Waskita Karya. Lower TP on worries of funding. Exhibit 1 : Financial Highlights. Source : WSKT, Ciptadana Estimates

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1 BUY TP: Rp2,600 (+37.6%) Waskita Karya Lower TP on worries of funding Sector Bloomberg Ticker Share Price Performance Construction WSKT IJ Last price (Rp) 1,890 Avg. daily T/O (Rpbn/USDmn) 37.7/2.9 3m 6m 12m Absolute (%) Relative to JCI (%) w High/Low price (Rp) 2,740/1,890 3,000 2,500 2,000 1,500 1, Outstanding shrs (mn) 13,381 Mkt. Cap (Rpbn/USDmn) 25,289/1,914 Estimated free float (%) 32.7 Major shareholders Republic of Indonesia 67.3% EPS Consensus Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 WSKT Ciptadana Cons. % Diff 2017F F F Arief Budiman ext. 819 budimanarief@ciptadana.com 5% 0% -5% -10% -15% -20% -25% -30% -35% 1yr Rel. to JCI (RHS) Divestment risk looming Waskita Karya (WSKT) share price tumbled 13% in the last two days after the company s disclosure mentioned that its toll road divestment plan has been postponed. The company has not found offer from buyer for its 10 toll road sections during the tender process closed on 31-Aug that matches with the targets wished by the management. WSKT is selling these sections in order to raise money to fund capital for its other toll projects. This may have eroded investors' confidence in the company in the near term, as it was previously expected cash flow support from the transaction. The share price decline was also followed by other contractor s shares albeit at slower pace. Meanwhile, we also see negative sentiment from government plan to limit construction material supply (including precast product) to contractors from their subsidiary to 50%, reported by newspapers today. This is an attempt to improve private sectors participation. This could negatively affect WSKT as the company sources almost all of its precast from its precast unit WSBP. If implemented, WSKT would purchase precast at higher price, in our view. Biggest exposure to toll road investment WSKT has been aggressively purchasing stakes in greenfield toll road projects, aiming to sell them after the construction is complete. The company currently owns 18 toll road concessions with total length of 997 km of which 10 concessions are majority owned by WSKT through Waskita Toll Road (WTR). The company could need capital of more than Rp100 tn to complete the construction of its toll road project until WSKT prefers equity options such as plans to sell toll roads or its subsidiary IPO. The strategy to investment in toll road has also been adopted by other SOEs contractors such as WIKA and PTPP, but at a less aggressive pace, requiring investment of around Rp1-4 tn and mostly on minority investment. As an example, WIKA is the majority shareholders holding 80% shares in Serang-Panimbang toll road (requiring investment of Rp5.3 tn), while PTPP owns 15% stake. The Chinese investor has committed to purchase large portion WIKA s stake (end up with minority share) before the operation of toll-road, avoiding concern over monetizing issue. Cut earnings forecast and TP on lower new contracts assumption WSKT will continue its plan to divest its 10 toll road next year. However, weak demand on its toll divestment raise our concern on funding availability for future investment and to take up bigger projects ahead. With relatively higher current gearing level of 1.5x DER as of June (vs. WIKA and PTPP of less than 1x), it may limit company to attract additional lending capital. Therefore, we cut our F earnings forecast by 2-13% to Rp tn, respectively, as we lower new contracts assumption by 5% and 10% to Rp66 tn and Rp71 tn, respectively. We lower our valuation basis to set our TP to 12x 2018F PER (-1 stdev mean) as investor concern on funding would de-rate valuation. This is despite that the company expects to receive payment from Palembang LRT and Sumatera transmission of around Rp16 tn, which could help improve its cash flow. As our new TP of Rp2,600 (prev: Rp3,200) still offers 38% upside potential, we maintain our Buy rating on WSKT, supported by its cheap current valuation of 8.7x 2018F PER. Our top pick in the construction space remains WIKA and PTPP on their more diversified source of contracts. Exhibit 1 : Financial Highlights Year to 31 Dec 2015A 2016A 2017F 2018F 2019F Revenue (Rpbn) 14,152 23,788 35,560 40,767 46,112 Operating profit (Rpbn) 1,414 3,172 4,810 5,649 6,392 Net profit (Rpbn) 1,048 1,813 2,511 2,909 3,363 EPS (Rp) EPS growth (%) EV/EBITDA (x) PER (x) PBV (x) Dividend yield (%) ROE (%) Please see analyst certification and other important disclosures at the back of this report 2

2 Exhibit 2 - Income Statement Revenue 14,152 23,788 35,560 40,767 46,112 COGS -12,220-19,828-29,572-33,768-38,192 Gross profit 1,932 3,960 5,988 7,000 7,920 Oper. expenses ,178-1,351-1,528 Oper. profit 1,414 3,172 4,810 5,649 6,392 EBITDA 1,590 3,472 5,245 6,218 7,142 Interest income Interest expense ,943-2,050-2,181 Other income (exp.) Pre-tax profit 1,398 2,480 3,430 3,947 4,553 Income tax Minority interest Net profit 1,048 1,813 2,511 2,909 3,363 Exhibit 3 - Balance Sheet Cash & cash equivalent 5,522 10,664 7,551 7,099 4,487 Acct, receivables 826 2, ,128 1,276 Inventory 4,654 2,238 10,230 11,169 12,633 Other curr, asset 7,073 21,423 20,703 23,087 25,758 Total current asset 18,075 36,882 39,471 42,483 44,154 Fixed assets - net 1,923 3,275 3,613 4,544 5,794 Other non-curr.asset 8,740 19,197 19,197 19,197 19,197 Total asset 30,309 61,425 64,352 68,294 71,216 ST debt + curr. maturity 3,183 15,350 15,344 14,844 12,844 Acct, payable 5,518 7,362 7,742 8,843 10,005 Advances received ,108 1,270 1,437 Other curr. liab 4,197 8,281 6,956 7,856 8,817 Long term debt 5,664 11,913 12,012 11,498 11,036 Other non-curr, liab, 1,276 1,278 1,278 1,278 1,278 Total liabilities 20,577 44,652 44,441 45,590 45,417 Shareholder equity 9,547 11,069 13,002 15,281 17,914 Minority interest 185 5,704 6,909 7,423 7,886 Total liab + SHE 30,309 61,425 64,352 68,294 71,216 Exhibit 4 - Per Share Data Year to 31 Dec(Rp) 2015A 2016A 2017F 2018F 2019F EPS BVPS , ,338.8 DPS FCF per share , Please see analyst certification and other important disclosures at the back of this report 3

3 Exhibit 5 - Cash Flow Net income 1,048 1,813 2,511 2,909 3,363 Depreciation Chg in working cap ,008-1,300-1,995 Other -1,183-10, CF-Oper activities 918-7,765-2,920 2,345 3,060 Capital expenditure -1, ,500-1,500-2,000 Others 0-8,944 1, CF-Investing activities -1,607-9, ,204-1,757 Net change in debt ,416 1,294-1,014-2,463 Net change in equity 5, Dividend payment Other financing -1,910 4, CF-Financing activities 4,524 22, ,592-3,915 Net cash flow 3,836 5,143-3, ,612 Cash - begin of the year 1,675 5,511 10,654 7,540 7,088 Cash - end of the year 5,511 10,654 7,540 7,088 4,476 Exhibit 6 - Key Ratios Year to 31 Dec 2015A 2016A 2017F 2018F 2019F Growth Revenue (%) Operating profit (%) Net profit (%) Profitability Ratios Gross margin (%) Operating margin (%) EBITDA margin (%) Net margin (%) ROA (%) ROE (%) Liquidity Ratios Current ratio (x) Quick ratio (x) Cash conversion cycle (days) Activity Ratio Inventory turnover (days) Payable turnover (days) Solvency Ratio Interest cover (x) Debt to equity ratio (x) Net debt to equity (x) Please see analyst certification and other important disclosures at the back of this report 4

4 HEAD OF RESEARCH ANALYST ANALYST Arief Budiman Erni Marsella Siahaan, CFA Kurniawan Sudjatmiko Strategy, Automotive, Heavy Equipment, Banking Coal, Metal Mining, Oil & Gas and Services Construction, Shipping T ext 919 T ext 739 T ext 819 E siahaanerni@ciptadana.com E sudjatmikokurniawan@ciptadana.com E budimanarief@ciptadana.com ANALYST ANALYST ANALYST Nichelle Ongko Niko Margaronis Yasmin Soulisa Media, Retail, Others Telecommunication, Tower, Consumer Property, Healthcare, Plantations T ext 740 T ext 734 T ext 799 E ongkonichelle@ciptadana.com E margaronisniko@ciptadana.com E soulisayasmin@ciptadana.com JUNIOR ECONOMIST TECHNICAL ANALYST RESEARCH ASSISTANT Imanuel Reinaldo Trevor Gasman Sumarni T ext 820 T ext 934 T ext 920 E reinaldoimanuel@ciptadana.com E gasmantrevor@ciptadana.com E sumarni@ciptadana.com EQUITY SALES Co HEAD OF INSTITUTIONAL SALES Dadang Mulyana Plaza ASIA Office Park unit 2 Plaza ASIA Office Park unit 2 Jl. Jend. Sudirman Kav. 59 Jl. Jend. Sudirman Kav. 59 Jakarta Jakarta T ext 838 T ext 807 Co HEAD OF INSTITUTIONAL SALES The Fei Ming F F E mulyanadadang@ciptadana.com E thefeiming@ciptadana.com BRANCH OFFICES JAKARTA - MANGGA DUA JAKARTA - PURI KENCANA SURABAYA Komplek Harco Mangga Dua Perkantoran Puri Niaga III Intiland Tower Surabaya Rukan Blok C No.10 Jl. Puri Kencana Blok M8 No.2E Ground Floor Suite 5 & 6 Jl. Mangga Dua Raya Kembangan Jl. Panglima Sudirman Jakarta Jakarta Surabaya T T T F F F SEMARANG Gedung Menara Suara Merdeka 6th Floor Unit 02 Jl. Pandanaran No.30 Semarang T F Please see analyst certification and other important disclosures at the back of this report 5

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