Equity Indonesia Construction Wijaya Karya (WIKA IJ) BUY (Unchanged) Stock Data Target price (Rp) Prior TP (Rp) Shareprice (Rp) Rp2,900 Rp2,900 Rp1,745 Upside/downside (%) +66.2 Sharesoutstanding (m) 8,970 Marketcap. (US$ m) 1,138 Free float (%) 34.0 Avg. 6m dailyt/o (US$ m) 4.1 Price Performance 3M 6M 12M Absolute (%) 9.7 6.7 29.1 Relative to JCI (%) 6.4 14.1 43.3 52w high/low (Rp) 2,490 1,505 130 120 110 100 90 80 70 60 Mar17 Apr17 Apr17 May17 Jun17 Jun17 Jul17 WIKARebase Major Shareholders Government of Indonesia 65.0% Public 34.2% Employee 0.7% Estimate Change; Vs. Consensus 2018 2019 Latest EPS (Rp) 178.0 214.1 Vs. Prior EPS (%) (1.4) (2.5) Vs. Consensus (%) 8.4 13.6 Source: Bloomberg Aug17 Aug17 Sep17 Oct17 Nov17 Nov17 Dec17 Jan18 Jan18 JCI IndexRebase Feb18 Mar18 Healthiest balance sheet among peers Earnings of Rp1.2tn (+13.5% yoy), slightly below market expectation Highest operating cash flow of Rp1.9tn with Low debt level Distinct contract achievement of Rp10.5tn as of mid March 2018 Maintain Buy with unchanged TP of Rp2,900 15 March 2018 Results Note FY17 Earnings slightly below our/consensus estimate (96/97%). WIKA booked earnings of Rp1.2tn (+14% yoy) in FY17, which came slightly below market expectation, forming 96% of consensus estimate and 97% of our forecast. We believe the earnings shortfall was due to delay in High Speed Railway s construction. Revenue was Rp26.2tn (+67% yoy) in FY17, however COGS was growing faster at 73% yoy, resulting in lower gross margin of 11% (FY16: 14%). Moreover, despite booking income from JO of Rp573bn (+51% yoy) in FY17, operating margin was down by 140bps as WIKA booked increase of opex to Rp677bn (+28% yoy). Net margin also diminished to 4.6% (FY16: 6.8%) in FY17 from increase from interest expense (+56% yoy) and impairment (130%). In quarterly basis, WIKA booked an earnings of Rp519bn (110% qoq, 12% yoy) in 4Q17, cumulating to 43% of FY17 target. Operating Cash flow of Rp1.8tn and DER of 0.62x. As of FY17, WIKA has the highest operating cash flow position of Rp1.9tn (+234 yoy) where as the other SOE contractors are averaging negative cash flow of Rp1.4bn. Moreover, despite the emerge of some turnkey project, WIKA manage to maintain low debt level with gearing and net gearing at 0.62x and 0.15x respectively, which only came below PTPP. Going forward, with WIKA is preparing Capex of Rp12tn in FY18, which will be funded from internal cash of Rp11tn, WIKA Realty s proceed of Rp1.52tn, and Komodo Bond s proceed of Rp5tn. New contract achievement 18% of FY18 target of Rp57tn. As of 2M18, WIKA has obtained new contract of Rp10.5tn, cumulating to 18% of company s FY18 target of Rp57tn (+32% yoy). The contract is dominated by infrastructure and building sector (62%), followed by precast (18%), energy & industrial plant (14.5%) and Property & Realty (5.5%). Please note that WIKA managed to book total new contract of Rp42.4tn in FY17, cumulating to 98% of company s FY17 contract target. Maintain Buy with unchanged TP of Rp2,900. PTPP is our top pick in the construction sector given its healthy balance sheet, resilient contract achievement and its minimum exposure towards turnkey/cpf projects. We maintain our Buy call on WIKA with unchanged TP of Rp2,900. WIKA is currently trading at 10.6x PE FY18F, with 66% potential upside. Key risk to our call might come from delay on land acquisition and loan disbursement for JakartaBandung High Speed Railway (HSR). Joey Faustian PT Indo Premier Sekuritas joey.faustian@ipc.co.id +62 21 5793 1168 Year To 31 Dec 2016A 2017A 2018F 2019F 2020F Revenue (RpBn) 15,669 26,176 30,433 36,236 40,702 EBITDA (RpBn) 1,948 2,746 3,379 4,105 4,662 EBITDA Growth (%) 30.1 40.9 23.1 21.5 13.6 Net Profit (RpBn) 1,059 1,202 1,597 1,920 2,290 EPS (Rp) 118 134 178 214 255 EPS Growth (%) 16.1 13.5 32.8 20.3 19.2 Net Gearing (%) (19.7) (15.3) 14.9 23.6 25.7 PER (x) 14.8 13.0 9.8 8.2 6.8 PBV (x) 1.2 1.1 0.9 0.8 0.8 Dividend Yield (%) 1.0 2.2 2.3 3.1 3.7 EV/EBITDA (x) 5.6 4.0 4.4 4.0 3.7 Source: WIKA, IndoPremier Share Price Closing as of : 15March2018
Fig. 1: Revenue by segment, 20152019F Fig. 2: Gross profit to grow by 26% CAGR 20172019F Realty & Property Industry EPC Infrastucture & Building 40,000 35,000 30,000 25,000 5,000 4,500 4,000 3,500 3,000 Gross profit 14.0% 12.1% 11.0% Gross margin 12.3% 12.6% 16.0% 14.0% 12.0% 10.0% 20,000 15,000 10,000 5,000 2015A 2016A 2017F 2018F 2019F 2,500 2,000 1,500 1,000 500 2015A 2016A 2017F 2018F 2019F 8.0% 6.0% 4.0% 2.0% 0.0% Fig. 3: Operating profit to grow by 24% CAGR 20172019F Fig. 4: Net profit to grow by 26% CAGR 20172019F Operating profit Operating margin Net profit Net margin 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 11.2% 11.1% 13.0% 10.6% 11.8% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 2,500 2,000 1,500 1,000 500 4.6% 6.8% 4.6% 5.2% 5.3% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 2014A 2015A 2016A 2017F 2018F 0.0% 2015A 2016A 2017F 2018F 2019F 0.0% Fig. 5: FY17 Operating cash flow comparison Fig. 6: FY17 DebttoEquity comparison (Rp tn) WIKA PTPP ADHI WSKT 3.0 1.9 2.0 1.4 1.0 0.0 1.0 WIKA PTPP ADHI WSKT 2.0 3.0 4.0 3.2 5.0 6.0 5.5 (Rp tn) WIKA PTPP ADHI WSKT 2.0 1.9x 1.8 1.6 1.4x 1.4 1.2 1.0 0.8 0.62x 0.6x 0.6 0.4 0.2 0.0 WIKA PTPP ADHI WSKT 2
Fig. 7: WIKA's FY17 earnings (In Rp bn) FY17 FY16 YoY 4Q17 3Q17 QoQ yoy % of Consensus % of Ours Revenue 26,176 15,669 67% 10,300 6,392 61% 63% 114% 114% Gross profit (before JO) 3,449 2,192 57% 1,227 640 92% 14% 119% 123% Operating profit 2,772 2,044 36% 1,200 595 102% 11% 105% 109% Net profit 1,202 1,059 14% 519 247 110% 12% 96% 97% Gross margin 11.0% 14.0% 11.9% 10.0% Operating margin 10.6% 13.0% 11.7% 9.3% Net margin 4.6% 6.8% 5.0% 3.9% Fig. 8: Changes in earnings forecast (Old) (New) (Change) Year to Dec 31 2018F 2019F 2018F 2019F 2018F 2019F Revenue 29,217 35,880 30,433 36,236 4.2% 1.0% Gross profit 3,607 4,693 3,752 4,574 4.0% 2.5% Operating profit 3,307 3,872 3,583 4,257 8.3% 9.9% Net income 1,619 1,969 1,597 1,920 1.4% 2.5% Margins Gross margin 12.3% 13.1% 12.3% 12.6% Operating margin 11.3% 10.8% 11.8% 11.7% Net margin 5.5% 5.5% 5.2% 5.3% 3
Year To 31 Dec (RpBn) 2016A 2017A 2018F 2019F 2020F Income Statement Net Revenue 15,669 26,176 30,433 36,236 40,702 Cost of Sales (13,477) (23,300) (26,680) (31,662) (35,517) Gross Profit 2,192 2,876 3,752 4,574 5,185 SG&A Expenses (527) (677) (928) (1,173) (1,318) Operating Profit 1,665 2,200 2,824 3,400 3,867 Net Interest (384) (436) (675) (771) (846) Forex Gain (Loss) (5) 1 0 0 0 OthersNet 385 328 515 552 682 PreTax Income 1,660 2,092 2,664 3,181 3,704 Income Tax (449) (736) (854) (1,006) (1,117) Minorities (152) (154) (213) (254) (296) Net Income 1,059 1,202 1,597 1,920 2,290 Balance Sheet Cash & Equivalent 9,270 11,274 10,650 10,418 10,742 Receivable 4,538 6,258 7,921 9,580 10,817 Inventory 1,164 1,663 2,219 2,541 3,044 Other Current Assets 8,680 15,715 19,350 22,648 25,948 Total Current Assets 23,652 34,910 40,139 45,187 50,551 Fixed Assets Net 3,584 4,444 6,400 6,956 7,173 Goodwill 0 0 0 0 0 Non Current Assets 3,771 5,907 7,170 8,653 10,180 Total Assets 31,355 45,684 54,219 61,392 68,612 ST Loans 4,712 6,424 7,304 9,059 10,176 Payable 4,527 8,925 0 11,389 13,057 Other Payables 4,568 10,144 11,650 12,640 14,165 Current Portion of LT Loans 1,102 482 826 727 803 Total Current Liab. 14,909 25,975 29,387 33,814 38,201 Long Term Loans 932 2,108 4,982 5,005 5,085 Other LT Liab. 2,777 2,968 3,514 4,209 4,722 Total Liabilities 18,617 31,052 37,883 43,028 48,008 Equity 8,440 8,773 8,773 8,773 8,773 Retained Earnings 3,105 4,003 5,239 6,681 8,394 Minority Interest 1,293 1,998 2,466 3,052 3,579 Total SHE + Minority Int. 12,838 14,775 16,479 18,506 20,747 Total Liabilities & Equity 31,455 45,826 54,362 61,535 68,755 Source: WIKA, IndoPremier 4
Year to 31 Dec 2016A 2017A 2018F 2019F 2020F Cash Flow Net Income (Excl.Extraordinary&Min.Int) 1,211 1,356 1,810 2,175 2,586 Depr. & Amortization 283 547 555 705 795 Changes in Working Capital (1,517) 6,167 (705) (240) 549 Others (1,046) (2,251) (5,027) (2,121) (1,841) Cash Flow From Operating (1,069) 5,819 (3,367) 520 2,090 Capital Expenditure (923) (3,543) (3,774) (2,744) (2,539) Others 21 175 160 213 203 Cash Flow From Investing (902) (3,368) (3,614) (2,532) (2,336) Loans 3,235 2,269 4,098 1,679 1,273 Equity 6,112 0 0 0 0 Dividends (149) (345) (361) (479) (576) Others 621 458 (30) 94 (189) Cash Flow From Financing 9,818 2,383 3,707 1,295 508 Changes in Cash 7,848 4,834 (3,274) (718) 261 Financial Ratios Gross Margin (%) 14.0 11.0 12.3 12.6 12.7 Operating Margin (%) 10.6 8.4 9.3 9.4 9.5 PreTax Margin (%) 10.6 8.0 8.8 8.8 9.1 Net Margin (%) 6.8 4.6 5.2 5.3 5.6 ROA (%) 4.2 3.1 3.2 3.3 3.5 ROE (%) 11.6 8.7 10.2 11.0 11.7 ROIC (%) 8.5 7.2 7.5 7.7 8.2 Acct. Receivables TO (days) 76.1 60.5 67.1 69.5 71.3 Acct. Receivables Other TO (days) 16.9 14.7 18.0 18.6 20.1 Inventory TO (days) 12.3 16.5 13.7 13.3 12.7 Payable TO (days) 119.9 105.4 126.8 121.0 125.6 Acct. Payables Other TO (days) 4.5 3.9 4.1 4.4 4.5 Debt to Equity (%) 52.5 61.0 79.6 79.9 77.4 Interest Coverage Ratio (x) 0.3 0.3 0.3 0.3 0.3 Net Gearing (%) (19.7) (15.3) 14.9 23.6 25.7 Source: WIKA, IndoPremier 5
Head Office PT INDO PREMIER SEKURITAS Wisma GKBI 7/F Suite 718 Jl. Jend. Sudirman No.28 Jakarta 10210 Indonesia p +62.21.5793.1168 f +62.21.5793.1167 INVESTMENT RATINGS BUY : Expected total return of 10% or more within a 12month period HOLD : Expected total return between 10% and 10% within a 12month period SELL : Expected total return of 10% or worse within a 12month period ANALYSTS CERTIFICATION. The views expressed in this research report accurately reflect the analysts personal views about any and all of the subject securities or issuers; and no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in the report. DISCLAIMERS This research is based on information obtained from sources believed to be reliable, but we do not make any representation or warranty nor accept any responsibility or liability as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendations contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is not and should not be construed as an offer or a solicitation of an offer to purchase or subscribe or sell any securities. PT. Indo Premier Sekuritas or its affiliates may seek or will seek investment banking or other business relationships with the companies in this report.