Company update:
Waskita Karya (WSKT IJ; BUY; TP: IDR3,750),
Key Takeaways From Solo-Ngawi Toll Road Site Visit
Waskita Karya (WSKT IJ; BUY; TP: IDR3,750),
Key Takeaways From Solo-Ngawi Toll Road Site Visit
We
visited the Solo-Ngawi toll road located in Central Java. It forms part of the
Trans Java Toll road and is regarded as one of the national top priority
projects. Initially, the toll road was expected to be operational in 2018.
However, given the smooth land acquisition and construction progress, it aims
to open the toll road in Oct 2017. We maintain our BUY recommendation with an
unchanged TP of IDR3,750 (51% upside). This is as the faster land clearing
process would definitely benefit it since Waskita is the country’s second
biggest toll road concession holder.
¨ Solo-Ngawi toll road.
The
project was initiated back in 2009 with a total length of 90km connecting the
cities of Solo and Ngawi city. It was first expected to be operational in 2014.
The toll road is divided into three sections. The first 20.9km
(Kartasura-Karanganyar) was subsidised by the Government using the state
budget. The other two sections (Karanganyar-Mantingan and Mantingan-Ngawi) were
constructed by Solo Ngawi Jaya (SNJ),previously owned by Thiess Contractors
Indonesia (Thiess). However, due to a land acquisition issue, construction was
at a standstill. Hence, Jasa Marga (JSMR IJ, NR) and Waskita KaryaToll Road
(WTR), a subsidiary of Waskita Karya Persero (Waskita), took over the concession
from Thiess in FY15.The Government now expects the Solo-Ngawi toll road to be
completed in FY18. However, given the aggressive infrastructure development
boost by President Joko Widodo, the land acquisition has been expedited as a
result of the new land acquisition law. The toll road is likely to be opened
during the Eid Al-Fitr holiday in 6M17 and fully operational in October
the same year. Construction has now reached 51.56% completion and there are
only around 50 land plots left to be cleared.
¨ Toll road to support
the growth. With
a recent concession signing of the Krian Legun di Bunder toll road, Waskita
currently has around 15 toll roads, most of which are in complete toll roads.
Having said that, we think that Waskita would have the highest earnings
visibility ahead. This is as we expect its total orderbook to likely easily hit
around IDR120trn in FY17, which is sufficient for its revenue for the next
three years. We also think that its imminent plan to divest WTR to Sarana Multi
Infrastruktur (SMI) and national pension fund PT Taspen Persero would alleviate
its burden on cash flow and balance sheet.
¨ Diminishing land
acquisition risk. Given
the new land law in early 2015, we see some progress on infrastructure
development in Indonesia. While execution of the bill was lacking in the first
six months after its issuance, there has been faster progress from the
concession owner and Government in clearing the land area for the projects. We
saw this during our site visit to the 2x1,000MW Batang power plant (Lower Execution
Risk Underpins Positive Outlook)and Solo-Ngawi toll road. The
law stipulates that if there are no counter charges from the land owner within
14 days of the submission of the land value appraisal to the court, an
execution order would be issued to start construction over that land.
¨ BUY with TP of IDR3,750. Maintain OVERWEIGHT
on the construction sector, with Waskita as our Top Pick. As the biggest toll
road contractor in the country, itis slated to be a direct beneficiary of the
faster land acquisition process. We maintain our BUY call with a TP of
IDR3,750, based on 23x FY17F P/E.
Kindly click the following link for the full report: Waskita Karya : Key Takeaways From Solo-Ngawi Toll Road Site Visit
Dony Gunawan
Assistant Vice
President
Research Analyst – Construction
PT. RHB Securities
Indonesia
