RHB Indonesia - Astra International - Expect Astra's Financial Services Unit To Recover - (Astra International, Adhi Karya, Waskita Karya) Unknown Senin, 20 Februari 2017




Good morning, 
Astra International - Expect Astra’s Financial Services Unit To Recover
Bank Permata’s FY16 losses are likely to slow group earnings growth. However, higher earnings from Astra’s automotive, agribusiness and heavy equipment units should partially offset the lower income from its financial units. We reduce our FY16F earnings but keep our FY17F forecast, as we expect its financial services arm to recover this year. In 2017, Astra should also benefit from improved consumer spending, as well as higher CPO and coal prices. Our SOP-based TP drops to IDR9,100 (from IDR9,250, 15% upside) implies 19x/16x FY17/18F P/Es. BUY.

¨ Unexpected FY16 losses from Bank Permata. PT Bank Permata Tbk (Bank Permata) (BNLI IJ, NR) – which is 44.6%-owned by Astra – surprisingly recorded a net loss of IDR6.5trn for FY16. This was driven by substantial new provision allocations for non-performing loans (NPL), which significantly increased in 4Q16. In 4Q16, the bank allocated IDR4.3trn in new provisions for allowances for impairment losses, which pressured FY16 earnings.
¨ The increase in NPL was driven by loans to the manufacturing, agribusiness, wholesale & retail trading, as well as mining sectors. This year, we expect Bank Permata’s NPL to improve – especially for loans given to the agribusiness and mining sectors. These sectors are benefiting from the current increase in commodity prices, such as CPO, rubber and coal prices.
¨ Lower FY16F earnings. Astra’s financial services unit – comprising PT Federal International Finance, PT Toyota Astra Financial Services, PT Astra Sedaya Finance, PT Surya Artha Nusantara Finance and Bank Permata – accounted for 18% of Astra’s 9M16 consolidated earnings. In our calculation, Astra’s financial unit is likely to book a net loss of IDR1.3trn in 4Q16 (from earnings of IDR750bn in 3Q16). Hence, we cut Astra’s FY16F consolidated earnings estimates by 19% to IDR14trn.
¨ Tailwinds ahead. We see strong tailwinds for Astra’s mining, agribusiness and auto arms ahead, driven by:
i. Higher coal prices and slower growth of labour costs for its plantation unit, which may lift earnings;
ii. Its auto business is likely to maintain strong sales growth, boosted by lower financing costs;
iii. Hidden value in its property arm (just launched in Oct 2016) which may be unlocked once its assets start to be monetised.
In addition, in 2017, Bank Permata is likely to book lower new provisions for NPL. The bank’s allowances for its impairment losses coverage ratio increased to 75% at end-Dec 2016 (from 51% at end-Mar 2016).
¨ Maintain BUY with a lower SOP-based TP of IDR9,100 (from IDR9,250, 15% upside) that also implies 19x/16x FY17F/FY18F P/Es respectively. While rising NPLs at Bank Permata are a key risk to our call, our sensitivity analysis indicates its impact on Astra’s value should not be significant. (Andrey Wijaya)
Link to report: Astra International : Expect Astra’s Financial Services Unit To Recover
​Link to Daily report: Indonesia Morning Cuppa - 200217

Results Review:

Adhi Karya Persero (ADHI IJ, Neutral, TP: IDR2,100), Looking Towards a Better Year
We maintain our NEUTRAL recommendation with an adjusted TP of IDR2,100 (from IDR2,085, 6% downside), based on an unchanged target of 15x FY17F P/E. We see a better year for Adhi Karya this year as the LRT contract has been signed, smaller EPC losses and a higher new contracts target estimate of IDR18trn. Having said that, we estimate its net profit to grow 58% with a higher gross margin at 11%. Currently, it is trading at 16.1x FY17F P/E, more expensive than our Top Pick, PTPP.
¨ Update on the light rail transit (LRT) project. Adhi Karya Persero’s (Adhi Karya) finally signed the contract for the LRT Greater Jakarta Phase 1 with a total value of IDR23.4trn last week. However, this contract did not include the payment scheme, thus the Government is expected to complete the payment within 30 days after the contract’s signing. Based on our latest channel checks, the Government is likely to obtain a syndicated loan from state-owned banks and state-owned infrastructure financing company, Sarana Multi Infrastruktur (SMI) to be used as a bridging loan to pay Adhi Karya. The interest expenses would be capitalised. This loan would remain on Adhi Karya’s balance sheet and assumed by the Government upon the project’s completion. However, there are no guarantees that the terms of the payment scheme would be finalised soon as the loan size is quite significant.
¨ Orderbook. Adhi Karya won IDR16.5trn (+18.7%YoY) worth of new projects in FY16, slightly above our estimate of IDR16trn. Nearly half of the new contracts obtained were dominated by building projects. We expect its new contracts to grow to IDR18trn (excluding the LRT project) this year, with infrastructure projects anticipated to contribute more.
¨ Decent growth. Given the additional potential losses of up to IDR250bn this year (vs IDR413bn last year) and revenue recognition of IDR5trn from the LRT project, we estimate its net profit to hit IDR495bn (+38.8% YoY), which translates to only 15.4% CAGR FY15-FY17F. We also expect its margin to improve to 11% in FY17, as losses in its engineering, procurement and construction (EPC) unit is expected to be smaller and 11.8% GM in FY18.
♦ Maintain NEUTRAL. We reiterate our NEUTRAL call and adjust our TP to IDR2,100 based on unchanged 15.1x FY17F P/E. Currently the stock is trading at 16.1x FY17F PE, in line with the current weighted average of the construction sector, and slightly more expensive than Pembangunan Perumahan Persero (PTPP IJ, BUY, TP: IDR5,100). Historically, Adhi Karya traded at a lower valuation than PTPP. (Dony Gunawan)
Company Updates:

Waskita Karya (WSKT IJ, BUY, TP: IDR4,000), Continued Solid Performance Expected In 2017
We have conservatively upgraded our new contracts assumption to IDR70trn (from IDR45trn) and earnings growth to 46.6% YoY in 2017F. We are positive on the recent divestment of its toll road subsidiary, since it would ease its balance sheet to allow investments in other toll road projects. Maintain BUY with new TP of IDR4,000 (from IDR3,750, 56% upside), based on 2017F P/E of 22x as its earnings visibility remains high. Its 2016 earnings beat our and consensus estimates and the company will likely continue its solid performance this year.
¨ Strong pipeline of projects. Waskita Karya (Waskita) successfully won IDR70trn worth of new contracts in 2016, or a total orderbook of IDR109trn (+110.5% YoY) which was above our initial estimates. This year, we are conservatively expecting flat growth in new contracts, below the company’s guidance of IDR80trn. We therefore expect Waskita to secure more than IDR150trn of new projects by the end of this year, which we view as sufficient to generate healthy revenue growth in 2017-2019F.
¨ Solid 2016 results. Waskita’s 2016 net profit reached IDR1.714trn, higher than our/consensus estimates, backed by lower-than-expected interest expense. Revenue stood at IDR23.8trn, below our/consensus estimates as some toll road projects were pushed to this year. GM was at 16.7% (our estimate: 16.3%), supported by high GM of 19.3% in 2Q16.
¨ Robust growth. Despite strong growth in 2016, we remain confident that its stellar performance would continue this year supported by a strong orderbook, which is mainly dominated by toll road projects. We project its earnings to grow to IR2.48trn (+46.4%YoY) in 2017, below the company’s guidance of IDR2.8-3.5trn. We also expect normalised GM of 15.8% in 2017-2018F as GM at its precast & construction services should stabilise at a lower level this year.
¨ Net gearing to remain below targeted maximum level. Waskita has just signed a deal to divest a 29% stake in Waskita Toll Road (WTR) to Sarana Multi Infrastruktur (SMI) (12.4%) and Taspen (pension fund) (16.6%), valued at 1.5x P/BV, which would translate to around IDR3.5trn, and would be injected into WTR. The transaction should ease Waskita’s burden in toll road investment in 2017F. It is aiming to add several toll roads to its portfolio by the end of this year. As a result, the company plans to add up to IDR23trn of debt this year, which we estimate would bring its net gearing to 1.7x, which is still below the maximum 2x set by the company. We therefore believe that its balance sheet should remain safe for this year.
¨ Maintain BUY with a new TP of IDR4,000, offering a strong 56% upside. Our TP is based on 2017F P/E of 22x and backed by its robust growth, coming from toll road projects and good earnings visibility on strong projects backlog. Key risks include infrastructure budget cuts and hurdles in the land clearing process. (Dony Gunawan)

Media Highlights:

Economics

Bank Indonesia revises down CAD projection

Corporates

Malindo Feedmill targets 10-15% YoY sales growth
Bank Tabungan Negara plans network expansion
Sumber Alfaria Trijaya books IDR601.6bn profit
Bank Pan Indonesia records IDR2.52trn profit in 2016
Midi Utama FY16’s net profit surged 40% YoY
Pakuwon Jati to issue bonds worth USD250mn
Steel Pipe Industry of Indonesia to issue bonds
Our Recent Publication:
Economic update: Exports And Imports Pick Up Strongly In Jan 2017
​Link to report: Exports And Imports Pick Up Strongly In Jan 2017
Economic Update: BI May Still Cut Key Policy Rate In 2017
Link to report: BI May Still Cut Key Policy Rate In 2017
Sector Initiation: Retail: Tailwinds Trump Headwinds
Link to report: Tailwinds Trump Headwinds
Results Review: Bank Tabungan Negara: More Good Years Ahead
Economic Update: CAD Improves In 4Q, BOP Surplus Continues
Sector Update: Regional Plantation - Last Round Of El Nino Impact for Malaysia
Sector News Flash: Regional Oil & Gas - One Of The Deepest Cuts In The History Of OPEC
Sector News Flash: Regional Oil & Gas - Production Cut Rollover a Possibility
Economics updates: Inflation On An Upward Trend But Is Still Manageable
Reinitiating Coverage: Mitra Adiperkasa - Sharp Recovery Ahead


Best regards,

Helmy Kristanto
Director
Head of Indonesia Research
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.
Tags:
Labels:
Related