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Wijaya Karya: Facing Headwinds

WIKA's targets for the year will be very challenging to achieve due to delays in major infrastructure projects. The company's meeting provided more clarity on difficulties meeting targets and future investment plans. The analysts cut WIKA's earnings estimates for 2015 and 2016 by 32% and 36%, respectively, and lowered the target price to IDR 2,500 due to a lack of earnings visibility and weaker performance from subsidiaries. WIKA plans investments in power plant projects and Indonesia's first high-speed railway using potential rights issue proceeds in 2016.

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28 views

Wijaya Karya: Facing Headwinds

WIKA's targets for the year will be very challenging to achieve due to delays in major infrastructure projects. The company's meeting provided more clarity on difficulties meeting targets and future investment plans. The analysts cut WIKA's earnings estimates for 2015 and 2016 by 32% and 36%, respectively, and lowered the target price to IDR 2,500 due to a lack of earnings visibility and weaker performance from subsidiaries. WIKA plans investments in power plant projects and Indonesia's first high-speed railway using potential rights issue proceeds in 2016.

Uploaded by

Dedi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Thursday, 20 August 2015

CONSTRUCTION SECTOR/COMPANY UPDATE

HOLD
Target Price, IDR

2,500

Upside (Downside)

(7.9%)

WIKA IJ/WIKA.JK

2,715
6,107

Market Cap, IDR bn


(US$ mn)
3M T/O, US$mn

Last Recommendation
31-Jul-2015
04-May 2015
17-Mar-2015

BUY
BUY
BUY

IDR 4,000
IDR 4,000

WIKA relative to JCI Index


WIKA (LHS)

Relative to JCI Index (RHS)

%
30
20

3,500

10
3,000
0
2,500

-10

8/19/15

7/22/15

6/24/15

5/27/15

4/1/15

4/29/15

3/4/15

2/4/15

1/7/15

12/10/14

11/12/14

9/17/14

10/15/14

-20
8/20/14

2,000

Market Recommendation
BUY

12

HOLD
SELL

Facing headwinds

WIKA has just held its semi-annual analyst meeting at which the company provided
more clarity on its future prospects. The main takeaways from the meeting touched
on its difficult-to-achieve targets for this year and its future investment pipeline.
This years targets will be very challenging stated the management, citing delays in
16,695 some major infrastructure projects that had initially been expected to begin in 1H15.
1,206 Furthermore, targeted investments are still focused on the upcoming power plant
2.9 projects and the exciting high-speed railway project. To price in the lackluster
performance of both WTON and WIKAs property arm this year, we cut our earnings
estimates by 32%/36% in FY15F/16F with net profits expected to reach Rp573bn/
IDR 4,000 638bn. Consequently, our TP is lowered to Rp2,500.

Last Price, IDR


No. of shares (mn)

IDR
4,000

Wijaya Karya

9
3

Danareksa vs Consensus
Target Price, IDR
EPS 2015F, IDR
PE 2015F, x

Our
2,500
93
29.1

Cons
3,236
110
24.7

Joko Sogie
(62-21) 2955 5827
[email protected]

Danareksa research reports are also


available at Reuters Multex and First Call
Direct and Bloomberg.

www.danareksa.com

% Diff
-22.7
-15.5
17.8

Targets not yet revised


In 1H15, WIKA signed a total of Rp10.4tn new contracts in addition to Rp4.2tn of lowest-bid projects.
Even though this figure is up 46%y-y, it is still way behind the companys target of Rp31.6tn.
Adversely impacting the companys performance this year have been the underachieving WTON
and WIKAs property arm. In WTONs case, the company has faced a more competitive landscape
since the other state-contractors establishing precast facilities have preferred to use their internal
capacity in their own projects, eroding WTONs market by nearly 10% this year. Property sales,
meanwhile, have been disappointing, largely due to the lack of new projects, land bank constraints,
and challenging conditions affecting the high-end segment. For now, the management is still
reviewing its targets with the possibility of downgrading guidance in the coming weeks.
Further investments in the pipeline
With potential Rp4.6tn rights issue plan in 2016, WIKA plans to use the proceeds in several
investments including power plant projects and to initiate Indonesias first high-speed railway.
For its power plant projects, WIKA will only act as the minority investor in the Java-3, Java-5, and
Java-7 power plants. For its HSR projects, meanwhile, WIKA may possibly emerge as the majority
stakeholder in view of the latest scheme proposed by the consortium. In our view, the power plant
projects will provide a greater benefit to the companys business since WIKAs goal is to achieve
expertise in the EPC business as well as gain recurring incomes. We still have lingering concerns
on the companys move into HSR, however, as the move would significantly constrain the
companys balance sheet going forward due to business consolidation post-operation.
Lowering our TP to Rp2,500; Downgrade to HOLD
In the past, WIKA has been the darling in the Indonesian construction sector thanks to its exciting
diversification story, its large order book size, in addition to having the largest market cap among
its peers. Now, however, the company is facing stronger headwinds, as reflected in the fact that
its order book has been surpassed by other state-contractors. A lack of earnings visibility and
WTONs sluggish performance prompt us to downgrade our recommendation to HOLD.

Revenues, Rp bn
EBITDA, Rp bn
EBITDA Growth, %
Net Profit, Rp bn
Core Profit, Rp bn
Core EPS, Rp
Core EPS Growth, %
Net Gearing, %
PER, x
Core PER, x
PBV, x
EV/EBITDA, x
Yield, %

2013

2014

2015F

2016F

2017F

11,885
1,356
40.8
570
668
109
33.0
8.9
29.2
24.9
5.2
12.5
0.7

12,463
1,592
17.4
615
701
114
4.7
14.7
27.1
23.8
3.4
10.9
0.7

12,813
1,534
(3.6)
573
604
98
(13.8)
29.0
29.1
27.6
3.0
11.9
0.8

15,589
1,896
23.6
638
668
109
10.5
37.4
26.2
25.0
2.7
10.0
0.8

18,782
2,339
23.3
723
752
122
12.6
42.3
23.1
22.2
2.4
8.4
0.9

See important disclosure on the back of this report

20 August 2015

Wijaya Karya

What is the best possible outcome this year?


Even with hopes of brisker infrastructure project flows in 2H15F, we still only expect WTONs
revenues to reach nearly Rp3.0tn (vs. Rp4tn initially) with net profits of Rp200bn (vs. Rp365bn
initially). As such, the industrial segment earnings contribution will fall short, reaching only
Rp136bn in FY15F compared to an initially expected Rp216bn by the management. On top
of that, WIKAs lackluster property business will not make much of a contribution to the
companys earnings this year. For the full year, the company had initially expected the
contribution from property earnings to reach Rp126bn, although the figure stood at a
dismal Rp3.5bn in 1H15. Against this backdrop, we expect earnings contribution from both
industrial and property segment to be reduced to nearly Rp177bn in FY15F, down 45%yy, or Rp165bn short from the managements initial target.
However, better expected performance of its main business infrastructure and industrial
plants should provide some relief since this segment may be the only one to post growth
this year, as seen in 1H15 figures. In 2015, we estimate earnings from this segment to grow
35%y-y, generating Rp100bn of additional earnings.
Hence, overall, WIKA will still deliver negative earnings growth for this year. For 2016F, the
lower 2015 base plus the expectation of higher new contracts fueled by better government
execution should be able to bolster the earnings growth. All in all, we cut our earnings
forecasts by 32%/36% in FY15F/16F to only Rp573bn/638bn a 25% discount to the
companys target.

Exhibit 1. Segmental revenues and net profit (IDR bn)


FY13

FY14

FY15F

Chg y-y, %

Revenues
Infrastructure and EPC
Industrial
Property realty

11,885
8,025
2,728
1,132

12,463
7,909
3,271
1,283

12,813
9,573
2,626
614

2.8
21.0
(19.7)
(52.2)

Net profit
Infrastructure and EPC
Industrial
Property realty

571
288
219
77

615
294
218
103

573
396
136
42

(6.8)
34.8
(37.9)
(59.6)

Source: Company, Danareksa Sekuritas

Exhibit 2. Changes in our forecast (IDR bn)

2014

Current
2015F
2016F

Previous
2015F
2016F

Changes, %
2015F
2016F

New contracts
Order book

17,632
41,416

22,722
43,420

26,935
51,183

22,853
53,909

26,216
63,142

(0.6)
(19.5)

2.7
(18.9)

Revenues
Gross profit - ex. JO
Operating profit
Net profit

12,463
1,425
1,401
615

12,813
1,310
1,268
573

15,589
1,620
1,515
638

16,504
1,944
1,816
843

19,486
2,292
2,154
1,004

(22.4)
(32.6)
(30.2)
(32.0)

(20.0)
(29.3)
(29.7)
(36.4)

Source: Company, Danareksa Sekuritas

20 August 2015

Wijaya Karya

Exhibit 3. Profit and loss (IDR bn)


2013

2014

2015F

2016F

2017F

11,885
10,562
1,322
261
1,583
(367)
1,216
(40)
(159)
1,017
(392)
(54)
570
668

12,463
11,039
1,425
370
1,794
(393)
1,401
(124)
(131)
1,146
(395)
(136)
615
701

12,813
11,503
1,310
358
1,668
(400)
1,268
(161)
(50)
1,057
(402)
(82)
573
604

15,589
13,970
1,620
380
2,000
(485)
1,515
(235)
(50)
1,230
(491)
(101)
638
668

18,782
16,773
2,008
419
2,428
(579)
1,848
(349)
(50)
1,450
(598)
(129)
723
752

2013

2014

2015F

2016F

2017F

1,387
1,479
2,564
1,118
1,446
7,994

2,301
1,963
2,938
817
1,496
9,514

1,482
2,135
2,776
959
1,561
8,913

1,588
2,598
3,378
1,164
1,864
10,592

1,485
3,130
4,069
1,398
2,201
12,283

LT investments
Fixed assets
Other assets
Total Non-current Assets
TOTAL ASSETS

2,236
1,640
724
4,601
12,595

3,176
2,676
548
6,401
15,915

3,560
3,711
438
7,709
16,622

4,142
4,695
328
9,166
19,758

4,792
5,639
218
10,649
22,933

ST loans
Trade payables
Current portion of LT loans
Other current liabilities
Total Current Liabilities

278
3,089
124
3,808
7,298

929
3,903
780
2,865
8,476

1,750
3,834
196
3,008
8,788

2,750
4,657
994
3,653
12,053

4,250
5,591
88
4,386
14,315

LT loans
Other liabilities
Total Non-current Liabilities
Minority interest
Capital stock
Retained earnings
Other equity

1,271
799
2,070
278
1,317
1,202
429

1,324
1,137
2,460
989
1,321
1,518
1,151

1,133
1,190
2,322
1,071
1,321
1,969
1,151

136
1,434
1,570
1,172
1,321
2,492
1,151

47
1,711
1,758
1,301
1,321
3,087
1,151

3,227
12,595

4,979
15,915

5,511
16,622

6,135
19,758

6,860
22,933

Revenues
COGS
Gross profit
Income from JO
Gross profit incl. JO
Operating expenses
Operating profit
Net interest expenses
Other income (expenses)
Pre-tax income
Income tax
Minority interest
Net profit
Core profit
Source: Company

Exhibit 4. Balance sheet (IDR bn)

Cash & equivalent


Trade receivables
Project receivables
Inventories
Other current assets
Total Current Assets

Total Equity
TOTAL LIABILITIES AND EQUITY
Source: Company

20 August 2015

Wijaya Karya

Exhibit 5. Cash flow (IDR bn)


2013

2014

2015F

2016F

2017F

1,017
(54)
(630)
140
33
127
632

1,146
(136)
(370)
191
(718)
338
451

1,057
(82)
(407)
266
(108)
53
780

1,230
(101)
(548)
381
(23)
244
1,184

1,450
(129)
(664)
490
(42)
277
1,382

(597)
(420)
(1,017)

(1,226)
(806)
(2,032)

(1,301)
(304)
(1,605)

(1,366)
(499)
(1,865)

(1,434)
(557)
(1,992)

ST loans
Current portion of LT loans
LT loans
Equity
Dividend & CSR
Cash Flow from Financing

44
37
337
(40)
(137)
240

650
656
53
1,308
(171)
2,496

821
(584)
(191)
82
(123)
6

1,000
798
(997)
101
(115)
787

1,500
(906)
(89)
129
(128)
507

Change in Cash

(145)

914

(819)

106

(103)

Pretax profit
Minority interest
Tax
Depreciation
Changes in W/C
Others
Cash Flow from Operation
Capex
Investments
Cash Flow from Investing

Source: Company

Exhibit 6. Key ratios


2013

2014

2015F

2016F

2017F

Profitability, %
Gross margin - excl. JO
Gross margin - incl. JO
Operating margin
EBITDA margin
Net margin
Core margin
ROAE
ROAA

11.1
13.3
10.2
11.4
4.8
5.6
18.8
4.8

11.4
14.4
11.2
12.8
4.9
5.6
15.0
4.3

10.2
13.0
9.9
12.0
4.5
4.7
10.9
3.5

10.4
12.8
9.7
12.2
4.1
4.3
11.0
3.5

10.7
12.9
9.8
12.5
3.8
4.0
11.1
3.4

Leverage
Debt to equity, %
Net debt to equity, %
Interest coverage, x

51.8
8.9
19.0

60.9
14.7
7.1

55.9
29.0
4.8

63.2
37.4
4.8

63.9
42.3
4.4

Turnover, days
Trade receivables
Inventories
Trade payables

45
38
105

57
27
127

60
30
120

60
30
120

60
30
120

Growth, %
Revenue
Operating profit
EBITDA
Net profit
Core profit

20.0
39.8
40.8
19.7
33.7

4.9
15.2
17.4
7.9
5.0

2.8
(9.5)
(3.6)
(6.8)
(13.8)

21.7
19.5
23.6
11.3
10.5

20.5
22.0
23.3
13.3
12.6

Source: Company

20 August 2015

Wijaya Karya

DISCLAIMER
The information contained in this report has been taken from sources which we deem reliable. However, none of P.T. Danareksa Sekuritas and/or its affiliated companies and/or
their respective employees and/or agents makes any representation or warranty (express or implied) or accepts any responsibility or liability as to, or in relation to, the accuracy or
completeness of the information and opinions contained in this report or as to any information contained in this report or any other such information or opinions remaining
unchanged after the issue thereof.
We expressly disclaim any responsibility or liability (express or implied) of P.T. Danareksa Sekuritas, its affiliated companies and their respective employees and agents whatsoever
and howsoever arising (including, without limitation for any claims, proceedings, action , suits, losses, expenses, damages or costs) which may be brought against or suffered by
any person as a results of acting in reliance upon the whole or any part of the contents of this report and neither P.T. Danareksa Sekuritas, its affiliated companies or their respective
employees or agents accepts liability for any errors, omissions or mis-statements, negligent or otherwise, in the report and any liability in respect of the report or any inaccuracy
therein or omission therefrom which might otherwise arise is hereby expresses disclaimed.
The information contained in this report is not be taken as any recommendation made by P.T. Danareksa Sekuritas or any other person to enter into any agreement with regard to
any investment mentioned in this document. This report is prepared for general circulation. It does not have regards to the specific person who may receive this report. In
considering any investments you should make your own independent assessment and seek your own professional financial and legal advice.

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