RHB Indonesia - Adhi Karya Persero - Waiting For The Sun To Rise Unknown Senin, 24 Juli 2017



Good morning,

Adhi Karya Persero – Waiting For The Sun To Rise

We upgrade our call on Adhi Karya to BUY (from Neutral) with a new IDR2,700 TP (from IDR2,100, 27% upside) as we rollover our valuation to FY18F. Our TP is based on 13x FY18F P/E, -0.5SD from its 5-year historical average. Given recent progress, we see more clarity on the Greater Jakarta LRT project. Thus, we expect the firm to record FY18 revenue from this project of up to IDR9trn (FY17F: IDR5trn). Therefore, its FY18 net profit growth ought to stand at +50% YoY. We also expect higher gross margins of 12% next year, after wiping out losses from EPC works and receivable impairments of ~IDR400bn.


¨ Greater Jakarta Light Rail Transit (LRT) update. Despite ground breaking being held 9 Sep 2015, the Greater Jakarta LRT’s physical progress has only reached ~20%. However, we note that the contract was just granted this year, while the payment scheme has yet to be signed. Moreover, after the Government devolved the project’s ownership to state-owned railway firm PT Kereta Api Indonesia (KAI), it and Parliament granted a IDR2trn fund injection to KAI in the revised FY18 state budget in order to finance the project. A further injection of up to IDR3trn was also indicated for State Budget 2018. Having said that, KAI is set to reallocate IDR2trn from the Government’s 2015 fund injection (initially for a railway project in Sumatera). It is also seeking bank loans of up to IDR18trn that could be completed in November to finance this project. Consequently, the first payment would occur in 4Q17 at the earliest.
¨ Current performance. We estimate Adhi Karya’s NPAT to grow up to 60% YoY in 1H17. This is relatively in line with our estimates, as losses and impairments would mainly be booked in 4Q17. Its cash flow would still be negative, as LRT project payments have not been disbursed. The company said that the results are to be published at the end of this week. New contract performance is still slow, with only IDR5.7trn (-5.5% YoY) in 1H17, which excludes the Greater Jakarta LRT (IDR19.7trn before tax). This made up 31.7% of our FY17 estimate, ie below last year’s 1H seasonality of 36.4%.
¨ FY18 outlook after kitchen sinking in FY17. Adhi Karya targets to recognise up to IDR5trn in revenue from the LRT project this year. The biggest chunk of the project would be recorded next year, with potential revenue of IDR9trn from the LRT project alone. Moreover, management is set to record up to IDR200bn in losses this year from the EPC segment and IDR200bn in receivables impairments. Hence, we conservatively expect higher gross margins of 12% in FY18 (FY17F: 11.4%) despite lower construction margins expectations, as we are vigilant on the LRT’s gross margins. This is as the payment scheme has yet to be approved. Adhi Karya’s current proposal for the Greater Jakarta LRT includes 15% gross margins on the project, while we expect gross margins of ~11-12%. Thus, we estimate FY18 NPAT to reach IDR742bn (+50%YoY).
¨ Upgrade to BUY from (Neutral). We upgrade our call to BUY with a new IDR2,700 TP, as we rollover our valuation to FY18F. Our TP is based on 13x FY18F P/E, ie -0.5SD from its 5-year historical average. The stock is currently trading at 15.3-10.2x FY17F-18F P/Es. (Dony Gunawan)
Link to report: Adhi Karya Persero : Waiting For The Sun To Rise
Link to daily report: Indonesia Morning Cuppa 240717

Media Highlights:

Corporate

BPJS-TK posts 9.49% investment yield
Pembangunan Perumahan has used 11% of rights issuance proceeds
Sido Muncul discussing revenue target revision
HM Sampoerna sees a decrease in sales volume
Bekasi Fajar Industrial has reached 55% target sales in 1H17
Our Recent Publication:
Sector Update: Telecommunications - Promotions Of No Meaningful Impact To XL And Indosat
Sector Update: Coal Mining – Positive Momentum To Build Up
Company Update: Arwana Citramulia – Earnings Should Improve In The Following Quarters
Economics Update: BI Continues To Hold Key Policy Rate In July
Results Review: Bank Mandiri – Time To Rise Again
Company Update: Astra International – Still a Leader Despite Intensifying Competition
Economics Update: Exports And Imports Decline In June Due To Festivity
Corporate News Flash: Waskita Karya – Positive Outlook Ahead
Sector Update: Real Estate – Presales Improved In 2Q17 With Confidence Intact
Sector Update: Engineering & Construction – All Is Well
Link to report: All Is Well


Best regards,

Helmy Kristanto
Director
Head of Indonesia Research
PT RHB Sekuritas 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


Tags:
Labels:
Related