Acset Indonusa Company Focus

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1 Aug 06, 2014 Acset Indonusa Company Focus Maria Renata Biggest construction laggard ACST s share price only up +36%YTD; the most laggard Compared to the SOEs construction and TOTL as its closest competitor, ACST s shares price appreciation is the most laggard. Share price for three out of four listed SOE companies are up 100% or more this year, while TOTL s YTD share price is up by 62% vs. ACST s 36%. ACST also trades at attractive valuation of 11.4 / 9.2x 2014/15PE, cheaper than TOTL at 14.6 / 11.9x 2014/15PE. Gross margin from foundation around 3 times higher than civil work Established in 1995, ACST is a diverse specialist construction firm which provides technical and construction services in building, civil and marine work. Particularly, ACST has a strong reputation as a foundation and ground engineering specialist. Excerptions for ACST are: 1) Gross margin for foundation reaches 25%30% higher than civil work of 8%12%, 2) in FY1013, foundation accounted for 20%37% of revenues (foundation work accounts only 10% of project values, excluding land price), 3) all projects are private from repeated highend customers such as: Pakuwon Group, Agung Sedayu Group, Dua Mutiara Group, 4) healthy balance sheet; ACST has low debts, DER was at range x in the last 4 years, 5) consequently, ACST s net margins stood at ~8% 10%, higher than SOE constructions at 2%4%. Targets for 2014 We are targeting 2014 earnings to grow by 20% YoY supported by strong revenues growth (+24% YoY). For this year, ~57% of ACST s contracts are carryover. Order book (OB) is expected to reach Rp3.3tr (+15%YoY) consisting new contract of Rp1.4tr (12%YoY) and carryover contract of Rp1.9tr (+49%YoY). Massive carryover contract generates strong 1H result (1H14 earnings grew +53% YoY). New contract target shows a negative growth as many projects are on hold due to the election. Hence, 1H14 new contracts obtained reached Rp370bn or ~26% of FY target. Buy with TP of Rp4000/sh and 1.5% dividend yield (cum date: 29 Aug) ACST is currently trading at 1415PE of x, the cheapest compared to SOE constructions and TOTL. Based on DCF valuation (WACC: 13.1%; TG: 5.0%), ACST s TP stays at Rp4000/sh (+48% upside), implying PE1415 of 16.8x and 13.7x. Furthermore, ACST plans to distribute its first dividend on 17 Sep, amounting Rp39.5/sh, given 1.5% dividend yield. Companies Data Year end Dec F 2015F 2016F Sales (Rpbn) 670 1,015 1,254 1,564 1,907 Net profit (Rpbn) EPS (Rp) EPS Growth (%) DPS (Rp) BVPS (Rp) 436 1,120 1,318 1,539 1,823 P/E (x) Div Yield (%) ACST is a construction company with a strong reputation as a foundation and ground engineering specialist. BUY Company Update Share Price Sector Rp4,000 Rp2,700 Construction Price Target Rp4,000 (48%) Stock Data Reuters Code ACST.JK Bloomberg Code ACST.IJ Issued Shares (m) 500 Mkt Cap (Rpbn) 1,312 Avg. Value Daily 6 month (Rpm) Rp895 52Wk range Rp3,150 /Rp1,700 Major Shareholders PT Cross Plus Indonesia 38.5% PT Loka Cipta Kreasi 29.8% Public 31.8% Consensus EPS 14F 15F Consensus (Rp) TRIM vs Cons. (%) (2.7) 1.2 Stock Price 3,500 3,000 2,500 2,000 1,500 1, Volume Price Aug13 Oct13 Dec13 Feb14 Apr14 Jun14 Aug14 4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000, ,000 PT Trimegah Securities Tbk COMPANY FOCUS 1

2 Figure 1. Company structure Tan Tiam Seng Ronnie 100% Cross Plus Project Hilarius Arwandhi Lie Fuena 5% 95% 88.64% 11.36% Cross Plus Indonesia Loka Cipta Kreasi Public 38.45% 0.80% 29.75% 31% Acset Indonusa (ACST) Acset Indonusa Co., Ltd. (Vietnam) 100% 84% 78% 37% Innotech Systems Sacindo Machinery Bintai Kidenko Engineering Indonesia Business Line: Business Line: Business Line: Business Line: Foundation & General construction Farmwork and bekisting system Sales & rental of heavy equipments Mechanical, electrical, & plumbing Source: Company Entering civil work in 2000 Initially, ACST was a foundation contractor; however the economic crisis in 1998 had seizure construction business. Numerous existing and new construction projects were postponed or even cancelled. Therefore, ACST entered civil work projects in 2000 to increase its revenue. Figure 2. Milestones Source: Company PT Trimegah Securities Tbk COMPANY FOCUS 2

3 Figure 3. ACTS s project portfolio Construction projects Jakarta 12 Hotel Harris Hayam Wuruk 1 Pacific place Surabaya 2 Gandaria City 1 Supermall Pakuwon Indah & PTC Surabaya 3 Equity Tower 2 BG Junction 4 Residence 3 Plaza Tanjungan IV 5 The Pakubuwono Signature, House & Town House 4 Imperial Family Club 6 Kota Kasablanka Other areas 7 New British Embassy 1 TS Suites Hotel Mall (Bali) 8 Menara Satrio Office Tower 2 Alila Hotel, Seminyak (Bali) 9 Setiabudi Sky Garden 3 Sun Plaza (Medan) 10 District 8 Senopati 4 The Estella HighRise Residential Development (Vietnam) 11 Centennial Tower 5 Tanjung Jati B Tower Plant Expansion Project 12 Hotel Harris Hayam Wuruk Foundation projects Jakarta 20 St Regis, Jakarta 1 Ciputra World 21 The Tower Jakarta 2 Pacific place 22 SCBD Lot 10, Jakarta 3 Tanjung Priok Access Road E3A 23 Mangkulur Jakarta 4 BII Plaza 24 TCC Batavia Tower 2 Jakarta 5 Bank Indonesia Building "D" 25 Gayanti City Jakarta 6 Menara Sahid 26 Taman Anggrek Residence 7 Graha Niaga II, Jakarta Surabaya 8 Plaza Asia & Sudirman Mansion 1 Wisma Dharmala 9 Pasar Tanah Abang Blok A & B 2 Surabaya Madura Approach Bridge 10 Smesco Promotion & Convention Center Other areas 11 The St. Regis 1 Coal Fired Power Plant in Rembang (Central Java) 12 Menara Satrio Office Tower 2 Tanjung Jati B Coal Power Plant 13 Plaza Sudirman 3 Estella Residential Development (Vietnam) 14 Gandaria City 4 Sun Plaza (Medan) Office Park 5 Plaza Ambarukmo (Yogyakarta) 16 The Pakubuwono Signature, House & Town House 6 Margo City (Depok) 17 District 8 Office Tower 7 Medan Focal Point (Medan) 18 Bahana Office Tower 8 Semen Andalas (Aceh) 19 TTower Jakarta Source: Company PT Trimegah Securities Tbk COMPANY FOCUS 3

4 Most of FY14 contracts are carryover (57%) due to delay on tender offer of new project We expect ACST s OB in FY14 to reach Rp3.3tr (+15% YoY) backed by carryover contract. Carryover contract accounts for 57% of OB since we are expecting negative growth in new contract, due to delay on projects caused by presidential election. New contract is targeted to reach Rp1.4tr (12% YoY), while realization by Jun14 reached Rp370bn or 26% if FY target. Figure 4. OB in 2014 is targeted to grow 15% YoY, backed by carry over contract New contract (Rp bn) Carry over (Rp bn) Realization rate (%) 6,000 5,000 4,000 3,000 2,000 1,000 42% 1,025 36% 35% 1,867 2,873 38% 3,300 40% 3,909 45% 40% 35% 30% 25% 20% 15% 10% 5% % We expect revenues to grow +24% YoY in 2014 and +25% YoY in 2015 Assuming 38% of realization rate in FY14, higher than last year s 35% due to higher carryover contract, we are targeting revenues to reach Rp1.3tr (+24% YoY), which ~40% stemming from foundation work. The portion of foundation work is similar with that of the previous year and same for FY15 assumption. Hence, we are targeting FY15 revenues to grow +25% YoY to Rp1.6tr. Figure 5. Revenues grew by 25% of CAGR0813 Figure 6. Revenues breakdown Construction (Rp bn) Foundation (Rp bn) Construction (%) Foundation (%) 1,800 1,600 1,400 1,200 1, ,564 1, , % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 17% 21% 20% 19% 23% 37% 40% 40% 83% 79% 80% 81% 77% 63% 60% 60% PT Trimegah Securities Tbk COMPANY FOCUS 4

5 Higher gross margin from foundaon service Foundaon work provide beer gross margin at 2530% compared to 8%12% on civil construcon. However, mostly the value of the foundaon accounts for ~10% of the total building cost (excl. land acquision cost). Thus, higher revenues from founda on will li, up ACST s margins. ACTS s net margin stays at ~810%, similar to TOTL. Figure 7. Margins Gross margin (%) Op. margin (%) Net margin (%) 25.0% 20.0% 21.1% 18.7% 17.2% 20.5% 19.6% 18.2% 15.1% 15.0% 11.4% 11.6% 11.2% 13.6% 13.2% 10.0% 5.0% 9.2% 8.5% 7.8% 9.8% 9.5% 9.4% 0.0% Figure 8. Net income to grow 20%YoY in FY14 and 23%YoY in FY15 Net income (Rp bn) PT Trimegah Securities Tbk COMPANY FOCUS 5

6 ACST has a healthy balance sheet ACST had net debt of Rp54bn by Dec13 with interest coverage reached 8.5x. ACST s healthy balance sheet is shown in lower TD/TE and TD/TA (both are below 0.3x) that creates the opportunity for debts raising to finance the expansion and operating exp. Particularly, there is an uptrend for debt throughout 1H14, as shown by higher leverage per Jun14 compared to Dec13; thus still favorable. Figure 9. Interest bearing debt and cash Figure 10. Interest coverage ratio Interest bearing debt Cash Interest coverage ratio (x) Figure 11. Debt to equity (x) Figure 12. Debt to assets (x) Mar14 Jun Mar14 Jun14 PT Trimegah Securities Tbk COMPANY FOCUS 6

7 ACST booked strong 1H14 results Massive carryover contract generates strong 1H result, which are shown from 1H14 revenues growth of 56% YoY and earnings growth of 53% YoY. The result is accounted for 43% of our FY target; compared to last year 1H figure that accounted for 34% of FY13 earnings. However, we maintain our FY target considering the risk from lower new contract obtained this year. New contract obtained in 1H14 reached Rp370bn or ~26% of FY target. Figure 13. 1H14 result QoQ YoY YoY 2Q14/ 1H14/ 1H14/ Rpbn 2Q13 1Q14 2Q14 Chg Chg 1H14 Chg 2Q14F FY14F Cons. % % % % % % Revenue na Gross profit na Operating profit na Net profit na Gross margin (%) (0.6) 18.7 (1.7) Operating margin (%) (0.2) Net margin (%) (0.2) (0.2) Source: Company Will distribute Rp39.5/sh as dividend given 1.5% dividend yield ACST plans to distribute its first dividend on 17 Sep (cum date: 29 Aug), amounting Rp39.5/sh, given 1.5% dividend yield. The dividend payout ratio is ~20%. In the future, ACST will distribute dividend with payout ratio at range 20%40%. PT Trimegah Securities Tbk COMPANY FOCUS 7

8 Buy call with TP of Rp4000/sh (+48% upside) We value ACST with DCF method to arrive at target price (TP) of Rp4000/sh (WACC: 13.1%, TG: 5.0%). Our TP is implying 1415PE of 16.8x and 13.7x. With +48% potential upside, we have a Buy recommendation on ACST, traded at 1415PE of 11.4x and 9.2x. Figure 14. Valuation EBIT x (1tax) (Rpbn) Depreciation Changes in non cash working capital (96) (129) (176) (262) (324) (426) (556) Capex (80) (100) (150) (200) (200) (200) (200) Minority Interest FCFF (45) FCFF growth (%) ,081 1,405 1, (724) (1,007) (1,244) (1,618) (200) (200) (200) (200) Discounted factor Present value of FCFF 46 5 (35) Terminal Value 4,772 Source: Company PV of Terminal Value 1,579 NPV Rp bn 2,029 Cash 2015 Rp bn 128 Debt 2015 Rp bn 162 Net Debt Rp bn 34 Firm value Rp bn 1,995 Outstanding shares bn shares 0.5 Eq. value per sh DCF Rp/share 3,990 Target price (TP) Rp/share 4,000 Current Px Rp/share 2,700 Potential upside/(downside) % 48% EPS Rp/sh Growth (% YoY) % 90.2% 19.5% 23.2% 27.0% P/E current x PEG x P/E TP x PEG x PT Trimegah Securities Tbk COMPANY FOCUS 8

9 ACST s share price is the biggest laggard in the sector Compared to the SOEs construcon and TOTL as its closest competor, ACST s shares price appreciaon is the most laggard. Share price for three out of four listed SOE companies have appreciated doubled from end of the YE13. Figure 15. Comparison Rec. TP Sh. Price PE (x) PE (x) Dividend yield (%) Dividend yield (%) Inc./(dec.) in sh. Price (Rp/sh) (Rp/sh) FY14 FY15 FY14 FY15 (YTD %) WIKA Buy 2,850 2, % PTPP UR (Under Review) UR 2, % WSKT Hold % ADHI UR (Under Review) UR 3, % TOTL na na % ACST Buy 3,500 2, % Average Source: Trimegah research, Bloomberg (for TOTL) PT Trimegah Securities Tbk COMPANY FOCUS 9

10 Income Statement (Rpbn) Year end Dec F 2015F 2016F Revenue 670 1,015 1,254 1,564 1,907 Revenue Growth (%) Gross Profit Opr. Profit EBITDA EBITDA Growth (%) Net Int Inc/(Exp) (5) (16) (14) (12) (14) Gain/(loss) Forex Other Inc/(Exp) 2 (7) Pretax Profit Tax (20) (31) (38) (47) (57) Minority Int. (0) (0) Extra. Items Reported Net Profit Core Net Profit Growth (%) Dividend per Share Growth (%) Dividend Payout Ratio (%) Balance Sheet (Rpbn) Year end Dec F 2015F 2016F Cash and equivalents Other curr. Assets 543 1,013 1,089 1,357 1,653 Net Fixed Assets Other Assets Total Assets 755 1,298 1,459 1,741 2,050 ST Debt Other Curr Liab LT Debt Other LT Liab Minority Interest Total Liabilities ,138 Shareholder's Equity Net Debt/(Cash) Total cap employed ,080 Net Working Capital Debt Cash Flow (Rpbn) Year end Dec F 2015F 2016F Core Net Profit Depr/Amort Others (5) (6) Chg in Working Cap. (27) (273) (75) (96) (129) CF's from Oprs 44 (127) Capex (71) (133) (60) (80) (100) Others (2) (4) (3) (4) (5) CF's from investing (73) (137) (63) (84) (105) Net Change in Debt Others (20) (36) (44) CF's from Financing (36) (44) Net Cash Flow 45 (16) 79 0 (9) Cash at BoY Cash at EoY Free Cashflow (26) (261) Key Ratio Analysis Year end Dec F 2015F 2016F Profitability Gross Margin (%) Op. Margin (%) EBITDA Margin (%) Core Net Margin (%) ROE (%) ROA (%) Stability Current Ratio (x) Net Debt to Equity (x) Net Debt to EBITDA (x) Interest Coverage (x) Efficiency A/P days A/R days Inventory Days na na na na na Interim Result (Rpbn) 2Q13 3Q13 4Q13 1Q14 2Q14 Capital History Date Sales Gross Profit Operating Profit Net Profit Gross Margins (%) Opr Margins (%) Net Margins (%) Jun13 IPO@Rp2,500 PT Trimegah Securities Tbk COMPANY FOCUS 10

11 PT Trimegah Securities Tbk Gedung Artha Graha 18 th Floor Jl. Jend. Sudirman Kav Jakarta 12190, Indonesia t f DISCLAIMER This report has been prepared by PT Trimegah Securities Tbk on behalf of itself and its affiliated companies and is provided for information purposes only. Under no circumstances is it to be used or considered as an offer to sell, or a solicitation of any offer to buy. This report has been produced independently and the forecasts, opinions and expectations contained herein are entirely those of Trimegah Securities. While all reasonable care has been taken to ensure that information contained herein is not untrue or misleading at the time of publication, Trimegah Securities makes no representation as to its accuracy or completeness and it should not be relied upon as such. This report is provided solely for the information of clients of Trimegah Securities who are expected to make their own investment decisions without reliance on this report. Neither Trimegah Securities nor any officer or employee of Trimegah Securities accept any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. Trimegah Securities and/or persons connected with it may have acted upon or used the information herein contained, or the research or analysis on which it is based, before publication. Trimegah Securities may in future participate in an offering of the company s equity securities.