Good morning,
Engineering &
Construction – All Is Well
Government capital
spending up to 1H17 improved vs last year, with IDR47.5trn spent or c.24.4%
of FY17 budget (19.5% in 1H16). Despite indications of tax revenue shortfall,
we still believe potential infrastructure spending budget cuts would not be
an option, as infrastructure spending remains the main focus in Jokowi’s era.
Several state-owned contractors have booked decent new projects collection up
to 1H17, with PTPP and Wika Beton locking in more than half of our FY17F
estimate, above its seasonality. Maintain OVERWEIGHT sector stance with PTPP
as Top Pick.
¨ Decent
progress on government spending. The central Government’s capital spending
reached IDR47.5trn (+7%YoY) in 1H17, accounted for 24.4% of FY17’s budget
(19.5% in 1H16). As the biggest proxy, the Ministry of Public Works and
Public Housing disbursed 29.4% of FY17F’s budget in 1H17, slightly above the
28.9% during the same period last year. We deem this as good progress
considering the one-week Aidilfitri holiday in 1H17.
¨ Infrastructure
spending cut unlikely. The Government recently indicated that the tax revenue
shortfall would be at c.IDR50trn by end-2017 – this could potentially
jeopardise the current Government if the budget deficit exceeds 3%. However,
we believe that infrastructure spending budget cuts are not on the table as
infrastructure remains the main focus for the current regime.
Instead, we believe the Government will
likely cut unproductive spending such as material spending by the central
Government of c.IDR16trn, and take on financing of up to IDR40trn, which
would potentially push its budget deficit up to 2.9% in FY17F. Based on our
channel checks, the Government will likely increase its spending budget for
several ministries in the revised state budget 2017, including raising the
spending budget for the Ministry of Public Works and Public Housing to
IDR104.2trn, from the initial budget of IDR101.5trn.
¨ Superb
performance by PTPP. Pembangunan Perumahan’s (PTPP) new contracts soared to
IDR20.1trn (+44% YoY) in 1H17, more than half to our FY17F estimate. Its new
contracts include the IDR658bn Soekarno-Hatta airport runway, IDR1.1trn
Cisumdawu toll road, and IDR1.1trn 1st phase of
Bakauheni-Terbanggi Besar toll road. We believe PTPP will likely continue its
strong performance given the potential announcement from Angkasa Pura I of
the Kulon Progo Airport project in Yogyakarta under investment partnership,
with potential construction cost of IDR6.7trn. PTPP is also bidding for
several toll road projects such as Probolinggo-Banyuwani, Gempol-Mojokerto
and Semarang-Demak.
¨ Waskita booked
decent new contracts. Waskita Karya obtained IDR32trn of new contracts in
1H17 (45.7% of our FY17F estimates). Although it is below last year’s
seasonality of 64.3% in 1H16, we still believe that it will likely meet its
new contract target by end-2017, supported by its toll road projects. Its
continued divestment of its toll road subsidiary will likely go through in
3Q17 and should boost its cash flow and balance sheet, underpinning its
expansion in toll roads.
¨ Wika Beton’s strong
new contracts and expected stronger 2Q results. Wika Beton booked
strong new contracts collection in 1H17 of IDR2.98trn (+54% YoY), or 54% and
50% of our and its FY17F estimates respectively. Given heavy projected
infrastructure spending seasonality in 2H, we believe our estimates will be
achieved by end-2017. We expect the company to book revenue growth of c.+30%
YoY and NPAT growth of +25% YoY (vs 1% in 1Q17) in 1H17 given revenue
recognition on its railway project in Sumatera (not recognised in 1Q17).
¨ Remain OVERWEIGHT. We continue to like
Indonesia’s construction sector given its solid outlook ahead. Our Top Pick
is PTPP due to its healthier balance sheet post rights issue, diversified
projects, robust growth, and it being the second cheapest state-owned
contractor in the market right now. (Dony
Gunawan)
Link to report: All Is Well
Link
to daily report: Indonesia Morning Cuppa 140717
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Media Highlights:
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Corporate
Cement consumption down by 1.3% YoY in 1H17
Motorcycle sales target lowered
Tower Bersama realizes 40% of new rents
target in 1Q17
Bank Tabungan Negara has channelled
IDR156trn for one million houses program
PP Properti sales realises IDR1,5trn
marketing sales in 1H17
Siloam International Hospital acquires
hospital in Bekasi
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Our
Recent Publication:
|
Sector Update: Engineering &
Construction – All Is Well
Link to report: All
Is Well
|
Sector Update: Plantation – Cautious Mode
On
Link to report: Plantation:
Cautious Mode On
|
Company Update: Bank Negara Indonesia –
Gaining Momentum
Link to report: Bank
Negara Indonesia : Gaining Momentum
|
Strategy: Smoother Homecoming
Link to report: Indonesia
Strategy: Smoother Homecoming
|
Sector Update: Coal Mining – China’s Hydropower Capacity Cut – a
Potential Upside
|
Economics Update: M2 Growth Continues Uptrend, Loan
Growth Moderates
|
Sector Update: Food & Beverage Products
– Potential Impact Of Recent Wheat Price Jump
Link to report: Potential
Impact Of Recent Wheat Price Jump
|
Sector Update: Retailing – Back To School
After The Lebaran Holidays
Link to report: Back
To School After The Lebaran Holidays
|
Economics Update: June Inflation Inches Up Amid
Aidilfitri Festivities
Link to report: June
Inflation Inches Up Amid Aidilfitri Festivities
|
Economics Update: Growth To Strengthen In
2H On Resilient Domestic Demand
Link to report: Growth
To Strengthen In 2H On Resilient Domestic Demand
|
Best regards,
Helmy Kristanto
Director
Head of Indonesia Research
PT RHB Sekuritas Indonesia
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