set to continue building railway tracks from Barru to Pare-Pare,
and orders for sleepers may likely be given to Wika Beton. Meanwhile, the
Government has also started the construction of the Trans Sumatera Railway
project early this year, which will further boost the demand for railway
sleepers.
¨ Strong order book. Its parent entity,
Wijaya Karya Persero (Wika) (WIKAIJ, NEUTRAL, TP: IDR2,665) has obtained a
IDR16.7trn civil works order for a high-speed train (HST) project from PT
Kereta Cepat Indonesia China. We think Wika Beton is likely to receive orders
worth IDR1-1.5trn to support the construction of the project next year.
¨ It will also benefit
from its JV to build toll roads for Balikpapan-Samarinda, Manado-Bitung and
Pandaan-Malang which will be built next year. Thus, we expect new contracts to
reach IDR3.8trn (+19%YoY) and IDR4.4trn (+15.8% YoY) in FY16-17. Currently,
Wika Beton won 63% of our 2017 contract estimate. We are optimistic that it
will reach our new contract target this year, as they will likely win a new
IDR800bn job from the Medan-Kualanamu Railway project, which is part of Trans
Sumatera Railway project.
¨ Decent growth and a
healthy balance sheet. We expect the company’s earnings to grow 31.5%YoY next
year, supported by infrastructure projects. We also expect its GPM to stabilise
at around 13.2% in FY16-17 and believe that it will maintain its net cash
position.
¨ Key risks. Stiffer competition
from fellow state-owned enterprises (SOEs) such as Waskita Beton Precast (WSBP,
NR) and a delay in the commencement of infrastructure projects will negatively
impact the company.
¨ Upgrade to BUY. We upgrade our
recommendation to BUY (from Neutral) with a higher TP of IDR1,070 as we
rollover our valuation to FY17F. Our TP is based on a DCF valuation assuming
the following: RF of 7.5%, WACC of 12.7% and TG of 5%. It also implies 28.5x
FY17F P/E.
Kindly click the following link for the full report: Wijaya Karya Beton : A Stellar Year
Dony Gunawan
Assistant Vice
President
Research Analyst – Construction
PT. RHB Securities
Indonesia
