MNCS COMPANY UPDATE MNC Sekuritas Research Division September 18, 2017

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1 MNCS COMPANY UPDATE MNC Sekuritas Research Division September 18, 2017 PT Waskita Beton Precast Tbk (WSBP) Basic Industry and Chemicals Bargain Hunting Time! Target Price Stock Data Current Price 52wk Range BUY : Rp690 : Rp374 : Rp Share Outstanding : ,2 mn Free Float (%) : 10,54% Mkt Capitalization (IDR bn) : 9.964,5 Major Shareholders PT Waskita Karya Tbk : 59,99% Public : 40% Delays in Toll Road Divestment of PT Waskita Karya (Persero) Tbk (WSKT) & Material Use Restrictions PT Waskita Karya (Persero) Tbk (WSKT), working through its subsidiary PT Waskita Toll Road with 72.63% ownership had planned to divest the 10 toll roads in two investment packages in the PINA program. However, the plan was delayed because incoming offers from prospective investors were disappointing, and did not meet the anticipated target: the price was below expectations. In addition, there is an issue that may affect the precast concrete industry: the use of construction materials originating with a subsidiary, including precast concrete, is only to be allowed to total a maximum 50%. WSKT Sentiment Depresses WSBP Share Price Since the sentiment of a delay in toll road divestment conducted by the parent company on September 12, 2017, WSBP share price weakened, slipping -8.63%. When the information concerning the material use restriction issue circulated, WSBP stock price fell -6.53%. Since the beginning of the year the share price of WSBP has decreased by % YTD. We consider that the information in circulation directly reflects the stock price of WSBP, although the growing issue is addressed to the holding company. Should We Worry about The Sentiment? We visited WSBP and met directly with WSBP management, who assured us that the sentiments do not affect payments to WSBP. This is based on the fact that the funds used for the payment of each project to WSBP are already prepared by WSKT before the project is completed. Most of the projects undertaken by WSBP are turnkey (payments will be paid when the project is done), which carries a larger profit margin. We see that the information currently circulating is a short-term negative sentiment. This is based on a statement from management that WSBP's financial condition is still healthy and growing, and is not affected by the issue circulating about the parent company and not yet clear about the restriction of material use. Since we have not received any clarification from the Government, we believe that the fundamental condition of WSBP remains solid, supported by: 1) Low Debt-to-Equity Ratio (DER) at a level of 0.53x (as of 1H17), thus indicating more space for increased WSBP leverage in the future; 2) EPS of WSBP shows a strengthening trend of CAGR of % not proportional to current stock price weakness; 3) Price to Earnings (P/E), current P/E ratio is at 10.99x lower than competitor; 4) WSBP is still optimistic with revenue reaching Rp7.75 trillion or growing by 64.30% in FY17E, net profit targeted amounted to Rp1.13 trillion, for an increase of 78% from the realization of net income in FY16. Valuation and Recommendation: Maintain BUY with TP: Rp690 With this situation, we still maintain a positive outlook on the positive growth prospects of WSBP s financial performance, along with a positive growth industry sector in the future. In addition, support from share buyback action can be a catalyst that can encourage the growth of WSBP stock price. We also believe that this moment represents good momentum for investors to accumulate WSBP shares. We recommend BUY for WSBP with target price / TP: Rp690. With that price target, it implies PE17E/ FY18F of 16.91x-11.60x PBV17E/PBV18F of 2.26x-1.99x. Key Financial Highlight Research Analyst Gilang Anindito gilang.dhirobroto@mncgroup.com (021) ext In billion IDR 2014FY 2015FY 2016FY 2017E 2018F Revenues , , , , EBITDA Net Income , , EPS P/E x 9.37x 7.31x PBV x 1.15x 0.99x ROE 19.98% 25.12% 8.57% 12.33% 13.52% Source : Company, MNCS Estimates (as of 15 September 2017) Page 1

2 Delays in Toll Road Divestment of PT Waskita Karya (Persero) Tbk (WSKT) and Material Use Restrictions PT Waskita Karya (Persero) Tbk (WSKT), through its subsidiary PT Waskita Toll Road with 72.63% ownership, had planned to divest the 10 toll roads through two investment packages in the PINA program. In the first package, Waskita Toll Road would sell strategic shares in 7 Trans Java toll roads and the two would sell strategic shares in 3 toll segments of Non Trans Java. According to Bappenas, the total cost of the toll road project is around Rp115 trillion. However, after an assessment, it became clear some of the incoming offers from prospective investors failed to meet the target price expected by Management. Exhibit 01. Toll Road WSKT No Toll Road Ownership 1 Kanci - Pejagan 100% 2 Pejagan - Pemalang 100% 3 Pemalang - Batang 100% 4 Batang - Semarang 60% 5 Solo - Mantingan - Ngawi 40% 6 Ngawi - Kertosono 40% 7 Pasuruan - Probolinngo 80% Trans -Java 8 Bekasi - Cawang - Kampung Melayu 60% 9 Medan - Kualanamu - Tebing Tinggi 15% 10 Kayu Agung - Palembang - Betung 60% Non Trans -Java Source : WSKT In addition, there is an issue that may affect the precast concrete industry. The Ministry of Public Works and Public Housing (PUPR) plans to regulate the use of construction materials, including precast concrete, by allowing only 50% of such materials to be sourced from subsidiaries, with the remaining 50% coming from private producers. The WSKT Sentiment Negatively Affects WSBP Share Price Currently, WSBP is working on projects derived from parent companies, on an 80% average of total projects and 20% from private projects on average. The focus of the projects undertaken by the parent company is on toll road development. We consider that the portion of the projects derived from the parent company is still large, because the majority of contracts managed by WSBP for this year are Trans Java toll projects. In addition, since the information about delays in toll road divestment conducted by the parent company on September 12, 2017 came out, WSBP share price weakened, slipping by -8.63%. Since the information circulated about restrictions in material use, WSBP stock price fell -6.53%. Since listing on the Indonesia Stock Exchange (IDX), WSBP share price has decreased by % from IPO price. Meanwhile, since the beginning of the year WSBP share price has decreased by % YTD. Page 2

3 We considered that the information in circulation is directly reflected in the stock price of WSBP, although the growing issue is addressed by the parent company, as WSBP is a subsidiary most of whose projects derive from the parent company. Thus, investors consider this a negative sentiment about WBSP. Exhibit 02. Stock Price WSBP (YTD) Jan/17 Feb/17 Mar/17 Apr/17 May/17 Jun/17 Jul/17 Aug/17 Sep/ Should We Worry about The Sentiment? We visited WSBP and met directly with the management of WSBP. From the management side they said that divestment of toll roads by the parent company being delayed will only exert a temporary effect. This will not affect payments to WSBP. This is based on the fact that the funds used for the payment of each project to WSBP have already been prepared by WSKT before the project is completed. Most of the projects undertaken by WSBP are turnkey (payment will be made when the project is done). With turnkey projects, the advantages of WSBP are gaining a greater profit margin than working on non-turnkey projects. So that the composition of most projects obtained by WSBP from the holding company is actually an advantage for WSBP. This is supported by the still large number of toll road projects undertaken by the parent company, so that WSBP has certainty for the project being undertaken. In addition, the fees charged to WSKT associated with precast concrete are the same as those imposed on other external parties. Thus, WSBP can still continue to maintain its profit margins. While there is an issue about restrictions on the use of materials derived from subsidiaries, until now there has been no direct information from the Government. We believe that funding is not an issue for WSBP. We see that there are important points that make WSBP a healthy company associated with funding. We see from the Debt to Equity Ratio (DER), WSBP is still within the safe limits to obtain funding. Despite huge funding needs for expansion, WSBP has the opportunity to obtain funds from banks. Since 2015, the Debt to Equity (DER) WSBP is still very low. The number is still far below the average banking covenant, at a level of 2.5x. Low DER ratios indicate more space for increased WSBP leverage in the future. This is due to the low use of bank debt used by WSBP. Page 3

4 Exhibit 03. Debt to Equity/DER (x) 0,57 0,53 0, FY 2016FY 1H17 On the other hand, we believe that the EPS of WSBP has shown an upward trend in every quarter, with CAGR growth of %. However, the stock price of WSBP declined as the current price at Rp374 (per 15 September 2017) was lower than the IPO price of Rp490, or down by %. Exhibit 04. EPS vs Stock Price Q Q Q ,0 9,0 8,0 7,0 6,0 5,0 4,0 3,0 2,0 1,0 0,0 Stock Price EPS Meanwhile, if we consider the Price to Earnings (P/E) ratio, the current P/E ratio is at 10.99x. When compared with similar companies that have been listed on the Indonesia Stock Exchange (IDX), the P/E ratio of the WSBP is still low. The P/E ratio of PT Wijaya Karya Beton Tbk. (WTON) is currently at 16.91x. Thus, it can be said that on average, in the precast concrete industry, P/E ratio of WSBP is very low since WSBP is listed on Indonesia Stock Exchange (IDX). Page 4

5 Exhibit 05. Price-Earnings (P/E) Ratio WSBP vs WTON WSBP WTON Jan/17 Feb/17 Mar/17 Apr/17 May/17 Jun/17 Jul/17 Aug/17 Sep/17 We assess the information currently circulating to be a short-term negative sentiment. This is based on a statement from management saying that the financial condition of WSBP is still healthy and growing, and not affected by the information circulating about the parent company and it is not yet clear about the limitation of material use because there is no clear decision from the government. It has been predicted before by MNCS that WBSP fundamentals are still good, and continue to grow (see our previous report). In addition, WSBP is still optimistic with the revenue achievement of Rp7.75 trillion, or up by 64.3% in FY17E. Meanwhile, the net profit targeted by WSBP amounted to Rp1.13 trillion, an increase of 78% from the realization of net income in FY16. Thus, we think there is an opportunity for investors to go bargain hunting for WSBP shares, because the financial performance of WSBP is not comparable with its declining share price, which has fallen sharply. Progress of Buyback Stock Valuation and Recommendation : Maintaining BUY with TP: Rp690 WSBP plans to buy back shares starting in The number of shares to be repurchased is 7% of the total, or approximately 1.84 billion. The schedule extends from 27 July 2017 and goes to 27 January WSBP plans to set aside Rp1 trillion to conduct its share buyback. Funds to conduct share buyback were obtained from cash receipts (WSBP accounts receivable from parent companies) which reached Rp1.4 trillion. Later, WSBP will keep the shares of the share buyback process as treasury stock. The share buyback process has been running since July 2017 and MNCS estimates that realization has reached proportionally up to 40% currently. We predict the average stock buyback price until now is at range of Rp We still believe that this corporate action will impart a positive sentiment to the future performance of WSBP shares and the buyback price of shares obtained by WSBP is still higher than the current market price. With this situation, we still maintain a positive outlook on the growth prospects of WSBP s financial performance, along with an optimistic industry projection in the future. In addition, support from share buyback action can also be a catalyst that can encourage the growth of stock prices WSBP. We also believe that this moment is a good momentum for investors to be able to accumulate WSBP shares. We recommend BUY for WSBP with target price / TP: Rp690. With that price target, it implies PE17E / FY18F of 16.91x x PBV17E / PBV18F of 2.26x x. Page 5

6 Company Update MNC Sekuritas Research Division Exhibit 11. Financial Estimate Income Statement Revenues , , , , Precast , , , , Readymix , , , COGS Before Depreciation - 2, , , , COGS After Depreciation , , , , Gross Profit Before Depreciation Gross Profit After Depreciation , , , , , , Total Expenses Selling General & administration Depreciation Operating Profit (EBIT) , , EBITDA , , , Other Income/Expenses (187.37) (194.37) Earning Before Tax , , Tax Expenses Net Income , , EPS (full amount) Cash Flow CFO Total (85.00) (686.14) (3,034.91) Net Income , , Depreciation Change in Working Capital (530.48) (1,899.90) (785.41) (695.74) Change in others (1,802.04) (1,886.95) (241.06) (225.80) CFI Total (21.62) (123.56) (833.32) (2,540.95) (2,161.29) Change in ST Investment Balance Sheet Current Assets , , , , Cash and Cash Equivalents , , , Account Receivable , , , Inventories Others current Assets , Non-Current Assets , , , , Fix Asset - net , , , Other Non-Current Assets - 2, , , , TOTAL ASSETS 1, , , , , Current Liabilities , , , , Short-term Bank Loans , , , Account payable , , , Other current liabilities , , , , Non-Current Liabilities , , , Long-term Liabilities - Net , , , Other Liabilities TOTAL EQUITY , , , , TOTAL LIABILITIES & EQUITY 1, , , , , Ratios Revenue Growth % 78.39% 50.77% 32.72% Operating Profit Growth % % 67.46% 29.05% EBITDA Growth % % 49.86% 29.04% Net Profit Growth % 89.86% 65.75% 28.20% Current Ratio % 41.27% % % % Quick Ratio % 25.09% % % % Change in LT Investment - (2,320.14) (1,307.51) (580.42) (589.13) Capex - (755.48) (2,069.21) (1,997.27) (1,607.86) Change in Others (21.62) 2, , CFF Total , , , Assset/ Liabilities % % % % % Liabilities/Equity 71.27% % 85.46% 98.90% % Net Debt to Equity 0.00% 57.19% 45.32% 57.41% 59.87% Change in ST debt , Change in LT debt Equity financing , Dividend payment - - (379.74) (420.89) (404.70) Others (238.73) (342.87) 3, Net Cash Increase (174.04) 4, (610.39) (212.16) Closing Balance , , , Gross Profit Margin 22.85% 15.86% 22.26% 24.17% 23.87% Operating Profit Margin 22.23% 13.65% 20.13% 22.36% 21.74% Ebitda Margin 23.24% 16.95% 22.61% 22.48% 21.86% Net Profit Margin 21.86% 12.64% 13.46% 14.80% 14.29% ROA 11.67% 7.72% 4.62% 6.20% 6.66% ROE 19.98% 25.12% 8.57% 12.33% 13.52% Source : Company, MNCS Estimate Page 6

7 Company Update MNC Sekuritas Research Division MNC SEKURITAS RESEARCH TEAM Thendra Crisnanda Head of Institutional Research, Strategy (021) ext Victoria Venny Telco, Infrastructure, Logistics (021) ext Rr. Nurulita Harwaningrum Banking (021) ext Edwin J. Sebayang Head of Retail Research, Technical, Auto, Mining (021) ext Gilang Anindito Property, Construction (021) ext Krestanti Nugrahane Widhi Research Associate (021) ext I Made Adi Saputra Head of Fixed Income Research imade.saputra@mncgroup.com (021) ext Rheza Dewangga Nugraha Junior Analyst of Fixed Income rheza.nugraha@mncgroup.com (021) ext Sukisnawati Puspitasari Research Associate sukisnawati.sari@mncgroup.com (021) ext MNC SEKURITAS EQUITY SALES TEAM Benny Narendro Head of Institutional Client benny.narendro@mncgroup.com (021) ext Okhy Ibrahim okhy.ibrahim@mncgroup.com (021) ext Nesya Kharismawati Equity Sales Manager nesya.kharismawati@mncgroup.com (021) ext Harun Nurrosyid harun.nurrosyid@mncgroup.com (021) ext Gilang Ramadhan gilang.ramadhan@mncgroup.com (021) ext Anastasia Pratiwi Manager Equity Institution anastasia.pratiwi@mncgroup.com (021) ext Agus Eko Santoso agus.santoso@mncgroup.com (021) ext Iman Hadimulya, ST Manager Equity Institution iman.hadimulya@mncgroup.com (021) ext MNC Research Investment Ratings Guidance BUY : Share price may exceed 10% over the next 12 months HOLD : Share price may fall within the range of +/- 10% of the next 12 months SELL : Share price may fall by more than 10% over the next 12 months Not Rated : Stock is not within regular research coverage PT MNC SEKURITAS MNC Financial Center Lt Jl. Kebon Sirih No , Jakarta Pusat Telp : (021) Fax : (021) Call Center : Disclaimer This research report has been issued by PT MNC Sekuritas, It may not be reproduced or further distributed or published, in whole or in part, for any purpose. PT MNC Sekuritas has based this document on information obtained from sources it believes to be reliable but which it has not independently verified; PT MNC Sekuritas makes no guarantee, representation or warranty and accepts no responsibility to liability as to its accuracy or completeness. Expression of opinion herein are those of the research department only and are subject to change without notice. This document is not and should not be construed as an offer or the solicitation of an offer to purchase or subscribe or sell any investment. PT MNC Sekuritas and its affiliates and/or their offices, director and employees may own or have positions in any investment mentioned herein or any investment related thereto and may from time to time add to or dispose of any such investment. PT MNC Sekuritas and its affiliates may act as market maker or have assumed an underwriting position in the securities of companies discusses herein (or investment related thereto) and may sell them to or buy them from customers on a principal basis and may also perform or seek to perform investment banking or underwriting services for or relating to those companies. Page 7