RHB Indonesia - Engineering and Construction - Time To Rise (Indofood CBP, Matahari Putra Prima) Unknown Jumat, 24 Maret 2017




Good morning,
Engineering and Construction – Time To Rise 
We see a good entry point for Indonesia’s construction sector as it underperformed YTD by - 3% relative to the JCI, dragged down by a poor share performance of PTPP. We highlight PTPP as our top pick, while being a laggard (-10% YTD), as its fundamentals remained intact. We maintain NEUTRAL on Adhi due to its uncertainty on LRT’s payment and a loss from EPC up to IDR250bn. Although showing a strong performance, we also recommend NEUTRAL on Wika due to its expensive valuation, single digit growth and ROE.

*We recommend BUY on Pembangunan Perumahan (PTPP). As PTPP’s share price dropped by nearly 10% YTD, we see this as a good entry point as the company’s fundamentals remain intact. Its new contracts collection also show progress with IDR6.6trn in mid of March, 16.5% of our FY forecast, much improved compared to last year.
*Currently, the stock is trading at 13.8x FY17F P/E, -0.45SD from its average historical forward P/E and c. 21% discount to Adhi Karya (ADHI IJ, NEUTRAL, TP: IDR2,100); historically PTPP traded at higher valuation to Adhi. At the current level, we consider the stock a bargain in the construction sector, as it is supported by strong earnings growth of c. 46% and a margin expansion to 15.2% in FY17F due to a higher contribution from EPC projects.

*Adhi Karya has recorded a sluggish new contracts collection of IDR1.5trn up to Feb 17, down 11.8%YoY from the same period last year. In addition, although the company signed the LRT Greater Jakarta Phase 1 worth IDR23.3trn, the payment scheme of the project has not been finalised and requires further discussion among related SOEs (Adhi, KAI and potential lenders) and government. Based on the latest information, the government will revise the presidential decree issued regarding the LRT project which will make KAI (State owned train operator) the main investor of the project, instead of the Ministry of Transportation. KAI expects to receive capital injection from government worth IDR5.6trn and seek another financial arrangement including a bank loan afterwards. In order to do a capital injection into KAI, the government has to revise first its 2017’s State Budget. Assuming the parliament agrees to it, the government may complete the revised budget in June. Thus potentially, the payment scheme may be completed after KAI receives a fund injection from the government. As a result, we maintain our NEUTRAL call on Adhi as its high uncertainty in the LRT payment system and a potential loss from the EPC projects up to IDR250bn this year may drag down Adhi’s earnings potential.
*Strong new contract collection from Wika. Wijaya Karya (WIKA IJ, NEUTRAL, TP: IDR2,600) booked strong new contracts of IDR14.5trn (+517%YoY) mainly from infrastructure & building and EPC projects. However, the stock is currently the most expensive trading at 20.0x FY17F P/E with single digit earnings growth and ROE expected this year.
*PTPP as top pick. We maintain OVERWEIGHT on the sector as we see the overall earnings growth is still attractive at 38.7% in FY17F. PTPP as our top pick in the construction sector as it is supported by a healthy balance sheet, cheap valuation, stable growth; potential IPOs from its parent entity will likely trigger higher growth for the company. We also like Waskita and assigned it as a second top pick due to its high growth earnings visibility which is the highest in the market right now with total orderbook of more than IDR150trn in FY17F. (Dony Gunawan)
Link to report: Time To Rise
Link to Daily report: Indonesia Morning Cuppa 240317


Results Review:

Indofood CBP’s FY16 earning came in line

Indofood CBP’s FY16 earning came in at IDR3.6trn, grew 20% YoY which was driven by improved EBIT margin, in line with our and consensus estimates. EBIT margin widened to 14.3% in FY16 (versus 12.3% in FY15). In 1Q17, we see that EBIT margin to improve further thanks to higher ASP. In January, on our ground checks, Indofood CBP’s popular products, Indomie Kari Ayam and Indomie Goreng Specials’ retail selling price increased by 4.7% MoM and 5% MoM respectively. RTD-tea Ichi Ocha’s retail sellling price also raised around 10%. However, this ASP may be on the expense of slower sales volume growth. We maintain BUY with DCF-based TP to IDR10,200 (16% upside), implying 27x/21x FY17F-18F P/Es. (Andrey Wijaya)

Matahari Putra Prima (MPPA IJ, NR) published weaker than expected FY16 results, profit reached 58% of street expectations.
Operating was relatively good with revenue, gross profit and EBIT landed 97%, 100% and 110%of street estimates. However rising tax costs, despite of lower revenue and operating profit, sink the bottom-line figures. We understand that the company still sees weak performance in the early 2017. (Stifanus Sulistyo)

Media Highlights:

Corporate

Surya Semesta targets IDR3.3trn of new contracts
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Lippo Karawaci releases two Siloam hospitals to REIT, announces dividends
Mitra Pinasthika Mustika sells 20% stake in subsidiary worth IDR453bn
BPJS prepares IDR5trn for house financing
OJK to lure startups to go public

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Best regards,

Helmy Kristanto
Director
Head of Indonesia Research
PT. RHB Securities Indonesia
DID: (6221) 2970 7056
Fax: (6221) 2783 0777

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