Company
update:
Wijaya
Karya Persero (WIKA IJ; BUY; TP: IDR3,370)
Taking The Weight Off Its Shoulders
Taking The Weight Off Its Shoulders
Last
Friday, Wijaya Karya set its rights issue price at IDR2,180 per unit. We expect
its outlook to improve post-exercise, as this would lift the overhang on the
stock while strengthening its balance sheet and earnings growth. The progress
of new jobs won is still in line with our estimate, as the HSR contract is
likely to be signed by year-end. Maintain BUY, with an unchanged TP of IDR3,370
(31% upside). We anticipate an earnings upside once the rights issue finalised,
as the company would have a sturdier balance sheet to take on more projects.
¨ Details of rights
issue.
Wijaya Karya Persero (Wijaya Karya) set the rights issue price at IDR2,180 vs
the initial price range of IDR1,525-2,505. The company is likely to issue
2.82bn new shares, and expects to book total proceeds of IDR6.15trn. Current
shareholders, who do not exercise their rights, would be diluted by a maximum
of 31.45%. The cum rights in the regular market is set for 10 Nov, with a
recording date of 16 Nov. Wijaya Karya would use 70.8% of the proceeds to
finance its government priority projects. Having said that, we expect the
exercise to eliminate the overhang on the stock. Moreover, it may have a
healthier balance sheet post rights issue and stronger earnings growth in
FY17F, as its capacity could improve.
¨ Earnings estimates. We expect earnings
to grow 19.7% YoY and 25.9% YoY in FY16 and FY17 (pre-rights issue), supported
by a strong orderbook for this year. We expect its orderbook to grow 63.9% YoY
this year, while the High-Speed Railway (HSR) project is likely to commence in early
2017. We expect its gross margin to be around 11.4% next year as the
construction margin of the HSR project may be lower than that of other
infrastructure projects. Having said that, this project would bump up the value
of its new contracts to c.IDR16.7trn.
¨ Orderbook. Up to now, Wijaya
Karya has booked IDR25.4trn in new contracts this year, making up 56.4% of our
full-year estimate. This is relatively in line with last year’s 56%, and
reflects seasonality. Thus, we remain confident that the company’s new orders
would reach our full-year estimate – since many projects are scheduled to be
announced at year-end.
We also expect the company to book IDR32trn
in new contracts next year, which would take its total orderbook for FY17 to
IDR93.8trn (+16.6% YoY).
¨ BUY. We reiterate our BUY
call. Our TP of IDR3,370 is based on 22x FY17F P/E, +1SD above the
industry’s 3-year average historical P/E.
¨ Post rights issue valuation. Post rights issue, we expect Wijaya Karya’s improved balance sheet to allow the company to capture more projects going forward. We expect upside potential to its FY17 earnings should this happen. Based on an unchanged FY17F P/E target of 22x, our post rights TP would be adjusted and slightly lower than current TP.
¨ Post rights issue valuation. Post rights issue, we expect Wijaya Karya’s improved balance sheet to allow the company to capture more projects going forward. We expect upside potential to its FY17 earnings should this happen. Based on an unchanged FY17F P/E target of 22x, our post rights TP would be adjusted and slightly lower than current TP.
Kindly click the following link for the full report: Wijaya Karya Persero : Taking The Weight Off Its Shoulders
Dony Gunawan
Assistant Vice
President
Research Analyst – Construction
PT. RHB Securities
Indonesia
