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Good morning,
Delta Dunia Makmur –
Mining Contracting Volume Growth To Continue
Delta Dunia’s 9M17
recurring earnings (excluding a one-off impairment loss provision) of USD64m
(+153% YoY) is above the consensus estimate, but lower than our projection.
We think its mining contracting volume growth should continue in FY18 due to
a new client, ie PT Pada Idi, as well as most of its clients planning to
increase the overburden removal and lift coal production in 2018. We
fine-tuned our net profit forecasts by cutting FY17F-19F earnings by
3.7-14.2%. Maintain BUY, with a TP of IDR1,300 (from IDR1,500, 28% upside).
¨ Volume growth to
continue in 2018.
PT Bukit Makmur Mandiri Utama (Bukit Makmur), Delta Dunia Makmur’s (Delta
Dunia) wholly-owned subsidiary, booked strong growth in 9M17, in terms of
overburden removal (+19.9% YoY) and coal production (+23.4% YoY). This growth
should continue in FY18 due to the combination of a new client, PT Pada Idi,
and as most of its clients plan to increase their overburden removal and coal
production in 2018. In August, Bukit Makmur won a mining contract for a
greenfield project for PT Pada Idi, for 200m bcm and 15m tonnes of coal. In
FY18, Bukit Makmur may ramp up the mining contracting volume for the Pada Idi
project to 24m bcm (vs 2m bcm in 4Q17F) and coal production to 3m tonnes (vs
0 m tonnes in 4Q17F).
¨ 9M17 recurring
earnings are above the consensus expectation, but below our estimate. Delta Dunia booked
9M17 recurring earnings (excluding a one-off impairment loss provision on tax
of around USD32.6m in 2Q17) of USD64m (+153% YoY). This is above the
consensus estimate (88% of FY17 estimate), but below our expectation (70% of
our FY17 projection).
It
was lower than we expected, as its operational costs were above our
expectations. Its 3Q17 recurring earnings was at USD23m (+32%YoY, +30%QoQ),
¨ FCF decreased to
USD51m in 9M17 on the back of higher capex. In 9M17, its FCF decreased to
USD51m (vs 151m in 9M16) mostly due to a higher cash outflow to fund capex in
9M17. It spent capex of USD116m in 9M17 (9M16: USD34m), mostly on heavy
equipmment to accomodate volume growth and to replace a proportion of its heavy
equipment. Its FY17 capex should be around USD170m. Its high capex spending
should continue in 2018, as some portions of its heavy equipment have entered
the replacement cycle.
¨ Maintain BUY, with
a revised TP of IDR1,300. We fine-tuned our assumptions, cut our FY17F-19F
earnings by 3.7-14.2% and revised our DCF-derived TP to IDR1,300 (from
IDR1,500). This is because we extended our DCF forecast period to 10 years
(from 5 years), pared down our sustainable growth rate to 0% from 1% and
lifted our WACC to 10.6% from 9.8%. We also rolled forward our valuation year
to 2018. Our TP implies FY18 and FY19 P/Es of 8.5x and 9x respectively.
Key
risks to our call are a slump in coal prices and other potential, unexpected
expenses. (Hariyanto Wijaya, CFA, CPA, CMT)
Link to daily
report: Indonesia Morning Cuppa 271017
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Economics Update:
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2018 State Budget: Encouraging Investment
and Infrastructure for Growth and Equality
With
Budget 2018 themed “Infrastructure for Growth and Equality”, we believe the
Government is maintaining its agenda in boosting infrastructure for the sake
of its people while improving social welfare. Nevertheless, the fiscal deficit will be contained due to enhanced
revenue performance linked to economic growth and tax reforms. The recently
approved 2018 Budget shows that Government’s measures and incentives are
focused on the following:
1. Strengthening
the quality of spending
2. Optimasation
and reform in state revenue
3. Financing
sustainability
¨ With the looming Presidential
election in 2019, we believe Budget 2018 continues to be people-centric, and
focuses on developing the wellbeing of the people. It’s being reflected in higher
energy subsidies and social spending.
¨ Government expenditure to rise
moderately. The 2018 state budget saw a 9.1% rise in its revenue, which is
higher than a 4.1% hike in its expenditure. As a result,
¨ However, we beg to differ as
we view its projection of income tax from non-oil & gas sector as
optimistic and will likely face disappointment. At the same time, the
government needs to continue spending to support the country’s economic
growth as the election year approaches, forcing it to incur a wider fiscal
deficit of 2.7% of GDP in 2018, in our view.
¨ If the government resorts to
cut its expenditure to make up for the potential shortfall, it could pose a
downside risk to our real GDP growth forecast of 5.3% for 2018.
¨ The budget would most likely
have a positive impact on the construction and consumer sector amid
higher allocation for development spending, along with ongoing large infrastructure
projects. Also, government initiatives to aid spending are expected to
benefit the consumer sector. (Rizki Fajar)
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Media Highlights:
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Corporate
Bank Central Asia
books IDR16.8trn net income
Wika Gedung sets IPO
price range
KKR acquires 12.64%
of Nippon Indosari
Sariguna is
confident to achieve targeted net profit
M Cash
oversubscribed 9.3 times
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Our
Recent Publication:
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Economics Update: BI Pauses In October
After Easing August-September
Link to report: BI
Pauses In October After Easing August-September
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Company Update: Bekasi Fajar – Waiting On
Guidance For 9M17
Link to report: Bekasi
Fajar : Waiting On Guidance For 9M17
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Company Update: Arwana Citramulia – Revenue
Remains Robust Despite Elevated Costs
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Economics Update: September Exports
Moderate, Imports Pick Up
Link to report: September Exports
Moderate, Imports Pick Up
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Sector Update: Building Materials –
Infrastructure Projects Boost Bulk Cement Sales Growth
Link to report: Infrastructure
Projects Boost Bulk Cement Sales Growth
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Company Update: Ciputra Development – Toning Down Our
Forecasts
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Corporate News Flash: Summarecon Agung –
9M17 Marketing Sales Are In Line With Estimates
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Regional Thematic: Halal – An Earnings
Boost Strategy
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Economics Update: September Inflation
Remains Moderate
Link to report: September
Inflation Remains Moderate
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Company Update: Nippon Indosari Corpindo –
Details On Rights Issuance
Link to report: Nippon
Indosari Corpindo : Details On Rights Issuance
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Best regards,
Andrey Wijaya
Senior Vice President
Research Analyst – Auto, Consumer, Cement
PT RHB Sekuritas Indonesia
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