Indonesia Infrastructure Sector

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1 Rp (tn) 25 April 2017 Asia Pacific/Indonesia Equity Research Building Materials & Construction Research Analysts Ari Jahja Indonesia Infrastructure Sector SECTOR REVIEW Eyes on execution progress Figure 1: Sector revenue growth remains robust, but will decelerate on the back of moderating new contract growth 250, % 200,000 80% 60% 150, ,000 40% 20% YoY growth 50,000 0% -20% E Aggregate revenue Aggregate new contracts Revenue YoY growth New contracts YoY growth -40% Source: Company data, Credit Suisse estimates, the BLOOMBERG PROFESSIONAL service Stay selective despite recent pullback. Valuations are cheaper but we do not expect a rapid re-rating, as the sector faces decelerating new contract growth, business evolution away from being a pure contractor, and rising funding needs. We suggest sticking to names that have a clearer cut catalysts profile, with preferred picks: PTPP > WSKT > WTON. We remain on the sidelines on WIKA as it trades at a premium vs peers. While acknowledging near-term headwinds, we believe Indonesia infra still has the most promising long-term outlook in ASEAN, given its need for massive upgrades (link to Connection Series note). Improving spending momentum and robust new contracts in 1Q17. Despite just a 2% rise in government spending, the Ministry of Public Works and Housing's spending in 1Q17 grew by 14% YoY or 10.1% of the FY17 target. As a reminder, the bulk of Indonesia's capex will be driven by SOEs rather than the government budget. Nonetheless, private inflow would be needed to bolster confidence. Also importantly, President Jokowi has reiterated his commitment on development targets through FY19. Play the positive catalysts. After the recent underperformance, there is room for upside on execution progress. Potential inflection points: PPRO rights issue completion for PTPP (May 2017) and incremental toll road stake sale for WSKT (July). Pertaining to mega projects, we believe the Greater Jakarta LRT could be a financing test case of key government projects. Moreover, land acquisition for the Jakarta-Bandung high-speed rail will be closely watched towards achieving financial closure. The market's appetite on infra subsidiary IPOs (such as PTPP's) will be tested in 2H, but clarity on infra SOE holding formation may take time to play out. Summary of EPS and TP changes. We have maintained a cautious view since Sep-16 (link) due to slowing new contract growth, and now assume lower forward P/Es but not turning incrementally negative. Meanwhile, applied SOTP analysis support mid-teens multiple for the construction business. We fine-tuned forecasts post FY16 results, and revise TPs by 9-17% for PTPP/WSKT/WIKA/WTON to Rp4,065/Rp2,905/Rp2,615/Rp920. DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

2 Forward P/E Premium/discount vs. JCI Index New contracts (Rp tn) Infra budget realization Rp tn 25 April 2017 Focus charts and tables Figure 2: We continue to expect divergent stock performance as sector moves to execution phase Figure 3: Cumulative SOE capex is projected to rise by 37% YoY vs just 5% for the government budget Stock performance % 12M16 new contract achievement vs. guidance 12M16 new contract % YoY growth YTD stock performance* New contract achievement (Rp tn) % New contract Disclosure achievement period vs. guidance % YoY growth (as of disclosure period vs 3M16) WSKT 53% 175% 123% -6% % 3M17 50% PTPP -2% 105% 20% -16% % mid-march 57% WIKA -11% 103% 116% 0% % 3M17 182% WTON 0% 0% 39% -7% % 3M17 49% Total (ex. WTON) 102% 78% % 95% JCI 15% 7% *as of 21 April Total 2017 government's infra budget: Rp 347tn 5% 101 Ministry of Public Works & Housing 11% Others % 404 Total SOE capex Source: Company data, Credit Suisse estimates, the BLOOMBERG PROFESSIONAL service Source: Ministry of Finance, Ministry of State-owned Enterprises, Company data Figure 4: Busy news flow catalysts continue for the sector, providing downside support Figure 5: Improving government spending momentum; 14% YoY growth in 1Q % % 53% 58% 90% 70% % 34% 43% 50% % 5% 9% 20% 14% 10% 30% 10% - Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Mar-17 WSKT PTPP WIKA % Infra budget realization -10% Source: RAVE, Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates, Ministry of Public Works and Housing Figure 6: CS Indonesia construction sector coverage summary of key changes Figure 7: The construction sector no longer trades at a premium to the market 40.0x 35.0x 180% 30.0x Current P/E Target P/E Historical average Historical average (years) 2017 EPS (Rp) EPS Growth Target Price (Rp) Changes % EPS Change % TP Change Rating WSKT OP x 16.4x % 2,905 13% -9% PTPP OP x 18.4x % 4,065 27% -17% WIKA N x 24.0x % 2,615 11% -16% WTON OP x 33.3x % 920 5% -15% *as of 21 Apr 2017 NEW 25.0x 20.0x 15.0x 10.0x 5.0x 130% 80% 30% 0.0x -20% Premium (discount) Marketcap-weighted P/E JCI fwd PE Average premium Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates, the BLOOMBERG PROFESSIONAL service Indonesia Infrastructure Sector 2

3 Table of contents Focus charts and tables 2 Eyes on execution progress 4 Stay selective despite recent pullback... 4 News flow catalysts could provide downside support... 4 Selective buys on weakness... 4 Less bullish valuation... 4 Risk to growth from fiscal policy appears manageable... 6 News flow catalysts could provide downside support 8 Expected uptick in SOE capex... 8 News flow remains a crucial sector driver Jakarta transit projects will likely stay intact Clarity on the Greater Jakarta LRT will emerge soon Highlights on company-specific catalysts Incremental toll road opportunities for WSKT Plenty of toll road catalysts for JSMR as well Selective buys on weakness 20 Less bullish valuation 23 Latest price to 2017E EPS multiples Contractors market cap to order book multiples SOTP valuation as sanity check on target prices Order book YoY growth vs 12M forward P/E Wijaya Karya (WIKA.JK / WIKA IJ) 29 PT PP (Persero) (PTPP.JK / PTPP IJ) 31 Waskita Karya (WSKT.JK / WSKT IJ) 33 Wijaya Karya Beton (WTON.JK / WTON IJ) 35 Appendix 37 Indonesia Infrastructure Sector 3

4 The sector has transitioned from the expectation to the execution phase Infra financing progress and key project completions in will be closely watched More modest new contract growth outlook We now assume lower multiples across the board, supported by SOTP valuation Eyes on execution progress Stay selective despite recent pullback We continue to recommend investors remain selective as the sector has transitioned from the expectation to the execution phase. Speaking of 1Q17 new contract progress, WIKA, WSKT and PTPP achieved 39%, 17%, and 16% of full-year targets, respectively. This is a positive considering infra budget absorption by the Ministry of Public Works and Housing reached 10.1% of FY17 target. Overall, new contract achievement, news flow catalysts and earnings growth will be among the key drivers of stock performance, in our view. Factors that we believe have driven YTD underperformance: (1) limited scope for EPS beats, (2) questions on funding and evolving business models, and (3) company-specific drivers. Medium-term catalysts might provide an inflection point these include a likely robust 1Q, Greater Jakarta LRT financing scheme clarity, IPOs of PTPP subsidiaries in 2H17, additional Waskita Toll Road stake sales, and the Jakarta-Bandung high-speed rail financial closure. Key risks are slower-than-anticipated government/soe spending, unexpected financing bottlenecks and delayed project completions. News flow catalysts could provide downside support Despite just a 2% YoY rise in government spending, the Ministry of Public Works and Housing's ("PUPR") spending in 1Q17 actually grew by 14% YoY or 10.1% of FY17 target, which could be seen as a relief in light of investors' concerns. This might be supported by an improving trajectory of the government's revenue that rose by 19% during the same period. Furthermore, there could be a further 4% YoY growth (to Rp106 tn) per the government's initial FY18 work plan and budget ("RKAP"). While SOE capex remains to be a crucial driver, incremental evidence of private sector inflow would be needed to bolster confidence on infra funding sustainability. Furthermore, growth of SOE banks' financing for infra sector will likely continue. Cumulative infra-related loans issued by BMRI, BBNI, BBRI, and BBTN reached ~Rp186 tn as of FY16, as per media reports. PT Sarana Multi Infrastruktur's ("SMI") involvement has also increased, more recently as an investor in Waskita Toll Road. Also importantly, President Jokowi recently reiterated his commitment on infra development targets through FY19. Selective buys on weakness Looking ahead through FY18, we have baked in more modest new contract growth across the board. On the positive side, double-digit earnings growth persists. Our pecking order of preference is: PTPP > WSKT > WTON. PTPP is our preferred pick due to (1) 20%+ new contract growth, (2) 40%+ earnings growth and (3) subsidiary IPO catalysts. Focus on fundamentals could return post the imminent completion of the PPRO rights issue. We continue to like WSKT based on its order book visibility, while additional toll road stakes sale could improve sentiment. On the other hand, we stay on the sidelines on WIKA due to some uncertainty on HSR prospects. Moreover, the stock has outperformed peers YTD, and trades at premium valuation. We prefer WIKA's precast unit WTON, given the infrastructure spending uptick and an optionality from the HSR project. Less bullish valuation We have maintained a cautious view since Sep-16 (link) due to slowing new contract growth, and now assume lower forward P/Es but not turning incrementally negative. Meanwhile, applied SOTP analysis support mid-teens multiple for the construction business rather than >20x. We fine-tuned forecasts post FY16 results, and revise TPs by 9-17% for PTPP/WSKT/WIKA/WTON to Rp4,065/Rp2,905/Rp2,615/Rp920. Indonesia Infrastructure Sector 4

5 Stay selective despite recent pullback Differences in 2015 and 2016 s stock performance underscore that a rising tide will not lift all boats anymore. Now that the sector has transitioned from the "expectations only" phase to the "execution" phase, we prefer companies with a visibility on order book growth and balance sheet flexibility. Double-digit earnings growth will continue but new contract growth will likely decelerate heading into FY18. Nonetheless, we observed a divergent order book to earnings growth multiples trend for each company. PTPP is our preferred pick on (1) 25% new contract growth, (2) 40% earnings growth and (3) subsidiary IPO catalysts. Focus on fundamentals could return post the imminent completion of PPRO rights issue. Figure 8: New contract achievement was one of the key drivers of stock performance in ; WSKT was the best performer Stock performance Source: Company data, Credit Suisse estimates % 12M16 new contract achievement vs. guidance 12M16 new contract % YoY growth YTD stock performance* New contract achievement (Rp tn) % New contract achievement vs. guidance Disclosure period % YoY growth (as of disclosure period vs 3M16) WSKT 53% 175% 123% -6% % 3M17 50% PTPP -2% 105% 20% -16% % mid-march 57% WIKA -11% 103% 116% 0% % 3M17 182% WTON 0% 0% 39% -7% % 3M17 49% Total (ex. WTON) 102% 78% % 95% JCI 15% 7% *as of 21 April 2017 Figure 9: Implied double-digit growth in new contracts; private contractors' growth could outpace SOE contractors Company Source: Company data, Credit Suisse estimates Contractor Type 2016A New contracts (Rp tn) 2017 Guidance % YoY change WSKT SOE % PTPP SOE % WIKA SOE % WIKA (ex HSR) SOE % ADHI SOE % ADHI (ex LRT) SOE % WTON SOE % WSBP SOE % Total SOEs (ex. WTON, WSBP) % Total SOEs (ex. WTON, WSBP, HSR, LRT) % ACST Private % TOTL Private % Indonesia Infrastructure Sector 5

6 Rp bn 25 April 2017 Figure 10: EPS beats tougher vs setup into FY16; PTPP better positioned 2,500 2,000 1,500 1, FY16 Net income - Dec 2015 WSKT PTPP WIKA WTON Consensus Guidance Actual 2,500 2,000 1,500 1, FY17 Net income - Mar 2017 WSKT PTPP WIKA WTON Consensus Guidance Source: Company data, Credit Suisse estimates Risk to growth from fiscal policy appears manageable CS Head of Emerging Asia Economics, Santitarn Sathirathai, has had a constructive take on Indonesia s current account and macro-economic support for banks (link). We are projecting current account deficit to narrow to 1.5% of GDP from 1.8% in 2016, and vs >2% consensus. Also, we continue to forecast S&P credit rating upgrade and rebound in credit growth. Although we share market concerns that fiscal revenue would fall short of the government target, we are less worried about the repetition of last year's significant spending cutbacks for two reasons. First, the rebound in commodity price will likely help offset the expected weakness in tax revenue, capping the revenue shortfall to around 0.2% of GDP. Second, the government will likely absorb this revenue gap by expanding its budget deficit slightly to 2.6% of GDP vs the projected 2.4%, instead of cutting spending. While tax revenue could fall short of the government target, non-tax revenue could get a boost from higher commodity prices. We expect fiscal spending to gradually improve from the weak level in 2H Figure 11: Fiscal revenue Figure 12: Fiscal spending Source: Company data, Credit Suisse estimates, the BLOOMBERG PROFESSIONAL service Source: Company data, Credit Suisse estimates, the BLOOMBERG PROFESSIONAL service Indonesia Infrastructure Sector 6

7 Figure 13: Government revenue and spending trajectory as of 1Q17 Source: Ministry of Finance, Credit Suisse estimates Indonesia Infrastructure Sector 7

8 New contracts (Rp tn) Infra budget realization 25 April 2017 News flow catalysts could provide downside support Figure 14: Improving government spending momentum; 14% YoY growth in 1Q % % 53% 58% 90% 70% % 34% 43% 50% % 5% 9% 20% 14% 10% 30% 10% - Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Mar-17 WSKT PTPP WIKA % Infra budget realization -10% Source: Ministry of Public Works and Housing. Figure 15: The Ministry of Public Works and Housing has signed total new contract work of Rp59.26 tn as of 1Q17; only Rp6.8 tn left to be tendered Rp 6.8 tn 9% Rp tn 16% Rp tn 75% To-be-tendered Tender process Contracted Source: Ministry of Public Works and Housing. Out of the Ministry's Rp tn FY17 budget, capex portion is Rp76.27tn (75.1%) Expected uptick in SOE capex Infra-related SOEs can also be considered as "agents" of development since they can leverage up to fund capex. Our discussions suggest that SOE banks have generally been supportive towards infrastructure projects. Beyond SOE banks, Chinese banks have increasingly become an important source of funds for Indonesia (examples: loans for toll roads, power plants, high speed railway, etc). While detailed 2017 capex breakdown is not provided by the Ministry, we have constructed a bottom-up analysis utilising various sources (Error! Reference source not found.). Key sectors such as utilities, energy, building materials and construction, and infrastructure will account for large proportion of SOE capex guidance this year. Indonesia Infrastructure Sector 8

9 Rp tn 25 April 2017 Figure 16: Cumulative capex of 119 Indonesia SOEs is projected to rise by 37% YoY, much more meaningful than government budget Total 2017 government's infra budget: Rp 347tn 5% % % Ministry of Public Works & Housing Others Total SOE capex Source: Media reports (Kontan, CNN), Ministry of Finance, Ministry of State-owned Enterprises, Company data, Credit Suisse estimates Figure 17: Breakdown of SOEs capex guidance for 2017 Capex guidance (Rp tn) SOEs 2017 % of total 2016 % of total YoY growth PT PLN % % 60% PT Pertamina % % 14% PT Waskita Karya % % 200% PT Pembangunan Perumahan % % 810% PT Telekomunikasi Indonesia % % -8% PT Jasa Marga % % 44% PT Wijaya Karya % % 72% PT Hutama Karya % % -27% PT Angkasa Pura II % % 84% PT Perusahaan Gas Negara % % -17% PT Kereta Api Indonesia % % -12% PT Semen Indonesia % % 20% PT Bukit Asam % % 29% PT Pelindo II % % -9% PT Bank Rakyat Indonesia % % 11% PT Pelindo III % % -10% PT Perumnas % % 133% PT Krakatau Steel % % 13% PT Timah % % 100% PT Adhi Karya % % 82% PT Aneka Tambang % % 0% PT Kimia Farma % % 20% PT Semen Baturaja % % -73% PT Indofarma % % -55% Other SOEs % % 34% Total % % 37% Source: Ministry of State Owned Enterprises, Company data Indonesia Infrastructure Sector 9

10 Figure 18: There has been a recent decoupling between SOE contractors' new contract growth and the Ministry of Public Works and Housing's budget Rp bn E SOE contractors - new contracts 47,518 58,468 61,486 69,717 98, , ,845 % YoY growth 23% 5% 13% 41% 62% 10% MoPWH budget realization 51,300 67,980 80,331 72, ,434 90, ,496 % YoY growth 33% 18% -9% 43% -14% 12% New contracts / gov't budget multiple 0.9x 0.9x 0.8x 1.0x 0.9x 1.8x 1.7x Source: Company data, Credit Suisse estimates, the BLOOMBERG PROFESSIONAL service, Ministry of Public Works and Housing News flow remains a crucial sector driver Despite moderating investor interest in the sector, we believe state-owned enterprises are an important agent of infrastructure development and related news flow will continue to be closely watched. Speaking of mega projects, we think the Greater Jakarta LRT (Rp23-27 tn government project) and Jakarta-Bandung HSR (US$5.1 bn private project) will be test cases on whether or not financing could ultimately be worked out. Positive developments have occurred in toll roads (mostly SOE projects) and power (IPP scheme). Success of WSKT's additional WTR stake sale might also improve sentiment on private sector involvement. Furthermore, the revised draft budget ("APBN-P") will likely be discussed in 3Q17 as the government wants to get better clarity after getting a good grasp of 1H17 progress. Jakarta transit projects will likely stay intact Figure 19: Basic differences between the Mass rapid transit ("MRT"), electric railway ("KRL"), and light rail transit ("LRT") in Jakarta MRT KRL LRT Train sections Capacity 1,950 2, Target passengers 173,400 1,200, ,000 Track Elevated, underground Elevated, on-the-ground Elevated Source: Company data, MRT Jakarta Quick counts suggest that Anies Baswedan has secured a victory at the Jakarta gubernatorial election with a comfortable lead over Basuki "Ahok" Tjahaja Purnama. We believe the upcoming transition in October might not affect the continuity of large transit projects in Jakarta. Please see below for highlights of Anies' stance on specific projects, as per his previous comments. As discussed above, the bulk of Indonesia's capex will be driven by SOEs this year rather than the government budget. Per DKI, Jakarta's provincial government's website, direct capex portion will reach Rp15.88 tn or ~25% of the FY17 Rp63.61 tn spending ("APBD"). Among the SOE contractors, ADHI has the most exposure to the government budget (national and local combined) with 38.7% of its Rp21.6 tn FY17 new contract target. We see positive implications on the light rail transit (LRT) and mass rapid transit (MRT); and surrounding transit-oriented development (TOD) projects, as they would be complementary to Anies' "OK-OTRIP" program. He has envisioned an integrated, low cost public transportation network (Rp5,000 or US$0.38 flat fare for all), as one of the ways to solve traffic congestions. The question is how the lower fare will get funded down the road. Feasibility studies on MRT and LRT have pointed to fare of up to Rp12,000 (US$0.90) each. The initial phases of Jakarta MRT and LRT are aimed to be completed by March and May 2019, respectively. The construction work of the 16 km length MRT phase 1 (connecting Indonesia Infrastructure Sector 10

11 Lebak Bulus to Hotel Indonesia roundabout) has reached ~67%, and could hit 93% by year-end. Looking ahead, infra progress to support the ASEAN Games 2018 (18 August-2 September) in Jakarta and Palembang will be closely watched. On the other hand, there could be negative implication on the North Jakarta reclamation project. Anies believes it is bad for fishermen and the environment. There were frequent debates during the campaign since Ahok has an opposite view. Most players involved in this project are private. Meanwhile, possible implication on the existing plan to build six elevated inner city toll roads remains uncertain. Anies thinks these could make the traffic congestions worse. Nonetheless, it is important to note that the project, now spearheaded by PT Jakarta Tollroad Development (JTD), has been approved pre-ahok's leadership. Therefore, we think it will still likely proceed. Figure 20: Busy catalysts news flow in the construction sector 2Q H Q17 results READTHROUGHS: Infrastructure Sector Greater Jakarta LRT final financing scheme READTHROUGHS: ADHI, SOE Banks Rights issue completion of PP Properti (PPRO): Expected proceeds of Rp 1.5tn READTHROUGHS: PPRO, PTPP Jakarta-Bandung High-Speed Rail (HSR): Construction will kick off READTHROUGHS: WIKA, WTON 2018 draft budget: Could be announced in August READTHROUGH: Infrastructure Sector Possible IPO of 30-35% share of PP Peralatan (construction equipment) Possible IPO of 30-35% share of PP Precast Additional stake sale of Waskita Toll Road READTHROUGH: WSKT Possible IPO of 20-30% share of WIKA Realty Possible IPO of 30-35% share of WIKA Gedung (Building) Ongoing progress of MRT Jakarta; LRT Palembang and Jakarta LRT development: READTHROUGHS: WIKA, WTON, WSKT, ADHI Ongoing toll road completions - READTHROUGHS: WSKT, JSMR Discussion on formation of SOE toll road holding/infra company - READTHROUGHS: WSKT, JSMR, WIKA 1 Source: Company data, Credit Suisse estimates, the BLOOMBERG PROFESSIONAL service Clarity on the Greater Jakarta LRT will emerge soon After encountering bottlenecks on the financing scheme, there seems to be light at the end of the tunnel for the Rp27 tn Greater Jakarta light rail transit (LRT) project. We believe Greater Jakarta LRT (83.6 km length) could be a test case for financing of a high profile government project, which is targeted to become operational in May Based on our understanding, the investment cost will be Rp27 tn, which will be funded by a combination of debt (67%) and equity (33%). The Rp27 tn cost is largely comprised of railway track (Rp23.3 tn), followed by rolling stock and the train (Rp4 tn). The Rp18 tn debt portion will likely be funded by a four state-owned banks consortium (BMRI, BBNI, BBRI, and PT Sarana Multi Infrastruktur), which implies a possible Rp4-5 tn of commitment for each bank. The government has requested for a "discounted" 7% interest rate in order to help make the project financially feasible. Nonetheless, the government is now considering to raise interest rate for the Greater Jakarta LRT to % (from previously 7%). The proposal is stated by Budi Karya Sumadi, the Minister of Transportation. This rate would be slightly higher than the government s note yield of 6.69%-7.65% for 5-20 year tenor. Indonesia Infrastructure Sector 11

12 The lenders will include four SOE banks (BMRI, BBNI, BBRI, and PT Sarana Multi Infrastruktur). State railway company PT Kereta Api Indonesia ("KAI") is hoping that the government will finalise the formulation of public service obligation (PSO) for this project. According to the existing Presidential Regulation ("Perpres") No. 65/2016, equity funding will be coming from the state budget ("APBN") and SOE investment led by PT KAI. PT KAI is poised to be the main investor with Rp9 tn equity injection, and the remaining will be coming from bank loans (Rp18 tn), as reported by Bisnis Indonesia. Meanwhile, the remaining Rp9 tn equity portion will be funded by an upcoming government equity injection ("PMN") to the state-railway company PT KAI of Rp5.6 tn and previous injections (Rp2 tn to PT KAI and Rp1.4 tn to ADHI in FY15). Rp5.6 tn of this amount will be supported by the government's potential capital injection through the upcoming 2017 revised draft budget. Speaking of PT KAI's balance sheet, its debt to equity ratio was quite healthy at 1.01x as of FY15 vs 1.32x a year earlier, as per the latest annual report. Assuming everything else is equal, there seems to be room for additional debt if the Greater Jakarta LRT-related equity injection ("PMN") is delayed to FY18 instead of being allocated through the 2017 revised budget (APBN-P), in our view. At this point ADHI is poised not to be an investor, which is classified as a government project under the Ministry of Transportation. If ADHI was to be involved as a shareholder, the project will then be classified as a private project. In light of the turnkey nature of the project, ADHI has planned to raise at least Rp5.5 tn of funds this year, with Rp3.5 tn and Rp1.5-2 tn possibly coming from debt and subsidiary IPO, respectively. ADHI is expecting the LRT financing scheme to be finalised by the end of 2Q17. Per Bisnis Indonesia, there will be two main items discussed in the upcoming revised Presidential Regulation ( Perpres ) No. 65/2016, which is still pending signatures from the Ministry of Finance, Coordinating Minister for Maritime Affairs, State Secretary and Cabinet Secretary. It includes the government s project guarantee, along with the possibility of having a portion of the funds at Bank Indonesia in order to lower the cost of funds. The Greater Jakarta LRT will be composed of six routes (42 km for the initial phase 1) at the Jabodebek area (Jakarta, Bogor, Depok, Bekasi). It includes Cawang-Cibubur, Cawang-Kuningan-Dukuh Atas, Cawang-Bekasi Timur, Dukuh Atas-Palmerah Senayan, Cibubur-Bogor and Palmerah-Bogor. Project funding will eventually be supported by transit-oriented development (TOD) and the public service obligation (PSO) scheme. The ticket price is projected not to exceed Rp12,000 (US$0.90). Figure 21: Snapshot on the Greater Jakarta light rail transit funding profile Cost allocation (Rp27.3 tn) Funding (Rp 27.3 tn) Rolling stock, train Rp4 tn Railway track Rp23.3 tn The government state budget Rp23.3 tn Loans from SOE banks Rp18.3tn Equity through PT Kereta Api Indonesia Rp9 tn PT KAI (62%) PT KAI (22%) ADHI (16%) Per FY17 or FY18 state budget Per FY15 state budget Source: Company data, Credit Suisse estimates, Bisnis Indonesia Indonesia Infrastructure Sector 12

13 Highlights on company-specific catalysts Figure 22: PTPP catalysts roadmap Rp 13.6 tn Rp 12.1 tn Rp 8.9 tn April 2017 PPRO Rights issue Rp 1.5 tn Details: -PTPP (Rp 1 tn) -Public (Rp 500 bn) July 17 PP Peralatan (equipment) IPO Rp 3.2 tn Details: 30-35% of new shares 3Q17 PP Pracetak (precast) IPO Rp 3.2 tn Details: 30-35% of new shares 4Q17 PP Energi (Energy) IPO IPO 1 st Phase 2 nd Phase Rp 5.7 tn Details: 10-15% of new shares 2018 PP Energi (Energy) Details: 20% of new shares Source: Company data, Credit Suisse estimates, the BLOOMBERG PROFESSIONAL service Figure 23: WSKT catalysts roadmap Source: Company data, Credit Suisse estimates, the BLOOMBERG PROFESSIONAL service Figure 24: WIKA catalysts roadmap Source: Company data, Credit Suisse estimates, the BLOOMBERG PROFESSIONAL service Indonesia Infrastructure Sector 13

14 km 25 April 2017 Incremental toll road opportunities for WSKT Figure 25: WSBP new contract pipeline; read-throughs to WSKT Contract value (Rp tn) 12.2 Potentials Projects *concession not awarded Source: Company data Figure 26: WSKT's toll road pipeline Source: Company data Pejagan Pemalang (Section 4) Probolinggo-Bayuwangi* Bekasi-Cawang-Kp.Melayu (Becakayu Section 3-4) Cimanggis Cibitung (Package 2) Cinere-Serpong Singasari-Batu* Pemalang Batang Manado-Bitung Malang-Kepanjen* Batang Semarang Terbanggi Besar-Kayu Agung Jogja-Solo* Bogor Ciawi 2-4 Jakarta-Cikampek Elevated Makassar-Maros* LRT-Palembang Terbanggi Besar-Mesuji Semarang-Demak* Legundi-Bunder Kediri-Kertosono* Tebing Tinggi-Siantar-Prapat* Kayu Agung-Palembang-Betung Japanan Mojosari-Mojokerto* Kunciran-Cengkareng* Pasuruan-Probolinggo Dermaga Kijing Ciawi-Garut-Tasik* Booyolali-Salatiga Penajam-Balikpapan* Toll road Road length (km) Share ownership (%) Completion target Kanci-Pejagan Operating Pejagan-Pemalang Section 1 & 2 operating Bekasi-Cawang-Kampung Melayu Depok-Antasari Cimanggis-Cibitung Pemalang-Batang Ciawi-Sukabumi Medan-Kualanmu-Tebing Tinggi Semarang-Batang Ngawi-Kertosono Solo-Ngawi Legundi-Bunder Kayu Agung-Pelembang-Beting Cinere-Serpong Pasuruan-Probolinggo Plenty of toll road catalysts for JSMR as well JSMR appears on track to complete at least 200 km out of the 235 km target this year (>90% land acquisition progress), which compares to just 593 km in operations. Improved pace of land acquisition is a point that most foreign investors view as incremental. Figure 27: Length of JSMR's operated toll roads; potential record completions E Source: Company data. Certain years are intentionally omitted due to minimum changes Indonesia Infrastructure Sector 14

15 Spotlight on remaining toll road catalysts JSMR, WTR's stake divestitures and JSMR securitisation updates; toll road tenders news; Trans Jawa Toll Road operating company formation; tariff hikes (of at least 10%) for most of JSMR's toll roads in 4Q17; and infra SOE holding formation will be closely watched. JSMR's toll road securitisation outcome may demonstrate the viability of alternative funding source in the sector. So far, it has been the most successful area of public-private partnerships (PPPs). JSMR's financing needs will increase in 2018, and so asset securitisation is being considered as one of the several options. Jagorawi appears to be the most likely securitisation candidate, with a duration of 3-5 years. It could be classified as off balance sheet structure, with revenue stream excluded (translating into unearned revenue or non-interest bearing debt), while concession right to remain intact. As a frame of reference, Jagorawi contributed Rp697 bn of revenue in FY16. The company's divestitures of minority stakes and reduction of majority stakes are in progress. Proceeds are estimated to reach Rp1-2tn in Uptick in toll road stakes transactions at decent valuations could bode well for JSMR, which includes WTR's Rp3.5 tn stake sale at 1.5x P/B and Astratel's Cipali toll road purchase at ~3x. JSMR is looking into (1) trimming majority stake at Trans Marga Jateng (Rp5.6 tn total assets) by up to 15% (from 73.9%) (Astratel has a 25% stake here); and (2) selling the 19.1% stake at Jakarta Lingkar Barat (Rp181 bn cost). The question is whether or not IRRs of the future toll roads will be as attractive as those that could be divested. Figure 28: JSMR' list of pipeline projects; mid-teens IRR profile No. Concession/Section Length (km) IRR 1 Bogor Outer Ring Road (BORR) 11.0 min 16% 2 Semarang-Solo (part of Trans Java) 72.6 min 16% 3 Gempol-Pasuruan (part of Trans Java) 34.2 min 16% 4 JORR 2 (Cengkareng-Kunciran) 14.2 min 16% 5 JORR 2 (Kunciran-Serpong) 11.2 min 16% 6 JORR W2 North (part of JORR) 7.7 min 16% 7 Surabaya-Mojokerto 36.3 min 16% 8 Gempol-Pandaan 13.6 min 16% 9 Nusa Dua-Ngurah Rai-Benoa 10.0 min 16% 10 Medan-Kualanamu-Tebing Tinggi 61.7 min 16% 11 Solo-Ngawi 90.1 min 16% 12 Ngawi-Kertosono 87.0 min 16% 13 Cinere-Serpong 10.1 min 16% 14 Semarang-Batang 75.0 min 14% 15 Balikpapan-Samarinda 99.9 min 14% 16 Manado-Bitung 39.9 min 14% 17 Jakarta-Cikampek Elevated 36.6 min 14% Source: Company data. Certain years are intentionally omitted due to minimum changes Indonesia Infrastructure Sector 15

16 Figure 29: JSMR's list of possible projects to be pursued through tenders, acquisitions, or unsolicited; total length of 1,134 km and Rp249 tn investment. Will future projects have comparable IRRs with existing ones? Source: Company data Toll road Length (km) Estimated investment (Rp tn) Probolinggo-Bayuwangi Semarang-Demak Jakarta-Cikampek II Akses Patimban Bandung Utara Toll Road Demak-Tuban-Gresik Tebing Tinggi-Parapat-Kuala Tanjung Cileunyi-Tasikmalaya-Cilacap Cawang-Bandara (Elevated) Kertosono-Kediri-Tulungagung Padalarang-Sukabumi Surabaya Eastern Ring Road (SERR) Gedebage-Majalaya Semanan-Balaraja Total 1, Clarity on infra SOE holding formation may take time to play out The regrouping process of the SOEs led by the Ministry of SOEs remains in progress, and we anticipate further clarity on various government regulations later this year. Per Ministry of State Owned Enterprises, PT Hutama Karya (non-listed) will be the lead of the toll road and construction holding company side. The members are PT Jasa Marga Tbk, PT Waskita Karya Tbk, PT Wijaya Karya Tbk, PT Indra Karya, PT Yodya Karya, and Trans Sumatera OperatingCo. According to Investor Daily, total assets of this holding are forecasted to grow from Rp99.2 tn to Rp154 tn in 2016, prior to reaching Rp381.9 tn by Figure 30: Total assets is estimated to reach Rp249 tn ex holding; incremental Rp8 tn with holding Figure 31: Structure of the infra holding; centralisation of support function at HQ to extract synergies Source: Ministry of SOEs Source: Ministry of SOEs Indonesia Infrastructure Sector 16

17 TW 25 April 2017 Figure 32: Housing holding could support the development towards "One Million Housing" program Figure 33: Structure of the housing holding; efficiencies will be pursued through value chain integration Source: Ministry of SOEs Source: Ministry of SOEs Energy among sources of growth opportunities Indonesia's state-owned electricity company PT Perusahaan Listrik Negara (PLN) has further reduced the long-term allocation for coal in its latest draft of Electricity Supply Business Plan (RUPTL), while boosting proportion for renewables and gas. We think environmental considerations could be among the factors that led to this revision. Nonetheless, in line with expectations, coal will remain as PLN's primary energy source. Pertaining to read-throughs, we see precast concrete company WTON as one of the potential beneficiaries from additional coal-fired power plants buildouts. WSKT is executing the inland transmission power plant buildout in Sumatera. PTPP has planned to pursue acquisitions in the power sector ahead of its energy subsidiary IPO. Meanwhile, WIKA has its eyes set on additional investments in power plants. Figure 34: Indonesia power capacity addition plans; allocation to declined slightly, while up for gas and renewables Source: Electricity Supply Business Plan ("RUPTL") Total Coal Gas Hydro Geothermal Others - renewable RUPTL Draft RUPTL Indonesia Infrastructure Sector 17

18 EPC segment % of revenue EPC new contract (Rp bn) 25 April 2017 Figure 35: Coal remains as largest driver of new capacity addition Geothermal 8% Others - renewable 8% RUPTL Coal 43% Others - renewable 9% Geothermal 8% Draft RUPTL Coal 41% Hydro 18% Gas 23% Hydro 18% Gas 24% Source: Electricity Supply Business Plan ("RUPTL") Figure 36: Energy-related segment remains attractive with projects advancing from planning and procurement phases 30% 25% 20% 15% 10% 5% 0% 26% 26% 25% 18% 14% 10% 10% 8% 0.76% 0% PTPP WIKA WSKT ,000 7,000 6,000 5,000 4,000 3,000 2,000 1, ,031 4,998 4,266 3,396 3,291 2,526 0 PTPP WIKA ,162 Source: Company data, Credit Suisse estimates Indonesia Infrastructure Sector 18

19 Figure 37: Property generally offers highest gross margin; EPC margins higher than typical construction 25.0% WIKA 23.2% 20.0% 18.4% 18.4% 16.4% 16.6% 16.6% 15.0% 14.4% 14.1% 14.1% 12.3% 12.6% 11.9% 11.5% 10.0% 8.6% 9.0% 8.9% 8.6% 7.8% 9.9% 6.2% 5.0% 0.0% Infrastructure and building Energy and power plant Industrial Realty and property 60.0% PTPP 53.9% 50.0% 40.0% 41.3% 43.3% 30.0% 20.0% 10.0% 25.1% 22.0% 11.9% 10.1% 10.8% 9.6% 13.3% 13.1% 10.7% 22.2% 15.9% 12.0% 0.0% Construction EPC Property and realty Source: Company data, Credit Suisse estimates Figure 38: Room for progress of the 35,000 MW program (in MW) 168 2% PLN IPP 539 2% 2,733 11% 3,091 32% 6,376 24% 3,915 40% Planning Procurement Contract / Power Purchase Agreement (PPA) Constructing 6,311 24% 2,499 26% Operating / Commercial Operation Date (COD) / Commisioning 10,063 39% Source: Company data Indonesia Infrastructure Sector 19

20 Debt to equity Debt (Rp bn) 25 April 2017 Selective buys on weakness Our pecking order of preference is: PTPP > WSKT > WTON. On the other hand, we stay on the sidelines on WIKA due to some uncertainty on HSR prospects. Moreover, the stock has outperformed peers YTD, and trades at premium valuation. We prefer WIKA's precast unit WTON, given an infrastructure spending uptick, and an optionality from the HSR project. Pertaining to risks, here are the key ones: PTPP: PPRO marketing sales risk if property market continues to be sluggish WSKT: Slower-than-expected land acquisition could drive slower revenue recognition WIKA: Longer-than-expected delay on the HSR project WTON: Lower-than-expected margin on ready mix concrete Figure 39: Comparison between CS vs consensus forecasts Source: Company data, Credit Suisse estimates, the BLOOMBERG PROFESSIONAL service Leverage outlook Revenue Net income (Rp bn) CS Consensus % Diff CS Consensus % Diff WSKT 36,148 35,445 2% 2,388 2,314 3% PTPP 24,926 23,992 4% 1,400 1,406 0% WIKA 24,269 23,062 5% 1,214 1,228-1% WTON 5,011 4,745 6% % Revenue Net income (Rp bn) CS Consensus % Diff CS Consensus % Diff WSKT 47,428 44,876 6% 2,981 2,891 3% PTPP 30,525 29,759 3% 1,723 1,794-4% WIKA 29,064 28,814 1% 1,390 1,490-7% WTON 5,909 5,666 4% % Investors' focus on leverage has increased as the contractors have evolved to become project owners as well. Furthermore, operating cash flow in FY16 turned negative for WIKA, WTON, and WSKT. Out of the four companies, we expect operating cash flows to be positive except for WSKT. Figure 40: There is still room for incremental debt, particularly for PTPP and WIKA post December 2016 rights issue 1.6x 1.4x 1.2x 1.0x 0.8x 0.6x 0.4x 0.2x 0.0x 0.6x 0.4x 0.5x 0.4x Source: Company data, Credit Suisse estimates 1.5x PTPP WIKA WSKT* FY16 Debt to equity Debt to equity - post equity injection 1.5x Rp 38.9tn PTPP WIKA WSKT* Total debt as of FY16 Rp 36.2tn Rp 13.4tn Potential total debt - post equity injection 38.6 Indonesia Infrastructure Sector 20

21 Forecasts and target price changes summary We believe lower P/Es would be appropriate to take into account slowing new contract growth, execution risks and rising leverage profile. Nonetheless, we still see 10%-30% upside for the stocks in our coverage. Moreover, double-digit net income growth is still plausible positive, while the sector no longer trades at a premium to the market. Figure 41: Key forecasts changes for PTPP Old estimates New estimates 2016A 2017E 2018E 2017E 2018E Total new contract (Rp bn) 32,598 39,324 47,189 40,960 44,956 % YoY growth 17.7% 20.6% 20.0% 25.7% 9.8% Total Revenue (Rp bn) 16,459 25,232 30,291 24,926 30,525 % YoY growth 15.8% 53% 20% 51% 22% Gross Profit (ex-jv) 2,456 3,669 4,409 3,978 4,824 % YoY growth 22.4% 49% 20% 62% 21% Net income (Rp bn) 1,023 1,172 1,390 1,400 1,723 % YoY growth 38.2% 15% 19% 37% 23% Margin analysis Gross margin 14.9% 14.5% 14.6% 16.0% 15.8% Net margin 6.2% 4.6% 4.6% 5.6% 5.6% Source: Company data, Credit Suisse estimates, the BLOOMBERG PROFESSIONAL service Figure 42: Key forecasts changes for WSKT Old estimates New estimates 2016A 2017E 2018E 2017E 2018E Total new contract (Rp bn) 69,974 56,328 59,144 72,016 73,418 % YoY growth 118.1% -19.5% 5.0% 2.9% 1.9% Total Revenue (Rp bn) 23,788 34,820 43,553 36,148 47,428 % YoY growth 68.1% 46% 25% 52% 31% Gross Profit (ex-jv) 3,968 5,203 6,522 6,176 7,533 % YoY growth 106.5% 31% 25% 56% 22% Net income (Rp bn) 1,713 2,113 2,755 2,388 2,981 % YoY growth 63.4% 23% 30% 39% 25% Margin analysis Gross margin 16.7% 14.9% 15.0% 17.1% 15.9% Net margin 7.2% 6.1% 6.3% 6.6% 6.3% Source: Company data, Credit Suisse estimates, the BLOOMBERG PROFESSIONAL service Indonesia Infrastructure Sector 21

22 Figure 43: Key forecasts changes for WIKA Old estimates New estimates 2016A 2017E 2018E 2017E 2018E Total new contract (Rp bn) 54,763 40,104 45,260 43,432 46,286 % YoY growth 117.1% -26.8% 12.9% -20.7% 6.6% Total Revenue (Rp bn) 15,669 20,251 24,714 24,269 29,064 % YoY growth 15.0% 29% 22% 55% 20% Gross Profit (ex-jv) 2,227 2,432 2,918 3,011 3,616 % YoY growth 34.6% 9% 20% 35% 20% Net income (Rp bn) 1,012 1,198 1,358 1,172 1,488 % YoY growth 61.9% 18% 13% 16% 27% Margin analysis Gross margin 14.2% 12.0% 11.8% 12.4% 12.4% Net margin 6.5% 5.9% 5.5% 4.8% 5.1% Source: Company data, Credit Suisse estimates, the BLOOMBERG PROFESSIONAL service Figure 44: Key forecasts changes for WTON Old estimates New estimates 2016A 2017E 2018E 2017E 2018E Total new contract (Rp bn) 5,997 5,124 6,021 6,297 6,738 % YoY growth 71.3% -14.6% 17.5% 5.0% 7.0% Total Revenue (Rp bn) 3,482 4,727 5,542 5,011 5,909 % YoY growth 31.3% 36% 17% 44% 18% Gross Profit (ex-jv) % YoY growth 53.5% 27% 14% 30% 17% Net income (Rp bn) % YoY growth 56.7% 27% 16% 33% 19% Margin analysis Gross margin 14.5% 13.6% 13.3% 13.1% 13.0% Net margin 7.8% 7.3% 7.2% 7.2% 7.3% Source: Company data, Credit Suisse estimates, the BLOOMBERG PROFESSIONAL service Indonesia Infrastructure Sector 22

23 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Forward P/E Premium/discount vs. JCI Index 25 April 2017 Less bullish valuation Latest price to 2017E EPS multiples Figure 45: The construction sector no longer trades at a premium to the market 40.0x 35.0x 180% 30.0x 25.0x 130% 20.0x 15.0x 80% 10.0x 30% 5.0x 0.0x -20% Premium (discount) Marketcap-weighted P/E JCI fwd PE Average premium Source: Company data, Credit Suisse estimates, the BLOOMBERG PROFESSIONAL service Figure 46: PTPP Price/2017E EPS band 7Y Figure 47: WSKT Price/2017E EPS band 5Y 35.0x 30.0x 25.0x 20.0x 15.0x STDEV+2 = 29.9x STDEV+1 = 24.1x Average = 18.4x Current = 15.2x 35.0x 30.0x 25.0x 20.0x STDEV+2 = 23.9x STDEV+1 = 20.1x Average = 16.4x 10.0x STDEV-1 = 12.6x 15.0x 5.0x STDEV-2 = 6.9x 0.0x Feb-10 Feb-11 Feb-12 Feb-13 Feb-14 Feb-15 Feb-16 Feb x 5.0x STDEV-1 = 12.6x STDEV-2 = 8.9x Current = 12.3x Historical PE Average STDEV-1 STDEV+1 STDEV+2 STDEV-2 Historical PE Average STDEV-1 STDEV+1 STDEV-2 STDEV+2 Source: Company data, Credit Suisse estimates, the BLOOMBERG PROFESSIONAL service Source: Company data, Credit Suisse estimates, the BLOOMBERG PROFESSIONAL service Figure 47: WIKA Price/2017E EPS band 10Y Figure 48: WTON Price/2017E EPS band 3Y 60.0x 80.0x 50.0x 40.0x 30.0x 20.0x 10.0x STDEV+2 = 42.2x STDEV+1 = 33.1x Average = 24.0x STDEV-1 = 14.9x Current = 15.5x 70.0x 60.0x 50.0x 40.0x 30.0x 20.0x STDEV-1 = 19.8x STDEV+2 = 60.3x STDEV+1 = 46.8x Average = 33.3x Current = 16.9x STDEV-2 = 5.9x 0.0x Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 Oct-16 Historical PE Average STDEV-1 STDEV+1 STDEV+2 STDEV x 0.0x STDEV-2 = 6.2x Historical PE Average STDEV-1 STDEV+1 STDEV-2 STDEV+2 Source: Company data, Credit Suisse estimates, the BLOOMBERG PROFESSIONAL service Source: Company data, Credit Suisse estimates, the BLOOMBERG PROFESSIONAL service Indonesia Infrastructure Sector 23

24 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 Market cap / order book Order book (Rp bn) 25 April 2017 Contractors market cap to order book multiples A slight rebound could also be seen on market cap-to-order book multiples after a significant compression. Overall, there is still room for slight re-rating on improved execution and news flow on catalysts in As a caveat, we note that these ratios could also be influenced by the evolution of margins and business model. Figure 49: Market cap-to-order book multiples are now below the historical average; room for re-rating exists 0.40x 0.35x Euphoria on infra upside on the back of new government 400, , , x 250, x 200, x 150, , x "Expectations phase" "Expectations / execution phase" 50, x - Market cap / order book Historical average Aggregate order book Source: Company data, Credit Suisse estimates, the BLOOMBERG PROFESSIONAL service Figure 50: PTPP market cap to orderbook 0.40x Figure 51: WSKT market cap to orderbook 0.40x 0.35x 0.35x 0.30x 0.25x 0.20x 0.15x STDEV+1 = 0.26x Average = 0.19x Current = 0.20x 0.30x 0.25x 0.20x STDEV+1 = 0.27x Average = 0.23x 0.10x STDEV-1 = 0.12x 0.15x STDEV-1 = 0.18x Current = 0.20x 0.05x 0.00x Feb-10 Feb-11 Feb-12 Feb-13 Feb-14 Feb-15 Feb-16 Feb-17 Market cap / orderbook Average STDEV-1 STDEV x Market cap / orderbook Average STDEV-1 STDEV+1 Source: Company data, Credit Suisse estimates, the BLOOMBERG PROFESSIONAL service Source: Company data, Credit Suisse estimates, the BLOOMBERG PROFESSIONAL service Indonesia Infrastructure Sector 24

25 Figure 52: WIKA market cap to orderbook 0.50x 0.45x 0.40x Figure 53: WTON market cap to orderbook 0.35x 0.30x 0.35x 0.30x STDEV+1 = 0.29x 0.25x STDEV+1 = 0.24x 0.25x 0.20x Average = 0.20x 0.20x Average = 0.20x 0.15x 0.10x STDEV-1 = 0.10x Current = 0.20x 0.15x STDEV-1 = 0.16x Current = 0.16x 0.05x 0.00x Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 Oct-16 Market cap / orderbook Average STDEV-1 STDEV x Market cap / orderbook Average STDEV-1 STDEV+1 Source: Company data, Credit Suisse estimates, the BLOOMBERG PROFESSIONAL service Source: Company data, Credit Suisse estimates, the BLOOMBERG PROFESSIONAL service SOTP valuation as sanity check on target prices Figure 54: Applied SOTP for PTPP; suggests that its construction business would trade at a 12-18x forward P/E Assumes current stock prices Market Cap Ownership 2017 Net income Applied Note (Rp bn) Adjusted Mkt cap (Rp bn) P/E PTPP A 27,256 27,256 1, PPRO B 15,960 10, Construction business C = A - B N/A 16,882 1, Assumes PPRO to trade in-line with SMRA, which also has exposure to high rises Market Cap (Rp bn) Ownership Adjusted Mkt cap 2017 Net income (Rp bn) Applied P/E PTPP A 27,256 27,256 1, PPRO B 18,659 12, Construction business C = A - B N/A 15,127 1, Assumes 50% haircut to PPRO current stock price; hypothetical purpose Market Cap (Rp bn) Ownership Adjusted Mkt cap 2017 Net income (Rp bn) Applied P/E PTPP A 27,256 27,256 1, PPRO B 7,980 5, Construction business C = A - B N/A 22,069 1, Source: Company data, Credit Suisse estimates, the BLOOMBERG PROFESSIONAL service Figure 55: Applied SOTP for WSKT; suggests that its construction business would trade at a conservative 13-14x forward P/E Assumes current stock prices Note Market Cap (Rp bn) Ownership Adjusted Mkt cap 2017 Net income (Rp bn) Applied P/E Implied P/B WSKT A 38,478 38,478 2, N/A WSBP (listed) B 13,444 8, N/A WTR (non-listed) C 12,027 8,527 N/A N/A 1.5 Construction business D = A - B - C 13,006 21,884 1, N/A Assumes a higher multiple for WSBP Note Market Cap (Rp bn) Ownership Adjusted Mkt cap 2017 Net income (Rp bn) Applied P/E Implied P/B WSKT A 38,478 38,478 2, N/A WSBP (listed) B 13,444 8, N/A WTR (non-listed) C 12,027 8,527 N/A N/A 1.5 Construction business D = A - B - C 13,006 21,176 1, N/A Source: Company data, Credit Suisse estimates, the BLOOMBERG PROFESSIONAL service Indonesia Infrastructure Sector 25

26 Forward P/E Orderbook growth 25 April 2017 Figure 56: Applied SOTP for WIKA; suggests that its construction business would trade at 19-20x forward P/E Assumes current stock prices Note Market Cap (Rp bn) Ownership Adjusted Mkt cap 2017 Net income (Rp bn) Applied P/E WIKA A 25,390 25,390 1, WTON B 7,988 4, Construction business C = A - B N/A 20,597 1, Assumes a lower multiple for WTON Market Cap (Rp bn) Ownership Adjusted Mkt cap 2017 Net income (Rp bn) Applied P/E WIKA A 25,390 25,390 1, WTON B 7,262 4, Construction business C = A - B N/A 21,033 1, Source: Company data, Credit Suisse estimates, the BLOOMBERG PROFESSIONAL service Order book YoY growth vs 12M forward P/E We observed that the SOE contractors forward P/Es tend to peak around 12 months before the peak in order book growth. However, the trend appears to vary for each stock. Figure 57: Aggregate order book YoY growth vs 12M forward P/E 40.0x 35.0x 30.0x 25.0x 20.0x 15.0x 10.0x 5.0x 0.0x 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Marketcap-weighted P/E Aggregate order book growth rate Source: Company data, Credit Suisse estimates, the BLOOMBERG PROFESSIONAL service Indonesia Infrastructure Sector 26

27 Orderbook growth Forward P/E Orderbook growth Forward P/E Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Nov-14 Feb-15 May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nov-16 Feb-17 Orderbook growth Forward P/E 25 April 2017 Figure 58: PTPP order book YoY growth vs 12M forward P/E 90.0% 80.0% 70.0% 60.0% % 40.0% 30.0% 20.0% 10.0% 0.0% Orderbook growth rate Forward PE Source: Company data, Credit Suisse estimates, the BLOOMBERG PROFESSIONAL service Figure 59: WIKA order book YoY growth vs 12M forward P/E 80.0% % 60.0% 50.0% 40.0% % 20.0% 10.0% 0.0% Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 Oct Orderbook growth rate Forward P/E Source: Company data, Credit Suisse estimates, the BLOOMBERG PROFESSIONAL service Figure 60: WSKT order book YoY growth vs 12M forward P/E 120.0% 100.0% % % 40.0% 20.0% 0.0% Orderbook growth rate Forward P/E Source: Company data, Credit Suisse estimates, the BLOOMBERG PROFESSIONAL service Indonesia Infrastructure Sector 27

28 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 Orderbook growth Forward P/E 25 April 2017 Figure 61: WTON order book YoY growth vs 12M forward P/E 0.9% 0.9% 0.8% 0.8% 0.7% 0.7% 0.6% 0.6% 0.5% Orderbook growth rate Forward P/E Source: Company data, Credit Suisse estimates, the BLOOMBERG PROFESSIONAL service Indonesia Infrastructure Sector 28

29 Asia Pacific/Indonesia Building Materials & Construction Wijaya Karya (WIKA.JK / WIKA IJ) Rating NEUTRAL Price (21-Apr-17, Rp) 2,370 Target price (Rp) (from 3,120) 2,615 Upside/downside (%) 10.3 Mkt cap (Rp/US$ bn) 21,259 / 1.60 Enterprise value (Rp bn) 20,931 Number of shares (mn) 8,970 Free float (%) wk price range (Rp) 3,056-2,047 ADTO-6M (US$ mn) 3.5 Target price is for 12 months. Research Analysts Ari Jahja ariyanto.jahja@credit-suisse.com Improved execution; awaiting the high-speed rail We are encouraged by WIKA's improved execution in the past year. Nonetheless, we await further clarity on the Jakarta-Bandung high-speed rail (HSR) financial closure before getting more constructive. Moreover, the company posted an impressive 183% YoY new contract growth, or 39% of fullyear target as of 1Q17. This could be one of the factors leading to the stock's outperformance relative to large state-owned enterprise (SOE) peers and premium valuation. We prefer WIKA's precast unit WTON, given the optionality from the HSR project. As reported by the Jakarta Post, the Kereta Cepat Indonesia China ("KCIC") consortium has signed the engineering, procurement and construction contract for the HSR. However, they are yet to reach financial closure with the China Development Bank (CDB). Land acquisition progress would be crucial to achieve Financial Closure for the HSR. Longer-thanexpected delay might result in some risk to FY17 earnings, assuming everything else is equal. Our FY17 net income forecast remains flattish at Rp1.2 tn, but we reduced forward P/E assumption to 20x, which reflects in between historical average and -1 s.d. As a frame of reference, management has guided 1Q earnings to exceed Rp200 bn, or ~16% of full-year target. TP to Rp2,615 (from Rp3,120). Share price performance The price relative chart measures performance against the JSX COMPOSITE INDEX which closed at 5, on 21/04/17. On 21/04/17 the spot exchange rate was Rp13,316/US$1 Performance 1M 3M 12M Absolute (%) Relative (%) Financial and valuation metrics Year 12/16A 12/17E 12/18E 12/19E Revenue (Rp bn) 15, , , ,652.3 EBITDA (Rp bn) 2, , , ,162.3 EBIT (Rp bn) 1, , , ,392.8 Net profit (Rp bn) 1, , , ,716.6 EPS (CS adj.) (Rp) Change from previous EPS (%) n.a Consensus EPS (Rp) n.a EPS growth (%) 55.7 (17.6) P/E (x) Dividend yield (%) EV/EBITDA (x) P/B (x) ROE (%) Net debt/equity (%) Net Cash Source: Company data, Thomson Reuters, Credit Suisse estimates Indonesia Infrastructure Sector 29

30 Wijaya Karya (WIKA.JK / WIKA IJ) Price (21 Apr 2017): Rp2,370; Rating: NEUTRAL; Target Price: (from Rp3,120) Rp2,615; Analyst: Ariyanto Jahja Income Statement (Rp bn) 12/16A 12/17E 12/18E 12/19E Sales revenue 15,669 24,269 29,064 30,652 Cost of goods sold 13,442 21,258 25,448 26,823 EBITDA 2,263 3,109 3,821 4,162 EBIT 1,980 2,645 3,145 3,393 Net interest expense/(inc.) Recurring PBT 1,596 2,032 2,402 2,757 Profit after tax 1,147 1,422 1,682 1,930 Reported net profit 1,012 1,172 1,488 1,717 Net profit (Credit Suisse) 1,012 1,172 1,488 1,717 Balance Sheet (Rp bn) 12/16A 12/17E 12/18E 12/19E Cash & cash equivalents 9,270 4,713 2,293 1,257 Current receivables 3,563 4,756 5,419 5,234 Inventories 1,248 1,802 2,157 2,274 Other current assets 7,472 9,449 10,724 10,883 Current assets 21,552 20,720 20,593 19,648 Property, plant & equip. 3,725 12,466 14,097 15,149 Investments Intangibles Other non-current assets 5,290 5,190 5,144 5,139 Total assets 31,097 38,905 40,363 40,465 Current liabilities 14,606 16,835 18,012 17,854 Total liabilities 18,566 25,567 25,772 24,455 Shareholders' equity 11,352 12,321 13,575 14,994 Minority interests 1, Total liabilities & equity 31,065 38,873 40,332 40,434 Cash Flow (Rp bn) 12/16A 12/17E 12/18E 12/19E EBIT 1,980 2,645 3,145 3,393 Net interest (384) (613) (742) (636) Tax paid (448) (610) (721) (827) Working capital (1,149) 750 (433) (15) Other cash & non-cash items ,160 1,326 Operating cash flow 429 2,849 2,409 3,241 Capex (565) (9,205) (2,308) (1,822) Free cash flow to the firm (135) (6,356) 101 1,419 Investing cash flow (2,785) (9,046) (2,218) (1,809) Equity raised 6, Dividends paid (125) (202) (234) (298) Financing cash flow 9,329 2,103 (1,934) (1,698) Total cash flow 6,973 (4,094) (1,743) (266) Adjustments Net change in cash 6,973 (4,094) (1,743) (266) Per share 12/16A 12/17E 12/18E 12/19E Shares (wtd avg.) (mn) 6,384 8,970 8,970 8,970 EPS (Credit Suisse) (Rp) DPS (Rp) Operating CFPS (Rp) Earnings 12/16A 12/17E 12/18E 12/19E Growth (%) Sales revenue EBIT EPS 55.7 (17.6) Margins (%) EBITDA EBIT Valuation (x) 12/16A 12/17E 12/18E 12/19E P/E P/B Dividend yield (%) EV/sales EV/EBITDA EV/EBIT ROE analysis (%) 12/16A 12/17E 12/18E 12/19E ROE ROIC Credit ratios 12/16A 12/17E 12/18E 12/19E Net debt/equity (%) (20.2) Net debt/ebitda (x) (1.11) Source: Company data, Thomson Reuters, Credit Suisse estimates Company Background PT Wijaya Karya (Persero) Tbk is a state-owned enterprise primarily engaged in the construction industry. The company's business segments are infrastructure and building, energy and industrial plant, realy, and precast. Blue/Grey Sky Scenario Our Blue Sky Scenario (Rp) (from 3,881) 2,775 This assumes a slightly higher forward P/E to take into account potential upside on new contracts. Our Grey Sky Scenario (Rp) (from 2,776) 2,120 This assumes lower forward P/E and earnings growth. Share price performance The price relative chart measures performance against the JSX COMPOSITE INDEX which closed at 5, on 21-Apr-2017 On 21-Apr-2017 the spot exchange rate was Rp13,316/US$1 Indonesia Infrastructure Sector 30

31 Asia Pacific/Indonesia Building Materials & Construction Rating OUTPERFORM Price (21-Apr-17, Rp) 3,210 Target price (Rp) (from 4,885) 4,065 Upside/downside (%) 26.6 Mkt cap (Rp/US$ bn) 19,902 / 1.49 Enterprise value (Rp bn) 20,078 Number of shares (mn) 6,200 Free float (%) wk price range (Rp) 4,420-3,040 ADTO-6M (US$ mn) 3.7 Target price is for 12 months. Share price performance Research Analysts Ari Jahja ariyanto.jahja@credit-suisse.com The price relative chart measures performance against the JSX COMPOSITE INDEX which closed at 5, on 21/04/17. On 21/04/17 the spot exchange rate was Rp13,316/US$1 Performance 1M 3M 12M Absolute (%) Relative (%) PT PP (Persero) (PTPP.JK / PTPP IJ) Multiple catalysts post PPRO rights issue PTPP is our top pick due to the following factors (1) 20% plus new contract growth potential, (2) higher earnings growth relative to peers and (3) strong catalysts profile in 2H17. Main factors are (1) 20%+ new contract growth, (2) 40%+ earnings growth and (3) subsidiary IPOs. The stock has underperformed YTD, but we see an inflection point when focus returns to fundamentals after PPRO's rights issue completion. Our SOTP scenarios suggest that PTPP's construction business is still trading at a relatively low multiple. Key risk is worse-than-expected property sales. Robust new contract growth year-to-date. As a reminder, management has targeted Rp40 tn of new contracts this year (+23% YoY). Up to mid- March, PTPP has booked 12 new contracts worth Rp 6.6 tn, or equivalent to 16% of 2017 target (Rp 40.6 tn). This represents 57% YoY growth. Management has indicated Rp21 tn of capex this year, which could support creation of new contracts. Assessing next IPO catalysts. As reported by Bisnis Indonesia and Kompas, PP Construction Equipment is still targeted to release IPO by July with estimated Rp3.2 tn proceeds (30-35% of new shares), post the acquisitions of three subcontractors (Rp1 tn). Secondly, PP Precast ( Urban ) IPO will follow in 3Q with Rp3.2 tn proceeds (30-35% of new shares). PP Urban will be focusing on low cost housing high rise building. Moreover, PP Energi's IPO could be a 2018 event, in our view. Forecasts change. We increase FY17 net income forecast to Rp1.4 tn (from Rp1.172 tn), but reduce forward P/E assumption to 18x, which assumes PTPP can trade in line with the historical average. TP to Rp4,065 (from Rp4,885). Financial and valuation metrics Year 12/16A 12/17E 12/18E 12/19E Revenue (Rp bn) 16, , , ,041.6 EBITDA (Rp bn) 6, , , ,611.7 EBIT (Rp bn) 2, , , ,294.1 Net profit (Rp bn) 1, , , ,134.3 EPS (CS adj.) (Rp) Change from previous EPS (%) n.a Consensus EPS (Rp) n.a EPS growth (%) P/E (x) Dividend yield (%) EV/EBITDA (x) P/B (x) ROE (%) Net debt/equity (%) Net Cash Source: Company data, Thomson Reuters, Credit Suisse estimates Indonesia Infrastructure Sector 31

32 PT PP (Persero) (PTPP.JK / PTPP IJ) Price (21 Apr 2017): Rp3,210; Rating: OUTPERFORM; Target Price: (from Rp4,885) Rp4,065; Analyst: Ariyanto Jahja Income Statement (Rp bn) 12/16A 12/17E 12/18E 12/19E Sales revenue 16,459 24,926 30,525 35,042 Cost of goods sold 14,003 20,948 25,701 29,503 EBITDA 6,914 7,785 8,679 9,612 EBIT 2,064 3,116 3,746 4,294 Net interest expense/(inc.) Recurring PBT 1,859 2,308 2,840 3,586 Profit after tax 1,151 1,544 1,904 2,407 Reported net profit 1,023 1,400 1,723 2,134 Net profit (Credit Suisse) 1,023 1,400 1,723 2,134 Balance Sheet (Rp bn) 12/16A 12/17E 12/18E 12/19E Cash & cash equivalents 9,125 7,970 2,531 1,059 Current receivables 6,014 7,708 7,383 8,475 Inventories 2,656 3,491 4,283 4,917 Other current assets 6,550 9,656 12,025 14,089 Current assets 24,344 28,824 26,223 28,540 Property, plant & equip. 4,178 12,348 16,129 17,015 Investments Intangibles Other non-current assets 1,936 1,936 1,936 1,936 Total assets 31,233 43,883 45,063 48,267 Current liabilities 15,879 19,555 22,715 26,069 Total liabilities 20,437 31,787 31,398 32,606 Shareholders' equity 9,796 10,951 12,339 14,062 Minority interests 1,000 1,145 1,326 1,599 Total liabilities & equity 31,233 43,883 45,063 48,267 Cash Flow (Rp bn) 12/16A 12/17E 12/18E 12/19E EBIT 2,064 3,116 3,746 4,294 Net interest (360) (828) (926) (728) Tax paid (552) (744) (917) (1,159) Working capital 459 (1,865) 1,076 (654) Other cash & non-cash items 436 1,403 2,043 2,347 Operating cash flow 2,047 1,083 5,022 4,100 Capex (1,753) (9,718) (6,005) (3,506) Free cash flow to the firm (50) (4,073) (1,990) 3,063 Investing cash flow (3,464) (9,718) (6,005) (3,506) Equity raised 4, Dividends paid (177) (245) (335) (412) Financing cash flow 7,517 7,479 (4,456) (2,066) Total cash flow 6,100 (1,156) (5,438) (1,472) Adjustments Net change in cash 6,100 (1,156) (5,438) (1,472) Per share 12/16A 12/17E 12/18E 12/19E Shares (wtd avg.) (mn) 4,876 6,200 6,200 6,200 EPS (Credit Suisse) (Rp) DPS (Rp) Operating CFPS (Rp) Earnings 12/16A 12/17E 12/18E 12/19E Growth (%) Sales revenue EBIT EPS Margins (%) EBITDA EBIT Valuation (x) 12/16A 12/17E 12/18E 12/19E P/E P/B Dividend yield (%) EV/sales EV/EBITDA EV/EBIT ROE analysis (%) 12/16A 12/17E 12/18E 12/19E ROE ROIC Credit ratios 12/16A 12/17E 12/18E 12/19E Net debt/equity (%) (22.0) Net debt/ebitda (x) (0.34) Source: Company data, Thomson Reuters, Credit Suisse estimates Company Background PT PP (Persero) Tbk is a state-owned enterprise primarily engaged in the construction industry. The company's main businesses are construction, EPC, property, and construction equipment. Blue/Grey Sky Scenario Our Blue Sky Scenario (Rp) (from 6,290) 4,290 Blue sky scenario assumes slightly higher forward P/E of 18.0x while maintaining base case 2017 EPS Rp 226. Our Grey Sky Scenario (Rp) (from 4,671) 3,217 Grey sky scenario assumes lower forward P/E of 15.0x and lower 2017 EPS of Rp 214. Share price performance The price relative chart measures performance against the JSX COMPOSITE INDEX which closed at 5, on 21-Apr-2017 On 21-Apr-2017 the spot exchange rate was Rp13,316/US$1 Indonesia Infrastructure Sector 32

33 Asia Pacific/Indonesia Building Materials & Construction Rating OUTPERFORM Price (21-Apr-17, Rp) 2,400 Target price (Rp) (from 3,175) 2,905 Upside/downside (%) 21.0 Mkt cap (Rp/US$ bn) 32,577 / 2.45 Enterprise value (Rp bn) 44,639 Number of shares (mn) 13,574 Free float (%) wk price range (Rp) 2,820-2,180 ADTO-6M (US$ mn) 3.5 Target price is for 12 months. Research Analysts Ari Jahja ariyanto.jahja@credit-suisse.com Waskita Karya (WSKT.JK / WSKT IJ) WTR stake sale progress could de-risk story We have liked WSKT on the back of order book growth visibility and toll-road catalysts. Further Waskita Toll Road (WTR) stake sale would provide relief on funding needs amid cash flow pressure. Positive earnings revisions have occurred, so incremental upside will depend on improved catalysts. Also, it is important to note that management's "positive case" revenue and net income targets are still 11%-25% above consensus. Three steps to inject more funding to WTR. (1) WSKT will inject Rp1.4 tn to WTR as per FY15 rights issue, followed by Taspen with Rp400 bn, and SMI with Rp300 bn. These would add up to Rp2.1 tn. WSKT s ownership will remain at 70%. Timeline: April/May (2) Rp3.5-Rp4 tn incremental investment from new strategic partner(s), possibly at 1.7x P/B. WSKT ownership in WTR will then decline to 51-55%. Timeline: June/July. (3) Another possibility is a reduction in WSKT stake in one of its subsidiaries in September. Meanwhile, WSKT's precast subsidiary Waskita Beton (WSBP) has achieved 35% of new contract target in 1Q17, or ~650% YoY growth. WSBP is in the process of exploring opportunity to convert non-turnkey A/R into turnkey A/R with a favorable rate with WSKT. Liquidity sources include additional leverage (0.5x D/E) and Rp3 tn of cash proceeds from the Becakayu project in 4Q17. Forecasts change. We increase FY17 net income forecast to Rp2.4 tn (from Rp2.1tn), but reduce forward P/E assumption to 16.5x, which is in line with the historical average. New contract progress has been solid YTD, reaching Rp12 tn or 17% of Rp70 tn target. TP to Rp2,905 (from Rp3,175). Share price performance The price relative chart measures performance against the JSX COMPOSITE INDEX which closed at 5, on 21/04/17. On 21/04/17 the spot exchange rate was Rp13,316/US$1 Performance 1M 3M 12M Absolute (%) Relative (%) Financial and valuation metrics Year 12/16A 12/17E 12/18E 12/19E Revenue (Rp bn) 23, , , ,400.2 EBITDA (Rp bn) 3, , , ,800.5 EBIT (Rp bn) 3, , , ,767.2 Net profit (Rp bn) 1, , , ,468.9 EPS (CS adj.) (Rp) Change from previous EPS (%) n.a Consensus EPS (Rp) n.a EPS growth (%) P/E (x) Dividend yield (%) EV/EBITDA (x) P/B (x) ROE (%) Net debt/equity (%) Source: Company data, Thomson Reuters, Credit Suisse estimates Indonesia Infrastructure Sector 33

34 Waskita Karya (WSKT.JK / WSKT IJ) Price (21 Apr 2017): Rp2,400; Rating: OUTPERFORM; Target Price: (from Rp3,175) Rp2,905; Analyst: Ariyanto Jahja Income Statement (Rp bn) 12/16A 12/17E 12/18E 12/19E Sales revenue 23,788 36,148 47,428 55,400 Cost of goods sold 19,828 29,875 39,798 46,698 EBITDA 3,200 5,450 6,766 7,800 EBIT 3,172 5,420 6,734 7,767 Net interest expense/(inc.) 795 1,683 2,347 2,703 Recurring PBT 2,480 3,836 4,587 5,314 Profit after tax 1,813 2,805 3,353 3,885 Reported net profit 1,713 2,388 2,981 3,469 Net profit (Credit Suisse) 1,713 2,388 2,981 3,469 Balance Sheet (Rp bn) 12/16A 12/17E 12/18E 12/19E Cash & cash equivalents 10,654 9,889 7,543 5,851 Current receivables 3,205 9,180 12,044 14,068 Inventories 2,557 1,753 2,333 2,737 Other current assets 20,467 25,165 30,500 33,775 Current assets 36,882 45,986 52,420 56,431 Property, plant & equip. 3,275 16,099 24,495 28,725 Investments 2,673 2,673 2,673 2,673 Intangibles 1,711 1,711 1,711 1,711 Other non-current assets 16,884 16,884 16,884 16,884 Total assets 61,425 83,353 98, ,423 Current liabilities 31,462 36,281 39,227 41,021 Total liabilities 44,652 63,938 75,644 80,284 Shareholders' equity 11,070 13,294 16,046 19,230 Minority interests 5,704 6,120 6,493 6,909 Total liabilities & equity 61,425 83,353 98, ,423 Cash Flow (Rp bn) 12/16A 12/17E 12/18E 12/19E EBIT 3,275 5,520 6,934 8,017 Net interest Tax paid Working capital (9,441) (4,555) (3,052) (2,481) Other cash & non-cash items (1,364) (2,073) (2,863) (3,237) Operating cash flow (7,529) (1,108) 1,018 2,299 Capex (7,124) (13,883) (9,486) (5,540) Free cash flow to the firm 4,839 (8,425) (275) 4,113 Investing cash flow (9,727) (13,883) (9,486) (5,540) Equity raised Dividends paid (100) (164) (228) (285) Financing cash flow 22,399 14,225 6,122 1,549 Total cash flow 5,143 (765) (2,345) (1,693) Adjustments Net change in cash 5,143 (765) (2,345) (1,693) Per share 12/16A 12/17E 12/18E 12/19E Shares (wtd avg.) (mn) 13,574 13,574 13,574 13,574 EPS (Credit Suisse) (Rp) DPS (Rp) Operating CFPS (Rp) Earnings 12/16A 12/17E 12/18E 12/19E Growth (%) Sales revenue EBIT EPS Margins (%) EBITDA EBIT Valuation (x) 12/16A 12/17E 12/18E 12/19E P/E P/B Dividend yield (%) EV/sales EV/EBITDA EV/EBIT ROE analysis (%) 12/16A 12/17E 12/18E 12/19E ROE ROIC Credit ratios 12/16A 12/17E 12/18E 12/19E Net debt/equity (%) Net debt/ebitda (x) Source: Company data, Thomson Reuters, Credit Suisse estimates Company Background PT Waskita Karya (Persero) Tbk is a state-owned enterprise primarily engaged in the construction industry. The company's main businesses are construction services, toll road, precast sales, buildings rental, and property. Blue/Grey Sky Scenario Our Blue Sky Scenario (Rp) (from 3,672) 3,050 This assumes a slightly higher forward P/E to take into account potential upside on new contracts. Our Grey Sky Scenario (Rp) (from 2,550) 2,230 This assumes lower forward P/E and earnings growth. Share price performance The price relative chart measures performance against the JSX COMPOSITE INDEX which closed at 5, on 21-Apr-2017 On 21-Apr-2017 the spot exchange rate was Rp13,316/US$1 Indonesia Infrastructure Sector 34

35 Asia Pacific/Indonesia Building Materials & Construction Rating OUTPERFORM Price (21-Apr-17, Rp) Target price (Rp) (from 1,085) Upside/downside (%) 20.3 Mkt cap (Rp/US$ bn) 6,667 / 0.50 Enterprise value (Rp bn) 6,871 Number of shares (mn) 8,715 Free float (%) wk price range (Rp) 1, ADTO-6M (US$ mn) 0.5 Target price is for 12 months. Research Analysts Ari Jahja ariyanto.jahja@credit-suisse.com Wijaya Karya Beton (WTON.JK / WTON IJ) An infra development play We like WTON's diversified infra exposure, which includes power, toll roads, elevated railway, and light rail transit projects. Unlike the largest precast player WSBP, working capital is less of an issue for WTON. Moreover, we prefer WTON compared to its parent WIKA, given the infrastructure spending uptick, and an optionality from the HSR project. WTON achieved 24% of FY17 Rp6.3 tn new contract target in 1Q, reflecting 49% YoY growth. Management expects government projects to account for ~10% of new contracts, lower than 20% portion in FY16. Looking ahead, the company is planning to boost capacity by 21.4% to 2.84 mn tonnes this year. Noteworthy changes at management team post the recent annual shareholders meeting. The Board of Directors is now composed of seven people instead of six people. Six out of seven people here are new. WTON's former Marketing Director Hadian Pramudita has been appointed as the new CEO, while Mohammad Syafi I became the new CFO. Forecasts change. We increase FY17 net income forecast to Rp363 bn (from Rp346 bn), but reduce forward P/E assumption to 22x, reflecting a multiple that is slightly above -1 s.d. TP to Rp920 (from Rp1,085). Share price performance The price relative chart measures performance against the JSX COMPOSITE INDEX which closed at 5, on 21/04/17. On 21/04/17 the spot exchange rate was Rp13,316/US$1 Performance 1M 3M 12M Absolute (%) Relative (%) Financial and valuation metrics Year 12/16A 12/17E 12/18E 12/19E Revenue (Rp bn) 3, , , ,546.2 EBITDA (Rp bn) EBIT (Rp bn) Net profit (Rp bn) EPS (CS adj.) (Rp) Change from previous EPS (%) n.a Consensus EPS (Rp) n.a EPS growth (%) P/E (x) Dividend yield (%) EV/EBITDA (x) P/B (x) ROE (%) Net debt/equity (%) Source: Company data, Thomson Reuters, Credit Suisse estimates Indonesia Infrastructure Sector 35

36 Wijaya Karya Beton (WTON.JK / WTON IJ) Price (21 Apr 2017): Rp765.00; Rating: OUTPERFORM; Target Price: (from Rp1,085) Rp920.00; Analyst: Ariyanto Jahja Income Statement (Rp bn) 12/16A 12/17E 12/18E 12/19E Sales revenue 3,482 5,011 5,909 6,546 Cost of goods sold 2,977 4,355 5,141 5,695 EBITDA EBIT Net interest expense/(inc.) Recurring PBT Profit after tax Reported net profit Net profit (Credit Suisse) Balance Sheet (Rp bn) 12/16A 12/17E 12/18E 12/19E Cash & cash equivalents Current receivables 942 1,297 1,529 1,694 Inventories ,137 1,260 Other current assets Current assets 2,440 2,926 3,335 3,641 Property, plant & equip. 2,219 2,713 2,989 3,290 Investments Intangibles Other non-current assets Total assets 4,662 5,642 6,327 6,934 Current liabilities 1,864 2,447 2,800 3,050 Total liabilities 2,172 2,769 3,129 3,383 Shareholders' equity 2,465 2,805 3,129 3,482 Minority interests Total liabilities & equity 4,662 5,642 6,327 6,934 Cash Flow (Rp bn) 12/16A 12/17E 12/18E 12/19E EBIT Net interest (40) (48) (44) (45) Tax paid (71) (92) (110) (123) Working capital (654) (145) (104) (74) Other cash & non-cash items (9) (5) (5) (6) Operating cash flow (382) Capex (222) (494) (276) (301) Free cash flow to the firm (604) (276) Investing cash flow (192) (480) (269) (296) Equity raised (7) (101) 0 0 Dividends paid (52) (82) (109) (130) Financing cash flow 86 (62) (109) (130) Total cash flow (488) (324) (48) (17) Adjustments Net change in cash (488) (324) (48) (17) Per share 12/16A 12/17E 12/18E 12/19E Shares (wtd avg.) (mn) 8,715 8,715 8,715 8,715 EPS (Credit Suisse) (Rp) DPS (Rp) Operating CFPS (Rp) Earnings 12/16A 12/17E 12/18E 12/19E Growth (%) Sales revenue EBIT EPS Margins (%) EBITDA EBIT Valuation (x) 12/16A 12/17E 12/18E 12/19E P/E P/B Dividend yield (%) EV/sales EV/EBITDA EV/EBIT ROE analysis (%) 12/16A 12/17E 12/18E 12/19E ROE ROIC Credit ratios 12/16A 12/17E 12/18E 12/19E Net debt/equity (%) Net debt/ebitda (x) Source: Company data, Thomson Reuters, Credit Suisse estimates Company Background PT Wijaya Karya Beton (Persero) Tbk is a subsidiary of PT Wijaya Karya Tbk, a state-owned enterprise. The company primarily engaged in the precast manufacturing business. Blue/Grey Sky Scenario Our Blue Sky Scenario (Rp) (from 1,205) This assumes a slightly higher forward P/E to take into account potential upside on new contracts. Our Grey Sky Scenario (Rp) (from ) This assumes lower forward P/E and earnings growth. Share price performance The price relative chart measures performance against the JSX COMPOSITE INDEX which closed at 5, on 21-Apr-2017 On 21-Apr-2017 the spot exchange rate was Rp13,316/US$1 Indonesia Infrastructure Sector 36

37 Appendix Figure 62: Infrastructure plans in 2014 vs 2019 Source: Ministry of National Development Planning ( Bappenas ) RPJMN Figure 63: Infra investment targets in RPJMN ; SOEs and private become alternative funding sources due to limited gov t budget Source: Ministry of Finance Indonesia Infrastructure Sector 37

38 Figure 64: Indonesia's historical infrastructure budget Source: Ministry of Finance Figure 65: The government s list of 30 priority infrastructure projects (with map) Source: KPPIP Indonesia Infrastructure Sector 38

39 Figure 66: The government s list of 30 priority infrastructure projects (with values) Source: KPPIP Figure 67: Some PPPs have reached financial closure; signs of progress post establishment of new PPP unit in the Ministry of Finance Source: Investor Relations Unit Republic of Indonesia Indonesia Infrastructure Sector 39

40 Figure 68: Overview of the government's national strategic projects, based on the Presidential Decree No. 3/2016 Source: The President s Office, KPPIP, Figure 69: Latest public-private partnerships (PPPs) projects being offered to investors Project status Secotr/Sub-sector Project name Estimated project cost (USD mn) Ready to offer Solid waste and sanitization Water supply Bandar lampung water supply Transportation 5, Sea transportation Development of Kabil Port (Tanjung Sauh Terminal), Batam Sea transportation Development of Kuala Tanjung International Hub Port, North Sumatera 3.67 Sea transportation Development of Bitung International Hub Port, Bitung, North Sulawesi Sea transportation Development of Makassar New Port, South Sulawesi Sea transportation Development of Patimban Port, West Java 3, Railway Batam Island Railway Project, Riau Islands Railway Urban Railway City of Medan, North Sumatera Toll road and toll bridge 1, Toll road Sukabumi-Ciranjang toll road Toll road The 2nd Jakarta-Cikampek toll road Toll road Tanjung Priok Access toll road Toll road Yogyakarta-Solo roll road Under preparation Toll road Yogyakarta-Bawen toll road Solid waste and sanitization Waste disposal Final Waste Disposal Site (TPPAS) Legok Nangka, West Java Water supply Pondok Gede Water Supply, Bekasi, West Java Water supply Pekanbaru Water Supply, Riau Water treatment plan Sindang Heula Water Treatment Plan Telecommunication and informatics Satellite Government Multi Functions Satellite Social Correctional institution Nusakambangan Correctional Institution Sport Sport Facility Papua Teaching hospital Sam Ratulangi Teaching Hospital, North Sulawesi Street lighting Bandung Street Lighting, West Java Total 8, Source: Indonesia PPP Book 2017, Bappenas, Ministry of Finance Indonesia Infrastructure Sector 40