Sector update:
Construction (Overweight)
Building On a Stronger Earnings Outlook
Construction (Overweight)
Building On a Stronger Earnings Outlook
We
remain confident on Indonesia’s construction sector, as most of the state-owned
contractors exceeded their new contracts targets in 2016. Thus, earnings
visibility should remain high for 2017. Waskita Karya is the top performer in
2016 with IDR71trn in new contracts, above our estimate. Pembangunan Perumahan
and Wijaya Karya also exceeded their 2016 new contracts targets. Given strong
earnings visibility, reasonable valuations and robust earnings growth outlook ,
Waskita Karya and Pembangunan Perumahan are our sector Top Picks.
♦ Strong new contracts
collection from Waskita Karya Persero (Waskita Karya). The
company recorded IDR71trn (+121.9%) in new contracts in FY16, beating our
IDR65trn estimate. We expect the company to carryover c.IDR80trn worth of
contracts in FY17. We believe the company would generate c.IDR24trn revenue and
IDR1.6 – 1.7trn net profit in FY16F, in line with our estimates.
As announced in the press, Taspen (pension
fund) and Sarana Multi Infrastruktur are set to buy a 13% and 16% stake
respectively in Waskita Toll Road, a subsidiary of Waskita Karya. The
transaction is expected to be completed in 1Q17, pending Taspen’s approval from
the Ministry of Finance. Based on our channel checks, the deal values Waskita
Toll Road at c.1.5x FY17F P/BV. We see this as a positive transaction for
Waskita Karya, as this values its 29% stake at IDR3.5trm. This would ease the
company’s debt burden which should allow it to develop more toll road projects.
♦ Expect a stronger
FY17F NPAT from Pembangunan Perumahan Persero. The company recorded
IDR32.6trn in new contracts in FY16, higher than our estimate of IDR31trn. We
expect it to secure IDR38trn in new contracts in FY17, driven mainly by power
plant, seaport, and building projects. Given its solid orderbook, we expect its
NPAT to grow a strong 55.1% YoY in FY17F.
♦ Wijaya Karya Persero
(Wijaya Karya) new contracts beat our estimates. Wijaya Karya
obtained IDR54.8trn (+112.7% YoY) in new contracts in 2016, higher than our
estimate of IDR50trn. The biggest additions were from the Jakarta – Bandung
high speed rail (HSR), Jakarta inner city light rail transit (LRT), Gempol -
Poring toll road, Sorong toll road and 250MW Sumbagut-2 Peaker power plant
projects. This year, we estimate its new contracts to hit IDR36trn,
implying a 20% YoY FY17 orderbook growth.
♦ Higher than expected
new contracts wins for Wijaya Karya Beton in FY16F. Management
indicated that it has secured IDR6.1trn in new contracts in FY16, 38% higher
than our IDR3.8trn estimate. As most of the new contracts were finalised end
FY16, we expect positive revenue and earnings impact to be reflected in FY17F.
We forecast the company to achieve IDR3.5trn and IDR250-280bn in
FY16 revenue and NPAT respectively. For FY17F, the company targets to
collect IDR6.3trn in new contracts. This exclude potential contracts from
China’s portion of the HSR project which is worth c. IDR1.5trn.
♦ Maintain OVERWEIGHT. We forecast
solid new contracts growth and stronger earnings outlook in FY17 for the
sector, driven by a larger infrastructure budget (+26% YoY) and stronger
balance sheet of the big four state-owned contractors given that they have all
been recapitalised by the Government in 2016. We are confident of the
Indonesian construction sector in 2017 and recommend Waskita Karya and
Pembangunan Perumahan as our Top Picks. Waskita Karya is expected to generate
strong FY17F NPAT growth of 35% YoY and has the highest earnings visibility
amongst its sector peers in Indonesia. Pembangunan Perumahan is the cheapest
state-owned contractor with strong FY17F NPAT growth of 55% YoY and high
profitability.
Kindly click the following link for the full report: Building On a Stronger Earnings Outlook
Best regards,
Dony Gunawan
Assistant Vice
President
Research Analyst – Construction
PT. RHB Securities
Indonesia
Disclaimer: This message is intended only for the use of the
individual or entity to whom it is addressed and may contain information that
is confidential and privileged. If you, the reader of this message, are
not the intended recipient, you should not disseminate, distribute or copy this
communication. If you have received this communication by mistake, please
notify us immediately by return email and delete the original message.
This message is transmitted on the condition that the recipient accepts the
inherent risks in electronic data transmission and agrees to release RHB group
and RHB Securities from any claim which the recipient may have as a
result of any unauthorized duplication, reading or interference with the
contents herein. The contents herein are made in the personal capacity of the
above-named author and nothing herein shall be construed as professional advice
or opinion rendered by RHB group and RHB Securities or on its behalf.
