4 September 2017 Utilities Water

Transcription

1 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Vol m Moya Holdings Asia Target Price: Price: Buy SGD0.17 SGD0.12 Undervalued Sole Listed Indonesian Water Proxy Market Cap: USD243m Bloomberg Ticker: MHAL SP Moya is the only listed proxy to Indonesia s water treatment sector, and has become the largest water treatment player in terms of capacity after its acquisition of Acuatico. With its SGD60m cash hoard, we believe it could continue with its acquisition spree to further consolidate Indonesia s private water treatment sector. With rapid forecasted growth and further cost savings initiatives, we believe Moya is substantially undervalued at current levels. Initiate coverage with BUY and DCF-derived TP of SGD0.17 (44% upside), implying FY18F P/E of 13.8x. Sole listed and largest water treatment player in Indonesia. With the acquisition of Acuatico Pte Ltd (Acuatico), Moya Holdings Asia (Moya) is now the largest water treatment player in terms of capacity, with 15,000 litres/second (lps) capacity by This also gives it an advantage, especially when negotiating terms over a buyout of existing smaller players. In addition, IRRs for water projects in Indonesia are attractive, typically at c.15%, double that of a similar project in China. More M&As could be on the way. Its latest acquisition was financed 100% via a bank loan. With more than SGD60m of cash still on its balance sheet, we think that over the near term, there could be more potential acquisitions in the pipeline, which would further boost its explosive growth going forward. Pro-clean water policies set by the local Government. The Government of Indonesia has pledged to reach the universal coverage target of 100% access to safe water and sanitation by It conforms with Law No. 17 year 2007 and Rio+20 commitment, as it is mandated in the National Medium Term Development Plan Current safe drinking water access is only at 67% and improved sanitation access is at 59.71%. Projected FY16-18F NPAT CAGR of 243%. With profits from the Acuatico acquisition, coupled with Moya s existing organic capacity expansion, we think that Moya would likely enjoy a substantial boom in its NPAT, with a projected FY16-18F NPAT CAGR of 243%. This is exclusive of any potential M&A deals in the pipeline, which would further boost its NPAT if executed. Non-revenue water (NRW) a key growth driver. With only 53% of Acuatico s water reaching the masses, the remaining 47% of leakages can actually boost NPAT substantially if more of this NRW can be recovered and sold. This can be done through refurbishing or replacing rusty and leaking pipes as well as other methods. Management will initiate a plan to reduce its NRW by 50% gradually by 2023, which would be very beneficial for Moya as a reduction in NRW would boost its topline and margins extensively given that the majority of gross profit from incremental sales of NRW would likely flow down to PBT directly, and support the renewal of its concessions. Initiate coverage with BUY and DCF-derived TP of SGD0.17. With rapid projected growth, favourable pro-clean water policies, potential M&As, cost savings initiatives and synergies, we believe Moya is undervalued. Initiate coverage with BUY and TP of SGD0.17, implying FY18F P/E of 13.8x. Share Data Avg Daily Turnover (SGD/USD) 2.21m/1.61m 52-wk Price low/high (SGD) Free Float (%) 20 Shares outstanding (m) 2,801 Estimated Return 44% Shareholders (%) Tamaris Infrastructure 61.8 Moya Holding Company 17.4 Omar Ziyad Fekri 0.6 Share Performance (%) YTD 1m 3m 6m 12m Absolute (1.7) Relative (3.8) Source: Bloomberg Source: Bloomberg Moya Holdings Asia (MHAL SP) Price Close Relative to Straits Times Index (RHS) Forecasts and Valuations Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F Total turnover (SGDm) Reported net profit (SGDm) Recurring net profit (SGDm) Recurring net profit growth (%) Recurring EPS (SGD) DPS (SGD) na na na na na Recurring P/E (x) P/B (x) P/CF (x) na na na Dividend Yield na na na na na EV/EBITDA (x) na na Return on average equity (%) Net debt to equity (%) net cash net cash Our vs consensus EPS (adjusted), RHB Analyst Jarick Seet jarick.seet@rhbgroup.com Powered by the EFA Platform 1

2 Financial Exhibits Financial model updated on : Asia Singapore Utilities Moya Holdings Asia Bloomberg MHAL SP Buy Valuation basis DCF-backed TP of SGD0.17. Key drivers i. Riding on Indonesia's water demographics ii. Turnaround water play with rapid organic expansion iii. M&As Key risks i. Political changes ii. Regulation changes. Company Profile Moya Holdings Asia Limited is a Singapore-based investment holdings company that engages in the development of total water solutions. Under the company s Build-Operate-Transfer (BOT) business segment, Moya provides water treatment solutions which include commissioning, operations and maintenance of the water treatment plants. Currently, the company has three ongoing contracts in Indonesia. Financial summary Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F Recurring EPS (SGD) EPS (SGD) BVPS (SGD) Weighted avg adjusted shares (m) 1,267 2,801 2,801 2,801 2,801 Valuation metrics Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F Recurring P/E (x) P/E (x) P/B (x) FCF Yield (%) (5.7) (5.0) (128.0) (2.2) 8.3 EV/EBITDA (x) na na EV/EBIT (x) na na Income statement (SGDm) Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F Total turnover Gross profit EBITDA (1.0) (2.3) Depreciation and amortisation (0.1) (0.2) (10.3) (22.0) (22.5) Operating profit (1.2) (2.5) Net interest (11.5) (34.6) (34.6) Exceptional income - net Pre-tax profit Taxation (0.5) (1.5) (3.7) (11.6) (13.7) Minority interests (0.1) Recurring net profit Cash flow (SGDm) Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F Change in working capital (2.8) (2.0) (34.4) (34.0) (6.1) Cash flow from operations (8.1) (15.5) (13.2) Capex (0.4) (1.0) (410.0) (30.0) (30.0) Cash flow from investing activities (0.2) (1.0) (410.0) (30.0) (30.0) Proceeds from issue of shares Cash flow from financing activities Cash at beginning of period Net change in cash (43.2) (7.1) 27.6 Ending balance cash Balance sheet (SGDm) Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F Total cash and equivalents Tangible fixed assets Total other assets Total assets Total long-term debt Other liabilities Total liabilities Shareholders' equity Minority interests Total equity Net debt (24.2) (59.1) Total liabilities & equity Key metrics Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F Revenue growth (%) Recurrent EPS growth (%) Gross margin (%) Operating EBITDA margin (%) (9.6) (12.6) Net profit margin (%) Capex/sales (%) Interest cover (x) (1.74) (5.52) , RHB 2

3 Investment Merits Undervalued sole listed Indonesian water proxy with explosive FY16-18F NPAT CAGR of 243%. With profits from the Acuatico acquisition, coupled with Moya s existing organic capacity expansion, we think the company would likely enjoy a substantial boom in its NPAT, with projected FY16-18F NPAT CAGR of 243%. This is exclusive of any potential M&A deals in the pipeline, which would further boost its NPAT if executed. In addition, it is the only listed player exposed to the water sector in Indonesia, and would likely be the biggest player in Indonesia by the end of Figure 1: Net profit, net margins and CAGR Source: RHB NRW a key growth driver. With only 53% of Acuatico s water reaching the masses, the remaining 47% of leakages, which are also classified as NRW, can potentially boost NPAT substantially if more of this NRW can be recovered and sold. This can be done through refurbishing or replacing rusty leaking pipes as well as by performing district metering analysis to discover areas where the leaks are located. We expect the local Government to focus on reducing NRW as one of the key considerations for any extension in concessions, which is beneficial for Moya as a reduction in NRW would further boost its topline and margins given that the majority of gross profit from incremental sales of NRW would likely flow down to PBT directly. Management would likely begin works on a plan to gradually reduce NRW by 50% by Much higher IRRs of 15% as compared to China s municipal water treatment projects (IRRs of 8-10%). The IRR for Moya s projects for municipal water treatment projects are about 15%, much higher when compared to similar projects in China, where IRRs range between 8-10%. In addition, tough competition in China continues to put downward pressures on IRRs going forward whereas for Moya, it is currently the first and main mover. There is still a huge proportion of Indonesia s population with no access to clean water, hence with pro-clean water government policies, the IRR for these projects should remain attractive for the next 1-2 years, in our view. 3

4 Figure 2: IRRs for municipal water treatment projects More M&As can be expected very soon. Moya s management believes in growing inorganically as well, and is open to acquisitions to increase its production capacity as rapidly as it can. Given its track record especially after the acquisition of Acuatico, we believe that it is likely to continue to target acquisitions. Its latest acquisition was 100% financed via a bank loan. With more than SGD60m of cash still on its balance sheet, we think that there would likely be more potential acquisitions in the pipeline over the near term, which would further boost its explosive growth going forward. Management had previously revealed that it would be aggressive on the M&A front as Moya aims to be the first mover and the main water player in Indonesia. Figure 3: Moya s projected capacity (lps) Source: RHB Strong organic growth and increase in capacity. Going forward, we expect strong organic growth at Moya itself, with phase 2 expansion for Berkasi completed in Mar 2017, ramping to full off-take by Back in 2016, Moya was selling about 500 lps. The company is currently selling about 1,300 lps and that should likely reach 2000 lps by 2018 after the piping is completed. That would result in revenues and profits at least doubling by end In addition, management is looking to expand into other parts of Indonesia, although its focus would be on Jakarta first. 4

5 Figure 4: Sales and capacity (lps) Source: RHB Pro-clean water policies set by the local Government. The Government of Indonesia has pledged to reach the universal coverage target of 100% access to safe water and sanitation by 2019, and it conforms with Law No. 17 year 2007 and Rio+20 commitment as it is mandated in the National Medium Term Development Plan Current safe drinking water access has only reached 67%, and improved sanitation access is at 59.71%. The Government s policies and goals are in line with that of Moya s and with both heading in the same direction. It would also be positive for Moya to continue to expand organically to help the Government fulfil its plans. We expect the renewal of existing concessions as well as the award of concessions for new areas to be granted with less roadblocks if Moya is willing to comply with the terms laid by the local Government. This would benefit Moya, especially now when it is growing its capacity aggressively. Figure 5: Indonesia s National Medium Term Development Plan Source: Ministry of Public Works And Housing Cost savings and synergies from mergers to further boost bottomline and net margins. We understand that there would be cost savings such as management and human resources cost savings, as well as other synergies from the latest Acuatico acquisition and future acquisitions. We expect USD5-7m of cost savings from the recent acquisition, which would boost its bottomline in

6 Going forward, with plans for more M&As in the pipeline, we expect more cost savings and synergies to contribute positively to the group s NPAT. Management to focus more on investor relations activities. Previously, the management of Moya had focused on expanding production capacity, as well as growing the company s bottomline, without meeting many investors or analysts. We understand that all this would change going forward, with management setting out a portion of their time for investor relations activities, as well as hiring an investor relations firm to help them on this front. We believe this would help realise the stock s true value and bring its share price closer to our TP. Valuation Initiating coverage with BUY call and TP of SGD0.17 DCF-derived TP of SGD0.17 with a 7.7% WACC. We initiate coverage on Moya with a DCF-derived TP of SGD0.17 and a BUY recommendation. Our assumptions are: i. Risk-free rate of 2.75% from the 10-year average yield of the 10-year Singapore Government bonds; ii. Expected market return of 10%, based on Bloomberg s 10-year average return for the Singapore market; iii. Beta of 0.9; iv. Terminal growth rate of 1% Figure 6: Details of Moya's DCF Valuations SGD(m) Total (SGDm) FY17F FY18F FY19F FY20F FY21F Terminal Value EBIT EBIT(1-T) Less: Capex (410.0) (30.0) (30.0) (30.0) (30.0) Add: Depreciation & Amortisation Less: Change in Non-cash WC (34.4) (34.0) (6.1) (1.7) (1.8) FCFF (414.6) Present value of FCFF (384.9) Total FCFF 421 Add : Cash (with IPO proceeds) 63 Less: Value of Debt 0 Target Equity Value 480 No.of shares ( adjusted for acquisiton ) 2, Intrinsic Share Price SGD 0.17 Source: RHB 6

7 Peer Comparison The only listed proxy to Indonesia s water sector with significant growth potential, trading at undemanding valuations. Going forward, contribution from its latest acquisition Acuatico as well as organic growth at its new plant in Berkasi, and the increase in sale of NRW, are expected to boost earnings and margins. In addition, we believe that management would likely continue to go on an acquisition spree to further consolidate Indonesia s private water treatment sector. With such rapid growth going forward and further cost savings initiatives, we expect Moya to chalk a 3-year (FY16-18F) NPAT CAGR of 243%. Lastly, with a current market capitalisation of only USD223m, the stock is effectively trading at only 9x FY18F P/E, with a much better IRR return vs its peers. Moya is also trading at deep discounts of 41% and 60% when compared to its local and foreign peers respectively. Our DCF-derived TP of SGD0.17 suggests FY18F P/E of 13.8x, lower than that of the local listed peers. Figure 7: Peer comparison Note: Share price data as of 31 Aug 2017 Note 2: Data relates to FY18 Source: RHB Figure 8: Water treatment capacity Companies Daily Water Treatment Capacity/m3 Water Treatment Capacity/litres per sec Wastewater Water Recycling Total HYFLUX LTD (include desalination) 1,552,880 72,000 1,624,880 SIIC ENVIRONMENT HOLDINGS LT1 7,929, ,500 8,178,000 CHINA EVERBRIGHT WATER LTD 5,000,000 N/A 5,000,000 CITIC ENVIROTECH LTD 5,500,000 N/A 5,500,000 DARCO WATER TECHNOLOGIES LTD 689, ,000 1,309,320 MOYA ASIA HOLDINGS 1,211,760 N/A 1,211,760 Global Peers BEIJING ENTERPRISE WATER GR N/A N/A 27,000,000 VEOLIA ENVIRONMENT N/A N/A 1,021,918 SUEZ ENVIRONMENT (NORTH AMERICA) 3,157, ,751 3,584,783 Source: RHB estimates 18,806 94,653 57,870 63,657 15,154 14, ,500 11,828 41,491 7

8 Key Risks Execution risks. Water contamination may result in negative performance and buildoperate-transfer (BOT) contracts being terminated and long legal litigations if the facilities are poorly maintained. In 2015, the Jakarta Court ruled against Suez Environment for failing to provide sufficient clean water and had annulled its contracts, with Suez Environment intending to appeal. Political changes may affect future concession renewals. Political changes in Indonesia, especially the change in the governing party, can affect concession renewals for existing projects, as well as the award of new projects going forward. In addition, the political agenda of the party in power would also be important for the continuation of the Government s plan to provide clean water for 100% of its population. Foreign exchange risk. Operating solely in Indonesia while reporting in SGD terms exposes Moya to the risk of the IDR underperforming as well as the fluctuations of the IDR, which can be quite volatile at times. However, it does have a natural hedge as costs are mainly denominated in IDR. Increase in competition may affect IRRs and margins. With the high IRRs in Indonesia as compared to China s for municipal water treatment projects, we think that there may be more competitors going forward, which would eventually cause a downward pressure in IRRs as well as margins. However, the barriers to entry is high as the competitor would need a sizeable amount of financial clout, as well as political connections for concession renewals as well as the winning of new BOT projects. 8

9 Industry Analysis Indonesia s demographics and economic outlook. Indonesia s population is expected to grow at 1% YoY to reach 27.4bn by Based on GDP growth rate of 5%, the Government aims to increase infrastructure expenditure partnerships to cope with rising urbanisation and standard of living. Figure 9: Indonesia s infrastructure budget Source: Indonesia-Investments Increasing government expenditure on infrastructure. The outlook for government spending on infrastructure appears optimistic with plans to spend more in the coming years. President Joko Widodo allocated IDR387.3trn (USD29.8bn) from the 2017 state budget, to further develop the country s infrastructure. Despite the increase in government spending, stiff bureaucracy may hinder performance, in our view. Indonesia s water accounts for 6% of the world s available water. Through abundant rainfall, surface water and underground reserves, Indonesia accounts for 6% of the world s available water. If properly managed, Indonesia s annual rainfall is actually sufficient to cover demand for water consumption. However due to pollution and deteriorating watersheds, most of the water is deemed undrinkable. This escalates the demand for portable water. Figure 10: Population s access to water (m) Figure 11: Urban/rural areas lacking access to clean water % % Access to water Without access Rural Areas Urban Areas Source: WHO/UNICEF Joint Monitoring Programme (JMP) for Water Supply and Sanitation Source: WHO/UNICEF Joint Monitoring Programme (JMP) for Water Supply and Sanitation Indonesia s underdeveloped water segment. In 2015, 32m of Indonesia s population lacked access to clean water sources. That was equivalent to 12.6% of Indonesia s population of which 75% were living in rural areas. The water sector has been treated with lower priority as compared to the gas and electricity sectors, which resulted in the underdevelopment of water infrastructure and capacity. 9

10 Although the Indonesian Government intends to provide full access to water for the entire population by 2019, the debt-laden local water company, Perusahaan Daerah Air Minum (PDAM) coupled with mediocre operating capabilities would hinder development, in our view. Indonesia s low access to clean pipes. A large number of households lack access to main pipes and residents would rather use non-piped water sources, such as wells in their gardens. An estimated 16% of the population depended on pipes that led to mains in Without pipes, water sources would be prone to pollution and water contamination. Of the total amount of consumption of water through main pipes, businesses take up 25%. Figure 12: Main water supply and consumption (lps) Main consumption Production Source: BMI Research Indonesia Supply matching consumption rates but utilisation rates are low. With plans to increase urbanisation and the standard of living, the number of households connected to a main water supply is forecasted to increase. Currently water production matches well with mains consumption. Portable water through main pipes is safer and has a lower risk of contamination. BMI Research Indonesia (BMI) estimates that utilisation rates remain low at 79%, significantly below the potential 100% capacity that the facilities could be running on. Regional efforts deter growth. BMI forecasts that the water segment in Indonesia would grow at an average rate of 4.5% during Despite rapid urbanisation, which would cause demand for water and sanitation to increase, growth in the water sector would still lag behind other utilities. This is attributed to: i. Underinvestment in the sector; ii. Attempts to decentralise responsibility. However, the number of projects is increasing as the Government has targeted for 100% water and sanitation connections by A key reason for Indonesia s underdeveloped water infrastructure is attributed to the role of regional water companies known as Perusahaan Daerah Air Minum (PDAMs). After decentralisation reforms took place, the implementation of water policies was left to local governments. Their responsibility was to provide clean water and proper sanitation to the people through their PDAMs, which acted as regional water companies with the aim of setting up water treatment plants. There are about 383 PDAMs, of which BMI estimates that only 4% have more than 50,000 connections, with most areas at below 10,000. Low tariffs not able to cover high costs. Companies operating in the water sector typically have highly capex intensive structures, which incur high operating costs. Even so, tariffs remain low in order to subsidise and cater for the low income household groups. Local politicians are often reluctant to raise tariffs imposed. This has led to PDAMs facing monetary difficulties as they are unable to meet operating expense requirements. It is estimated that only 51% of PDAMs are considered financially healthy by the Ministry of Public Works while the rest are operating at a loss with insufficient funds for capital expansion or upgrading. In addition, due to the nature of PDAMs being highly decentralised, most have no direct links with the Federal Government, with only regional links. As a result, a national-level initiative does not necessarily filter down to these PDAMs, further aggravating the lack of funds. 10

11 Figure 13: Energy and utilities infrastructure data (Indonesia ) Energy and utilities infrastructure data (Indonesia ) 2016E 2017F 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F 2026F Energy and utilities infrastructure industry value real growth, % YoY Power plants and transmission grids infrastructure industry value real growth, % YoY Oil and gas pipelines infrastructure industry value real growth, % YoY Water infrastructure industry value real growth, % YoY Source: BMI Figure 14: Water production, WATER PRODUCTION, E 2015F 2016F 2017F 2018F 2019F Total water production, mn m3 3, , , , , , , ,400.4 Total water production, % y-o-y Total water production, litres per person/day Total water production, litres per household/day Source: BMI The National Medium-Term Development Plan (RPJMN). With the aim of becoming one of ten major world economies by 2025, the Indonesian Government has come up with the Masterplan for Acceleration and Expansion of Indonesia s Economic Development (MP3EI). The RPJMN is Indonesia s medium-term plan, which is part of the overarching goals of the Government of Indonesia to spur the economy. One of which includes a high degree of cooperation between four groups Central Government, local Government, state-owned enterprises (SOEs), and the private sector. The latter has a vital role to play in the form of public-private partnership (PPP) schemes. PPP in the water sector. With the goal of providing access to safe water for the entire population, Indonesia is seeking to elevate efforts by introducing market-friendly reforms in order to attract private companies. Several PDAMs, in an attempt to address high operating costs, have worked with private companies to operate and invest in water infrastructure. This led to rise in the number of water supply companies, which BMI estimates to be about 540 companies in Figure 15: Indonesia Infrastructure development targets Targets F Connectivity National road condition 94% 100% Logistics cost 23.5% of GDP 19.2% of GDP Public transport market share 23% 32% Basic Infrastructure Electrification ratio 81.50% 96.90% Power consumption per capita 843kWh 1,200kWh Household gas network 102,000 (SR) 192,000 (SR) Access to drinking water 68.50% 100% Access to sanitation 60.50% 100% Slum area 12.50% 0% Housing backlog 13.5mn 6.8mn Water Supply Source: BMI INDONESIA - INFRASTRUCTURE DEVELOPMENT TARGETS Water supply capacity 51.4m3/sec 1,118.6m3/sec Per capita storage capacity 62.3m m3 Reservoir-based irrigation 11% 20% Irrigation network coverage 7,145mn ha 7,914mn ha Flood prevention design 5-25 years years 11

12 Making the water sector more attractive for investments. With rapid urbanisation, there is an increasing need for infrastructure development to support economic growth. To cope with this, the Indonesian Government has prioritised attracting private investment and expertise. It has taken steps to make investment more attractive through: i. Simplifying the procurement process; ii. Providing government guarantees on private investment. Indonesian Government taking steps to simplify procurement process. Given the importance of attracting private investment into the water sector, the Government has taken appropriate steps to simplify the procurement process. This was done through the establishment of regulation and policy frameworks. Figure 16: Regulation and policy framework Source: Ministry of Public Works and Housing Directorate General of Human Settlements Government guarantee on private investment. The Indonesian Infrastructure Guarantee Fund (IIGF) was established with the purpose of guaranteeing the risk borne by the co-operations. IIGF is an independent SOE which is 100% owned by the Indonesian Government. It was established to provide guarantees, with the aim of reducing the risks borne by private investors. It is designed to be credible and it is the sole provider of government guarantees in Indonesia. Figure 17: The role of Indonesia s Infrastructure Guarantee Fund (IIGF) Source: Ministry of Public Works and Housing Directorate General of Human Settlements 12

13 Company Background Moya is a Singapore-based investment holding company that engages in the development of total water solutions. Under the company s BOT business segment, Moya provides water treatment solutions which include commissioning, operations and the maintenance of water treatment plants. Currently, the company has three ongoing contracts in Indonesia. 25-year BOT contracts. The main source of revenue comes from BOT contracts that Moya, through its subsidiaries, has secured. The duration of each BOT project is 25 years, starting after the first sale of drinking water. The contracts can be terminated before the end of term or extended if necessary. These contracts are usually an arrangement between the Government and the private sector, where the private contractor builds, operates and eventually transfers ownership to the Government. Figure 18: Key milestones Date Event 2011 Moya Indonesia was established to oversee operations in Bekasi Jaya, Tangerang 2012 Secured the 25-year BOT Tangerang Project 2013 Relisted on SGX-Catalist as Moya Holdings Asia Limited 2015 Successfully sold its Cambodian subsidiaries after completing its engineering, procurement and construction (EPC) projects 2016 PT Moya Indonesia and Maynilad Water Services Inc agreed to establish a joint venture to provide water and wastewater services in Indonesia 2017 Entered into a Memorandum of Understanding with the Government of Bekasi City with regards to the development of a water supply system in Bekasi City, RHB Company structure. Moya comprises: i. PT Moya Bekasi Jaya (95% owned) ii. PT Moya Tangerang (95% owned) iii. PT Moya Makassar (95% owned) iv. Acuatico Group PT Moya Bekasi Jaya (MBJ). Currently in its sixth year of commercial operation, the Bekasi project is a 25-year BOT contract with the local water authority PDAM. The plant currently serves two districts North and South Cikarang with approximately 2.8m customers, out of which only 27% are served with clean water. Recently, MBJ completed the construction of a new water treatment plant capable of treating 500 lps in Feb MBJ had also completed the construction of a new 2 x 2,000cu m reservoir in Villa Mutiara Cikarang. Figure 19: Location of PT Moya Bekasi Jaya Source: RHB 13

14 Figure 20: Water source Source: RHB PT Moya Tangerang (MT). Currently in the third year of commercial operations, MT is another 25-year BOT project with PDAM. This project is an amalgamation of an existing plant and a new capacity constructed by Moya. The location of this project is right beside the Cisadane River, where a 10-gate dam, which was constructed by the colonial Dutch, provides the water supply. In Mar 2016, MT signed a second amendment to the cooperation agreement with PDAM Tirta Benteng Kota Tangerang, whereby it would focus on water supply in zone 1. The capacity at MT increased by 200 lps through an uprating process, which was completed in Figure 21: Location of PT Moya Tangerang Source: Company 14

15 Figure 22: Company structure PT Moya Makassar. Poised to commence construction of its water treatment plant in Acuatico group. Acuatico Pte Ltd is a holding company incorporated in Singapore. The group was established for the main purpose of developing and managing the water infrastructure development projects in Southeast Asia. It currently holds investment projects in Indonesia. The group has three subsidiaries: i. PT Aetra Air Jakarta; ii. PT Aetra Air Tangerang (AAT); iii. PT Acuatico Air Indonesia (AAI). Figure 23: Facts on Acuatico Total volume of water processed at Acuatico WTP Total length of water mains installed Total population served Total customers served Total volume of water sold in ,985 lps 6,007 km 4.5m people 467,000 households and 4,880 industries 301.6m cu m 15

16 Figure 24: Infographic about Acuatico Figure 25: Regions where Acuatico group operates 16

17 PT Aetra Air Jakarta. Formerly known as PT Thames Pam Jaya (TPJ), it manages, operates and maintains water services and investments in Eastern Jakarta to enhance service coverage. Maintenance of water service and investments is based on a Cooperation Agreement with the Jakarta Regional Water Company (PAM Jaya) for 25 years. The partnership is effective from 1 Feb 1998 to 31 Jan Figure 26: PT Aetra Air Jakarta s milestones PT Aetra Air Jakarta s facilities. It has a total of two water treatment plants (WTP) with a total capacity of 10,500 lps. The total network of pipes extends up to 6,200km consisting of one distribution centre, three booster pumps, and three inline booster pumps. Total customers as at May 2017 stood at 439,791. Figure 27: PT Aetra Air Jakarta s facilities No. Aetra Air Jakarta Facilities 1 2 WTPs (Total capacity: 10,500 lps) 2 1 Distribution center 3 3 Booster pumps 4 3 Inline booster pumps 5 2 Strategic Business Units (SBUs) 5 (i) 13 Area Business Units (ABUs) 5 (ii) 76 cells 6 6,200km pipe networks PT Aetra Air Jakarta s organisational structure. The company is led by President Director Mohamad Selim, who is in charge of the strategic business unit, human capital and assurance. As of Jun 2017, the group had a total of 1,071 employees. 17

18 Figure 28: PT Aetra Air Jakarta s organisational structure Figure 29: PT Aetra Air Jakarta s top customers Top Key Customers Ancol Metito Bimoli Bogasari Frisian Flag Business process raw water source, treated water process and production capacity. The company does a full suite of services from the production process to the collection of payment process. With its two WTPs, it has a total capacity of 10,500 lps. Coupled with the 6,200km pipe network, it is able to reach the Northern and Eastern parts of Jakarta, serving an estimated of 439,791 customers as of May The company retrieves water from seven water channels. It has water pipes distributed among the channels, which connect to the Cawang Intake and Pumping Station. Over the last nine years, production volume has increased to 9,875 lps in 2016 from approximately 8,500lps, gaining a total of 16%. This is still well within the range of its total production capacity of 10,500lps in Figure 30: PT Aetra Air Jakarta s business process 18

19 Figure 31: PT Aetra Air Jakarta s raw water source and treatment process Figure 32: PT Aetra Air Jakarta s production (lps) Distribution to end customers. Over the years, PT AetraAir Jarkata has steadily increased its network of pipelines to a total of 6,182km in 2016 from 5,605km in 2008, representing a 10% increment. This has resulted in a greater reach to the end customer, which saw volume billing growing at 5% pa to 176m cu m from 124m cu m. The number of connections has risen in tandem with the increased network of pipeline, growing to 436,000 from 379,000, representing a 2% growth pa. Figure 33: PT Aetra Air Jakarta s total pipe network (km) Network (km) Difference Trunk main Sekunder Tersier Total Source: RHB 19

20 Figure 34: PT Aetra Air Jakarta s number of connections ('000) Figure 35: PT Aetra Air Jakarta s volume billed (m cu m) % p.a % p.a Number of connections ('000) Volume billed (mn m3) Declining NRW. In addition to the increased network and volume billed, the company has managed to achieve a declining NRW over the same period to 44% from a high of 53%. Figure 36: PT Aetra Air Jakarta s NRW (%) 60 2% p.a NRW (%) PT Aetra Air Tangerang. It is the first private water company in Indonesia that produces tap water with drinking water quality. The company has two WTPs with a total capacity of 900 lps. It has a reservoir with a booster pump, accompanied with five payment points. The total pipeline extends across 708km. It currently services eight areas as shown within the red dissected areas in Figure 36. Figure 37: PT Aetra Air Tangerang s facilities No. Aetra Air Tangerang 1 2 WTPs (Total capacity: 900 lps) 2 Intake Building 3 Reservoir and Booster Pump 4 Head Office 5 5 Payment Point 6 708km pipe networks 20

21 Figure 38: PT Aetra Air Tangerang s service areas Key management team. The company is led by Edy Hari Sasono, who has decades of experience in the water sector. The personnel listed in Figure 37 are some of the key management team who are directly under his supervision. Figure 39: PT Aetra Air Tangerang s key management team 21

22 Figure 40: PT Aetra Air Tangerang s top customers Top Key Customers Industry Domestic Mayora Jaya Property Forisa Biz Point Indofood Eighty Eight So Good Food Lion Air Japfa Nestle CNI Swallow Globe Brand Tora Bika Rinnai Inoac TSC PT Sunthi Sepuri St. James Indo Tirta Abadi Ching Luh Lelco Propan PT Halim Samudra Interutama Business process. The company provides a whole suite of water solutions from the production of treated water from raw water, to the collection of payment. As shown in Figure 39, raw water is derived from one of the channels, treated along the WTP and distributed to customers via the distribution pipe network. It currently services eight areas. Production volume and capacity have risen steadily over time reaching a high of 594 lps and 900 lps respectively. Figure 41: PT Aetra Air Tangerang s business process 22

23 Figure 42: PT Aetra Air Tangerang s production (lps) Distribution to end customers. A total of 659.1km of new pipes has been developed during This effectively led to the increase in connections to 55 from 10, translating to a 118% growth pa. Volume billed has also increased in tandem with the number of connections, growing by a staggering 420% pa to 17.8m cu m in 2016 from 1.0m cu m in The percentage of NRW has also declined during the same period to 4.6% from 10.5%, representing a decrease of 14% pa. Figure 43: PT Aetra Air Tangerang s total pipe network (km) Network (km) Difference Primer Sekunder Tersier Total Source: RHB Figure 44: PT Aetra Air Tangerang s number of connections ('000) Figure 45: PT Aetra Air Tangerang s volume billed (m cu m) % p.a Number of connections ('000) % p.a Volume billed (mn m3) 23

24 Figure 46: PT Aetra Air Tangerang s NRW (%) % p.a NRW (%) PT Acuatico Air Indonesia (AAI). In 2013, AAI commenced its operations to supply water to the Rasuna Epicentrum area a 35-hectare business district. Water customers in that particular area comprise tenants in high rise buildings (offices, commercial establishments and apartments) which carry higher water tariffs. Supplying water to this area is done through an independent distribution network. It has a 30-year contract with PT Bakrie Swasakti Utama (BSU). The company is led by President Director, Chai Kam Cheong. It has a total of 43 employees as of Jun Figure 47: PT Acuatico Air Indonesia s key management team Figure 48: PT Acuatico Air Indonesia s top five customers Top 5 Key Customers 1. Apartemen Taman Rasuna 2. Bakrie Pesona Rasuna- Pasar Festival 3. JO. Wahana Nusantara & Bakrie Swasakti Utama (Cemindo) 4. Epicentrum Walk Building 5. The Wave Volume billed and total number of connections. Since the company started operations, the total number of connections has increased steadily to 11 from 6. With greater spread, it has resulted in the total bill increasing to 799,000 cu m from 366,000 cu m during the same period. NRW over the same period has declined to 1% from 2% between

25 Figure 49: PT Acuatico Air Indonesia s number of connections and volume billed Figure 50: PT Acuatico Air Indonesia s NRW (%) Volume billed ('000 m3) (LHS) No. of connections (RHS) NRW (%) Committed management team. In 2016, it made some changes to its management team. It brought in industry experts to join Moya in Indonesia, showing their commitment towards growth and expansion. The new additions include Mrs Cecilia Aryani, Mr Benny Nugroho, Mr Muhammad Fajri and Mr Richard Touw. 25

26 Figure 51: Moya Holdings Board of Directors and Key Management Team Source: Company 26

27 Figure 52: BOT projects in Indonesia Source: Company, RHB 27

28 SWOT Analysis Experienced management team with extensive industry expertise Strong backing from the Salim group, which has strong financial clout and political backing Relatively high IRRs of 15% and above Execution risks Higher cost of funding Competition may toughen up M&A opportunities with other players in Indonesia Indonesia s Government is keen on increasing access to clean water Concession expiring for existing foreignmanaged players High industry and geographic concentration Vulnerable to changes in government policies Forex risks High capex needed Recommendation Chart 0.16 Price Close Sep-12 Dec-13 Mar-15 Jun-16 Source: RHB, Bloomberg 28

29 Utilities Water RHB Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/- 10% over the next 12 months Take Profit: Target price has been attained. Look to accumulate at lower levels Sell: Share price may fall by more than 10% over the next 12 months Not Rated: Stock is not within regular research coverage Investment Research Disclaimers RHB has issued this report for information purposes only. This report is intended for circulation amongst RHB and its affiliates clients generally or such persons as may be deemed eligible by RHB to receive this report and does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. 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