Indonesia Construction 13 November 2017 - indopremier.com on Wijaya Karya Beton (WTON) and Waskita...

Refer to Important disclosures in the last page of this report

Price to Orderbook multiple

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Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17

+2SD

+1SD

(X)

AVG

-1SD

-2SD

Source: Bloomberg

More attractively valued than ever

� Order book and profit growth is slowing after peaking in 2016.

� Valuation has fully priced-in slower growth outlook, in our view.

� Pre-cast business offers higher margin, lower risk from turnkey.

� Initiate coverage with Buys on WTON (our top pick) and WSBP.

Order book growth may have peaked in 2016. Aggregate new contract and

order book of the Big Four SOE contractors grew at 5-yr CAGR of 30%/32% in

2011-2016, respectively, with their peak growth of 70%/58% in 2016, respectively.

However, we forecast growth to slow to 8.3%/26.7% in 2017F, respectively, due to

very high base and financing contraints, despite sustained high fiscal budget for

infra spending in 2017/2018. We forecast construction earnings to grow 73% in

2017F; c.21% in 2018-19F – although slowing vs. prior years, these are robust

growth outlook which are well above equity market growth in Indonesia.

Valuation has fully priced-in slower growth outlook. Slowing order book

growth, rising earnings risks from self-funded (turnkey) projects, and uncertainty on

2019 election outcome, may have contributed to the sharp derating of the sector in

2017. Although financing costs have risen sharply, in part due to contribution of

turnkey projects/delayed payments from the government, we believe the risk is

mitigated by improving operating efficiency on the back of still robust revenue

growth in next 3 years. Moreover, price-to-order book and price-to-earnings ratios

have fallen to 0.2x and 13x, respectively, from their peaks of >0.3x and 20x,

respectively, or returning to 2012 levels (before the era of President Jokowi). As

such, we believe valuation has fully priced-in the slower growth outlook. WIKA

and ADHI are our top picks among the contractors.

Initiating coverage on pre-cast concrete stocks. We initiate with BUY ratings

on Wijaya Karya Beton (WTON) and Waskita Beton (WSBP), the pre-cast concrete

subsidiaries of WIKA and WSKT, respectively, which benefited from their parent

companies’ strong order books and operating in an industry with limited competition,

better margins and lower debt leverage vs. construction companies. We believe these

factors should lower their earnings risk from potential margin pressures from turnkey

projects. WTON is our top pick, because it has diversified customer base, thus

lowering risk in the event the government decides to limit exposure to parent

company to 50% of revenue, which would affect WSBP more.

Our top picks. We view the risk-reward profile is currently very attractive for

Indonesia’s construction sector given its still robust earnings growth outlook in

next 3 years, and the sector’s low valuation, both historically and relative to other

sectors. WIKA and ADHI are our top picks in the sector because of lucrative

upside potential from their upcoming projects, namely: Jabodetabek LRT and

Jakarta – Bandung HSR, respectively. We also like the pre-cast concrete

subsidiaries of these companies, with WTON as our pick, because we view their

earnings should be less vulnerable to rising financial costs from turnkey projects.

Stock Ticker Rating Price TP

17F

P/E

18F

P/E

17F

P/B

18F

P/B

17F

ROA

17F

ROE

(Rp) (Rp) (x) (x) (x) (x) (%) (%)

Wijaya Karya Beton WTON IJ BUY 680 810 15.6 12.3 2.1 1.9 7.0 14.1

Waskita Beton WSBP IJ BUY 410 620 10.6 8.2 1.3 1.2 6.2 13.0

Waskita Karya WSKT IJ BUY 2,140 3,100 7.2 6.3 1.7 1.4 5.0 21.7

PT PP PTPP IJ BUY 2,820 4,700 13.4 10.9 1.4 1.3 3.8 11.4

Wijaya Karya WIKA IJ BUY 2,010 2,900 13.9 11.7 1.4 1.3 3.6 10.0

Adhi Karya ADHI IJ BUY 2,230 2,700 15.5 10.5 1.3 1.2 2.2 9.0

Source: Bloomberg, IndoPremier Note: Share prices as of closing 9 November 2017

Indonesia Construction

13 November 2017

Sector Update

Sector Index Performance (JAKCON)

3M 6M 12M

Absolute (%) 8.3 2.8 9.3

Relative to JCI (%) 3.8 -3.3 -5.8

52w high/low (Rp) 2,615 / 2,211

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Orderbook (Rp tn) Earnings growth (% yoy)

Eveline Liauw

PT Indo Premier Sekuritas

[email protected]

+62 21 5793 1169

Joey Faustian


[email protected]

+62 21 5793 1169

Equity |

Indonesia

| C

onstr

uction

Construction Update

2 Refer to Important disclosures in the last page of this report

Order book growth is slowing after peaking in 2016, as also profit growth

Aggregate new contract and order book of the Big Four SOE contractors (WIKA,

WSKT, PTPP and ADHI) grew at 5-yr CAGR of 30%/32% in 2011-2016,

respectively, with their peak growth of 70%/58% in 2016, thanks to President

Jokowi, who has favored infrastructure development (significantly roads and other

public facilities) in early days of his administration. This is reflected in strong

infrastructure budget of around ~Rp155tn in state budget (APBNP) 2015-18, much

higher compared to previous presidential term of ~Rp107tn in APBN 2010-15. As a

result, big four SOE contractors have enjoyed strong revenue and earnings growth

of CAGR 24% and 44% in 2014-16 (vs. CAGR 13% and 25% in 2012-14),

respectively.

However, we forecast both new contract and order book to slow to 8.3%/45.5%

in 2017F, respectively, due to very high base in FY16, despite sustained high

fiscal budget for infra spending in 2017/2018. Thus, to execute those projects, we

expect high financing constraints on Big four with overall DER to reach 1.1x in

FY17, much higher from FY14 of 0.8x with WSKT having the highest DER of 1.8x

in FY17. Consequently, we forecast strong earnings growth of 73% in 2017F,

followed by slower growth of 20.5% in 2018F and c.16% in 2018-19F. Albeit

slower to prior years, these are robust growth outlook which are well above equity

market growth in Indonesia.

Fig. 1: Infrastructure budget in comparison Fig. 2: Still robust earnings FY17 despite slowing after 2017

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Energy Transportation Public works and Housing

(Rp tn)

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2010 2011 2012 2013 2014 2015 2016 2017F 2018F 2019F

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Source : Kemenkeu, IndoPremier Source : Companies, IndoPremier

Fig. 3: Growth to slow down after 2016… Fig. 4: … but still above other industry

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Property Construction Cement(Net profit YoY

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Source : Companies, IndoPremier Source : Companies, IndoPremier

Construction Update


Valuation seems to have fully priced-in slower growth outlook.

Slowing order book growth, rising earnings risks from self-funded (turnkey)

projects, and uncertainty on 2019 election outcome, may have contributed to the

sharp de-rating of the sector in 2017 which have been underperformed JCI by

30% ytd and 40% yoy. Although financing costs have risen sharply, in part due to

contribution of turnkey projects/delayed payments from the government, we

believe the risk is mitigated by improving operating efficiency on the back of still

robust revenue growth in next 3 years which we expect to grow at CAGR 27.3%

on the back of massive orderbook that grew 37.4% CAGR 2013-16A.

Fig. 5: Quarterly operating and net margin improvement in Big Four

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Oper. Margin (%; rolling 4q) Net Margin (%; rolling 4q)

Source : Companies, IndoPremier

We believe outstanding revenue growth will help companies to achieve cost

efficiency and reduce financial cost to revenue which should result in greater

profitability. Over the last three years, Big Four’s loan have increased at CAGR

80% with overall financial cost increased 57% annually (vs. CAGR 29% and 19%

only in 2010-13). This is due to companies’ effort to sustain working capital and

execute orderbooks from robust infrastructure projects. With growing revenue of

31% p.a and moderate loan increase of 29% p.a for 2016-19F, we expect

financial cost to revenue to fall to 30% in 2019 from 34% in 2017, resulting in

improvement in net margin to 6.5% in 2019 from 6.1% in 2016.

Fig. 6: Financial cost of Big four to revenue Fig. 7: Margin to improve along with growing revenue…

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Financial Cost (Rp Bn; LHS) As % of Revenue (RHS)

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Revenue (LHS) Orderbook (LHS) Operating margin (RHS)

(Rp tn)


Construction Update


Moreover, price-to-order book and price-to-earnings ratios have fallen to 0.2x and

13x, respectively, from their peaks of >0.3x and 30x, respectively, or returning to

2012 levels (before the era of President Jokowi). As such, we believe valuation

has fully priced-in the slower growth outlook. WIKA is currently our top pick

among the Big Four contractors, as the company shown solid 8M17 new contract

achievement of 71% of FY17 target and healthy DER of 0.7x in FY17F.

Aside from WIKA, we also like ADHI given its improved earnings visibility from its

recent development on its Light Rail Transit (LRT) Jabodetabek project despite not

being paid yet by LRT investor, PT Kereta Api Indonesia (KAI). Note that the

project is worth Rp23tn and expected to finish in 2019, whereas ADHI has spent

around Rp4tn for the project. We expect ADHI to receive its first LRT payment

from KAI in December 2017, while financial closing on syndicate bank loan for KAI

to be completed in 4Q17 or 1Q18, this should result in bulk payment and earnings

jump for ADHI, in our view.

Fig. 8: WIKA’s price to orderbook Fig. 9: ADHI’s price to orderbook

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Fig. 10: WIKA is trading attractively below -1SD Fig. 11: ADHI is trading below average

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Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17

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Construction Update


Initiating coverage on pre-cast concrete stocks

We initiate with BUY ratings on Wijaya Karya Beton (WTON) and Waskita Beton

(WSBP), the pre-cast concrete subsidiaries of WIKA and WSKT, respectively,

which we believe benefited from having captive market of their parent companies’

strong order books and operating in an industry with limited competition, better

margins and less debt leverage vs. construction companies. We believe these

factors should lower their earnings risk from potential margin pressures from

turnkey projects. WTON is our top pick, partly because it has diversified customer

base, thus lowering the risk in the event the government decides to limit

exposure to parent company to 50% of revenue, which would affect WSBP more.

WSBP and WTON are direct beneficiaries from relationship and extensive network of

their parents, WSKT and WIKA that has seen strong orderbook and new contract

growth of 47% and 59% CAGR 2016-19, much higher than peers at 37% and 41%,

respectively. The contracts would then be translated into 13-15% precast works in

2014-16 which would sustain earnings for the next twelve to eighteen months given

their short term work nature. Moving onwards, we estimate higher precast works of

~15-16% of total parents’ new contract given more escalated roads to be built, that

needs higher portion of precast.

Precast margins also notably better compared to construction, given their

undiversified focus on precast business. This is in contrast with Big Four whose

business are highly diversified with other business such as property, energy and

even toll road which are loss making at the moment.

Fig. 12: WTON’s customer profile Fig. 13: WSBP’s customer profile

WIKA22%

Private local45%

State owned enteprise

30%

Private foreign3%

WSKT and subsidiaries

85%

Other parties 15%


Fig. 14: Dependency with parents to benefit precast

companies Fig. 15: Precast margin is better than construction

13.6%

10.7%

14.7%15.7% 15.7%

16.2%

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2014A 2015A 2016A 2017F 2018F 2019F

Total new contract (WIKA, WSKT) Total new contract (WSBP, WTON)

As % or SOE contractors new contract

(Rp tn)

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15.0

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2015A 2016A 2017F 2018F 2019F

Precast GPM Precast OPM Precast NPM

Big four GPM Big four OPM Big four NPM

(%)


Construction Update


When it comes to precast capacity, WTON maintains its conservative view by

growing only 7% CAGR 2014-16 (vs. WSBP at 82%), resulted in total capacity at

2.5mn ton, slightly below WSBP at 2.7mn ton. Hence the conservative strategy

allows WTON to maintain high utilization rate of 80-90% in last two years, better

than WSBP of 58-64%. Moving forward, WTON only projects precast capacity to

grow 15% CAGR for the next two years, notably less aggressive compared to WSBP

at 20% CAGR. With this conservative scheme, we believe WTON will be able to

maintain utilization rate around 80% in long term, which will help company to be

cost- efficient.

Our top picks

We view the risk-reward profile is currently very attractive for Indonesia’s

construction sector given its still robust earnings growth of in next 2 years, and the

sector’s low valuation, both historically and relative to other sectors. Hence,

construction sector is now trading close to -2SD or the lowest since 2012, resulted

in rather undemanding valuation as the sector is expected to deliver earnings

growth of 73% in 2017F, followed by c.21% in 2018-19F.WSKT is currently trading

close to -2SD following its sharp de-rating from delay in Waskita Toll Road (WTR)

divestment, while ADHI, WIKA and PTPP are trading around -1SD, respectively.

Fig. 18: Construction sector PE forward

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Source : Companies, IndoPremier

Among Big Four, WIKA and ADHI are our top picks in the sector because of their

solid upcoming projects, e.g: Jabodetabek LRT and Jakarta – Bandung HSR that

provides upside potential to their earnings. We also like the pre-cast concrete

subsidiaries of these companies, with WTON as our pick; because we view their

earnings should be less vulnerable to rising financial costs from turnkey projects. In

comparison, precast industry DER stands at 0.4x only, much lower compared to Big

Four of 0.7x FY16. The low DER will provide room for further leverage and relatively

Fig. 16: WTON vs. WSBP precast capacity Fig. 17: WTON vs. WSBP utilization rate

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2014A 2015A 2016A 2017F 2018F

WTON WSBP(in mn ton/year)

57.9%

64.4%58.9%

67.6%70.8% 72.8%

74.5% 72.2%74.8%

89.6% 89.2% 89.2%

2014A 2015A 2016A 2017F 2018F 2019F

WSBP WTON


Construction Update


lower interest expense as both companies (WTON and WSBP) have officially

participate in turnkey projects in accordance with their parent’s projects. However,

this should limited impact on their profitability as companies only picked selective

projects with good returns.

Fig. 19: DER of Big Four 2010-19F Fig. 20: WSBP and WTON’s DER 2015-19F

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WIKA (LHS) WSKT (LHS) PTPP (LHS) ADHI (LHS) Industry (RHS)

(x) (x)

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Construction Update


Stock Data

Target price (Rp) Rp810

Prior TP (Rp) N/A

Shareprice (Rp) Rp680

Upside/downside (%) +19.1

Sharesoutstanding (m) 8,715.5

Marketcap. (US$ m) 438.1

Free float (%) 23.8

Avg. 6m dailyT/O (US$ m) 0.7

Price Performance

3M 6M 12M

Absolute (%) 15.3 5.4 -17.1

Relative to JCI (%) 10.5 -0.8 -33.6

52w high/low (Rp) 680 - 520

Major Shareholders

Wijaya Karya 60.0%

Public 23.8%

Yayasan Wijaya Karya 10.9%

Estimate Change; Vs. Consensus

2017F 2018F

Latest EPS (Rp) 31.0 43.0

Vs. Prior EPS (%) N/A N/A

Vs. Consensus (%) (1.0) 4.0

Source: Bloomberg

Eveline Liauw


[email protected]

+62 21 5793 1169

Joey Faustian


[email protected]

+62 21 5793 1169

Strong contender

� Diversified client base with plenty of opportunities.

� Nationwide distribution to reduce logistic cost.

� Solid earnings of 30% CAGR 2016-19, but expect longer AR days.

� Initiate with BUY with TP of Rp810.

Diversified client profile with plenty of opportunities. Despite being a

subsidiary of Wijaya Karya (WIKA), Wijaya Karya Beton (WTON) has diversified

customer profile with 48% of clients are private companies, differs from Waskita

Karya Beton (WSBP) which 85% of its revenue came from Waskita Karya (WSKT).

Among the clients are PLN (Perusahaan Listrik Negara) that has been aggressively

expanding in recent years and will continue to do so under order from President

Jokowi to reach its target of 35GW, providing plenty of potential new contracts for

WTON. WTON also expects additional new contract from WIKA’s High Speed

Railway (HSR) of Rp1.5tn in FY18/19F.

Nationwide distribution to reduce logistic cost. WTON has fourteen

production facilities and three quarries that are spread across Indonesia which

reduce WTON’s distribution cost while capturing local demand; this is in contrast

with WSBP that has most of its production in Java. The company plans its

production facility expansion conservatively by only CAGR 15% in 2016-18F,

much slower from its WSBP at CAGR 20%, but will focus to maintain long term

utilization rate to 80-85% for maximum profitability margin.

Solid earnings of 30% CAGR 2016-19F, but slower AR days. WTON has

upgraded its FY17 new contract target to Rp7tn (+11%), that should lead to

higher order book of Rp11tn (+46% yoy). As a result, we believe WTON’s revenue

and earnings to grow strong at CAGR 29% and 30% 2016-19F. On the other

hand, we expect longer AR days as company received two turnkey projects from

WIKA in recent days, although this is harmless for the company as it charges

normal price as part of the contracts that employs turnkey scheme.

Initiate WTON with BUY at TP of Rp810. WTON is trading at PER of 12.4x in

FY18F, 6% premium to WSBP, but 11% discount to WIKA. Even so, we believe

such premium is justified given company’s strong earnings growth and limited

exposure to turnkey projects, differs from WSBP whose revenue mostly

dominated by its parent, Waskita Karya (WSKT). We initiate WTON with BUY and

DCF based TP of Rp810/share, implying 19% upside to current price.

Wijaya Karya Beton (WTON IJ)

13 November 2017

Initiating Coverage

BUY (New)

Year To 31 Dec 2015A 2016A 2017F 2018F 2019F

Revenue (RpBn) 2,653 3,482 4,858 6,068 7,303

EBITDA (RpBn) 328 545 720 885 1,078

EBITDA Growth (%) (33.6) 66.0 32.0 23.0 21.7

Net Profit (RpBn) 174 272 373 470 602

EPS (Rp) 20 31 43 54 69

EPS Growth (%) (47.2) 56.6 36.9 26.1 27.9

Net Gearing (%) (12.9) 13.2 19.8 13.5 2.1

PER (x) 33.6 21.4 15.7 12.4 9.7

PBV (x) 2.6 2.3 2.1 1.8 1.6

Dividend Yield (%) 1.7 0.9 1.4 1.9 2.4

EV/EBITDA (x) 22.2 12.7 10.6 9.2 8.2

Source : WTON, IndoPremier Share Price Closing as of : 09-November-2017

Equity |

Indonesia

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WTON-Rebase JCI Index-Rebase

WTON Initiating Coverage


Fig. 1: 1Q17 revenue based on ownership Fig. 2: WSBP and WTON precast capacity in comparison

WIKA22%

Private local45%


30%

Private foreign3%

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Source: WTON, IndoPremier

Source: IndoPremier

Fig. 3: Strong utilization rate from its peers Fig. 4: Revenue to grow at CAGR 29% 2016-19F

57.9%

64.4%58.9%

67.6%70.8% 72.8%

74.5% 72.2%74.8%

89.6% 89.2% 89.2%

2014A 2015A 2016A 2017F 2018F 2019F

WSBP WTON

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Revenue Growth

(Rp bn)

Source: WTON, IndoPremier Source: WTON, IndoPremier

Fig. 5: Net profit to grow at CAGR 30% 2016-19F Fig. 6: Strong and sustainable margin

6.6%

7.8% 7.7% 7.8%8.2%

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2015A 2016A 2017F 2018F 2019F

Net profit Net margin

(Rp bn)

12.4%

14.5%13.9% 14.1% 14.4%

9.0%

11.7%11.2% 11.3% 11.7%

6.6%

7.8% 7.7% 7.8%8.2%

2015A 2016A 2017F 2018F 2019F

Gross margin Operating margin Net margin

Source: WTON, IndoPremier Source: WTON, IndoPremier



Well diversified client with plenty of opportunities

Wijaya Karya Beton (WTON) was established in 1960 as a subsidiary of Wijaya

Karya (WIKA). The company produces, deliver and provide installation of its

product, high quality concrete (concrete stress characteristic of minimum

500kg/cm2) that mainly used in railway sleepers, bridge, retaining wall, hydro &

marine structure, building & housing and others.

WTON has three subsidiaries – WIKA Citra Lautan Teduh (99%), WIKA Kobe

(51%) and WIKA Krakatau Beton (60%). WIKA Kobe was built to secure

infrastructure projects finance by Japan bank for International Corporation, while

WIKA Krakatau Beton was a joint venture company with Krakatau Steel (KRAS),

one of state owned enterprise company. WTON went public (IPO) in 2014 and

secured Rp1.3tn during the process. Currently, majority of WTON’s share

ownership is still hold by WIKA (60%), followed by public 24% and Yayasan

Wijaya Karya which is employee based by 11%.

Fig. 7: WTON’s shareholder and subsidiary structure

Source: WTON, IndoPremier

Despite being subsidiary of WIKA, WTON has relatively limited reliance with WIKA

by only 22% of its 1Q17 sales (vs. WSBP’s of 85% from FY16 revenue). In fact,

48% of WTON sales sourced from private companies (local and foreign) that focus

in development of EPC. Among these is Perusahaan Listrik Negara (PLN) that

heavily expanding in recent years and will continue to do so under President’s

Jokowi’s order to reach 35GW plan. WTON also expects additional new contract

from WIKA’s High Speed Railway (HSR) of ~Rp1.5tn in FY18/19F.

Fig. 8: Client profile based on ownership in 1Q17 Fig. 9: Client profile based on line of business in 1Q17

WIKA

22%

Private local45%


30%

Private foreign

3%

Infrastructure 48%

Industry5%

Energy44%

Mining0%

Property3%

Source : WTON, IndoPremier Source : WTON, IndoPremier



Nationwide distribution to reduce logistic cost

WTON has 14 precast production facilities, 46 batching plants and 3 quarries that

are spread across Indonesia which gives WTON opportunity to reduce distribution

cost while capturing local demand; this is in contrast with WSBP that has most of

its production in Java and Lampung. As business scalability and utilization rate

improves, company should enjoy better margin from high bargaining power

against raw material suppliers.

Fig. 10: WTON’s coverage area

Source: WTON,

WTON has grown its production capacity at 7% p.a in last two years, notably less

aggressive compared to WSBP at 82% CAGR. However, the company enjoyed

better utilization rate of 70-85%, much higher than WSBP of 58-64% in 2014-

16A, thanks to its strategic factories locations that capture local demand.

The company plans its production facility expansion conservatively by only CAGR

15% in 2016-18F, much slower from its WSBP at CAGR 20%, but will focus to

improve long term utilization rate to 80-85% for higher profitability margin as a

result from high bargaining power on raw material suppliers and its insource

quarries factories that provides cost saving for the company. Note that company

has achieved over 100% utilization rate in 1Q17 caused by healthy environment

and strong demand.

Fig. 11: WTON vs. WSBP precast capacity in comparison Fig. 12: WTON vs. WSBP utilization rate in comparison

2.2 2.3

2.5

3.0

3.3

0.8

1.8

2.7

3.3

3.8

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2014A 2015A 2016A 2017F 2018F


57.9%

64.4%58.9%

67.6%70.8% 72.8%

74.5% 72.2%74.8%

89.6% 89.2% 89.2%

2014A 2015A 2016A 2017F 2018F 2019F

WSBP WTON




Solid earnings of 30% CAGR 2016-19F, but slower AR days

WTON has upgraded its FY17 new contract target to Rp7tn (+11%) to reflect

optimism in 2H17. Yet, the company has achieved Rp3.3tn until 7M18, 47% of

new FY17 target. This should lead to higher order book of Rp11tn (+46% yoy),

which represents 3.4x of its FY16 revenue and should give earnings visibility for

the next 2-3 years given its short term work nature of 9-12 months only. As a

result, we believe WTON’s revenue and earnings to grow strong at CAGR 29% and

30% 2016-19F.

On the other hand, we expect longer AR days as company received two turnkey

projects from WIKA in recent days, although this is harmless for the company as

it charges normal price as part of the contracts that employs turnkey scheme.

Moving forward, company will limit and be selective on turnkey projects from

WIKA to maintain its profitability.

Fig. 13: WIKA and WTON new contract Fig. 14: WTON orderbook to grow CAGR of 33% in 2016-19F

10.1%

13.8%

11.2%

16.2%17.3%

18.7%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

-

10,000

20,000

30,000

40,000

50,000

60,000

2014A 2015A 2016A 2017F 2018F 2019F

WIKA WTON As % of WIKA's new contract

(Rp bn)

-

2

4

6

8

10

12

14

16

18

20

2013A 2014A 2015A 2016A 2017F 2018F 2019F

Carry over New contract(Rp tn)

CAGR 2013-16A: 20%


Fig. 15: WTON revenue and earnings forecast Fig. 16: WTON FCF forecast

12.4%

14.5%13.9% 14.1% 14.4%

9.0%

11.7%11.2% 11.3% 11.7%

6.6%

7.8% 7.7% 7.8%8.2%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

-

1,000.0

2,000.0

3,000.0

4,000.0

5,000.0

6,000.0

7,000.0

8,000.0

2015A 2016A 2017F 2018F 2019F

Revenue Net profit Gross margin

Operating margin Net margin

(Rp bn)

(3,931) (3,707)

(190)

4,360

(603)

(176) 202 457

(5,000)

(4,000)

(3,000)

(2,000)

(1,000)

-

1,000

2,000

3,000

4,000

5,000

2016A 2017F 2018F 2019F

WSBP WTON(Rp bn)




Initiate WTON with BUY at TP of Rp810

WTON is trading at PER of 12.3x in FY18, trading at 6% premium compared to

WSBP but 11% discount to WIKA. We believe such premium is justified given

company’s strong earnings growth and limited exposure to turnkey projects which

differs from WSBP. We initiate WTON with BUY and DCF based TP of Rp810/share,

implying 19% upside to current price.

Fig. 17: Valuation - Free Cash Flow to the Firm (FCFF) - Two Stages

(Rp bn) 2015A 2016A 2017F 2018F 2019F 2020F 2021F 2022F 2023F

EBIT 238.5 408.3 544.8 685.9 851.1 1,034.0 1,273.2 1,258.2 1,424.2

Tax (34.3) (70.5) (98.4) (122.9) (147.9) (176.0) (211.5) (216.7) (244.5)

After tax cash flow 204.3 337.8 446.4 563.0 703.2 858.0 1,061.8 1,041.5 1,179.7

Depreciation and amort 89.9 137.1 174.9 199.2 226.5 252.3 278.8 305.0 331.4

Minority interest 2.1 (9.1) 6.0 7.6 9.6 12.2 15.5 15.6 18.0

Change in working capital (127.2) (46.0) (138.7) 32.3 153.5 (1,428.7) 810.6 (65.2) (434.2)

Net capital expenditure (416.2) (357.1) (582.0) (469.6) (525.8) (497.7) (511.7) (504.7) (508.2)

FCF for the firm (247.17) 62.51 (93.33) 332.54 567.03 (803.83) 1,655.02 792.16 586.64

Year

0 1 2 3 4 5

Discount factor

1.0 0.9 0.8 0.7 0.6 0.6

PV of FCF

332.54 504.09 (635.30) 1,162.83 494.80 325.76

Value of FCF in the forecasted period 1,858.97

Value of FCF after the forecasted period 5,699.6

Value of the firm 7,558.60

(Net cash)/net debt 427.9

Interest bearing liab 1,339.6

Cash and equiv 911.6

Value of equity 7,130.66

# of shares (bn shares) 8.7

value of equity per share 818.16

Target price 810

BUY

Source : IndoPremier



Year To 31 Dec (RpBn) 2015A 2016A 2017F 2018F 2019F

Income Statement

Net Revenue 2,653 3,482 4,858 6,068 7,303

Cost of Sales (2,324) (2,977) (4,182) (5,211) (6,250)

Gross Profit 329 504 676 858 1,053

SG&A Expenses (90) (96) (131) (172) (202)

Operating Profit 239 408 545 686 851

Net Interest (26) (40) (72) (90) (100)

Forex Gain (Loss) (8) 0 0 0 0

Others-Net 1 (16) (8) (10) (11)

Pre-Tax Income 206 352 465 586 740

Income Tax (34) (71) (98) (123) (148)

Minorities 2 (9) 6 8 10

Net Income 174 272 373 470 602

Balance Sheet

Cash & Equivalent 824 342 586 912 1,418 Receivable 582 663 974 1,135 1,043 Inventory 622 694 714 824 957 Other Current Assets 426 740 1,026 1,302 1,552

Total Current Assets 2,455 2,440 3,299 4,173 4,971 Fixed Assets - Net 2,001 2,222 2,629 2,900 3,199 Goodwill 0 0 0 0 0

Non Current Assets 0 0 0 0 0 Total Assets 4,456 4,662 5,929 7,073 8,169 ST Loans 131 350 488 610 734 Payable 557 664 0 1,159 1,354 Other Payables 1,024 730 1,012 1,258 1,510

Current Portion of LT Loans 80 120 120 120 120 Total Current Liab. 1,793 1,864 2,475 3,147 3,718

Long Term Loans 320 200 530 610 640 Other LT Liab. 79 108 131 155 180

Total Liabilities 2,193 2,172 3,137 3,912 4,538 Equity 1,747 1,743 1,743 1,743 1,743 Retained Earnings 458 679 970 1,328 1,789 Minority Interest 58 69 79 89 100

Total SHE + Minority Int. 2,263 2,490 2,792 3,161 3,632 Total Liabilities & Equity 4,456 4,662 5,929 7,073 8,169

Source : WTON, IndoPremier



Year to 31 Dec 2015A 2016A 2017F 2018F 2019F

Cash Flow

Net Income (Excl.Extraordinary&Min.Int) 172 282 367 463 592 Depr. & Amortization 90 136 175 199 227 Changes in Working Capital 197 (430) (30) 96 249

Others 448 (368) (142) 17 41 Cash Flow From Operating 907 (381) 370 775 1,108

Capital Expenditure (416) (357) (582) (470) (526) Others 37 16 26 23 25

Cash Flow From Investing (379) (341) (556) (446) (501) Loans 333 138 468 202 154 Equity 0 0 0 0 0 Dividends (99) (52) (82) (112) (141) Others (123) (50) (87) (103) (115)

Cash Flow From Financing 111 36 299 (13) (102) Changes in Cash 639 (685) 113 316 505 Financial Ratios

Gross Margin (%) 12.4 14.5 13.9 14.1 14.4

Operating Margin (%) 9.0 11.7 11.2 11.3 11.7 Pre-Tax Margin (%) 7.8 10.1 9.6 9.7 10.1

Net Margin (%) 6.6 7.8 7.7 7.8 8.2 ROA (%) 4.2 6.0 7.0 7.2 7.9 ROE (%) 7.8 11.5 14.1 15.8 17.7 ROIC (%) 7.7 9.9 11.5 12.0 13.3

Acct. Receivables TO (days) 71.9 64.1 60.5 62.3 53.3 Acct. Receivables - Other TO (days) 1.3 1.1 0.9 1.1 1.1

Inventory TO (days) 4.3 4.5 5.9 6.8 7.0 Payable TO (days) 76.8 74.9 66.3 70.6 73.4 Acct. Payables - Other TO (days) 0.0 0.0 0.0 0.0 0.0

Debt to Equity (%) 23.5 26.9 40.8 42.4 41.1 Interest Coverage Ratio (x) 0.3 0.1 0.2 0.2 0.1 Net Gearing (%) (12.9) 13.2 19.8 13.5 2.1

Source : WTON,IndoPremier

XXXXXXXX


Stock Data

Target price (Rp) Rp620

Prior TP (Rp) N/A

Shareprice (Rp) Rp410

Upside/downside (%) +51.2

Sharesoutstanding (m) 26,361

Marketcap. (US$ m) 798.9

Free float (%) 40.0

Avg. 6m dailyT/O (US$ m) 3.6

Price Performance

3M 6M 12M

Absolute (%) -10.9 -14.6 -28.7

Relative to JCI (%) -15.7 -20.8 -45.2

52w high/low (Rp) 410 - 338

Major Shareholders

WSKT 60.0%

Public 40.0%

Estimate Change; Vs. Consensus

2017F 2018F

Latest EPS (Rp) 39.0 50.0

Vs. Prior EPS (%) N.A N.A

Vs. Consensus (%) (4.6) (0.8)

Source: Bloomberg

Eveline Liauw


[email protected]

+62 21 5793 1169

Joey Faustian


[email protected]

+62 21 5793 1169

Delivering performance

� Synergy with WSKT to provide strong earnings visibility

� Outer Java expansion to catch new market

� Expects positive net cash flow in FY19

� Share buyback to improve share performance

� Initiate with BUY, TP of Rp620

Synergy with WSKT to provide strong earnings visibility. We believe WSBP’s

dependency with its parent, Waskita Karya (WSKT) will provide potential contracts

for WSBP given WSKT’s strong network to pursue new contracts and its existing

ownership in Waskita Toll Road (WTR). Benefitting from robust order book in FY16

of 156% yoy, we expect WSBP’s revenue and earnings to grow at CAGR 28% and

22% in 2016-19F as well as stable gross margin at 20-21% in 2017-19F as a

result from favorable pricing from WSKT and higher economy of scale.

Outer Java expansion to catch new market. WSBP has aggressively grown its

precast capacity at 82% CAGR 2014-16A, which puts WSBP at higher capacity

compared to Wijaya Karya Beton (WTON), albeit lower utilization rate. The

company is planning to grow its capacity by allocating capex of Rp4tn in 2016-18F

and build factories outer Java to have stronger foothold towards Outer Java which

is expected to give WSBP new market.

Expects positive net cash flow in 2019. WSBP expects to receive payment of

Rp1.8tn from Becakayu section II and III in December 2017 while remaining

(Rp1.2tn) to be paid next year. Company also expects receive payment around

Rp4.5-6tn from WSKT on other projects in FY18, but expect cash flow to turn

positive in 2019 as all turnkey projects are projected to finish.

Rp1tn share buyback to improve share price sentiment. WSBP is planning to

conduct share buyback of Rp1tn with maximum of 7% of its outstanding shares

over the next 18 months in order to stabilize share price which has been

underperformed since IPO. Funding source might come from early receivable

receipt from Semarang-Batang and Pasuruan – Probolinggo which have been

categorized as turnkey.

Initiate with BUY, TP of Rp620. We initiate our coverage on WSBP with BUY

and DCF based TP of Rp620 which implies PER of 12.3x in FY18F. The company is

now trading below its IPO price of Rp490/share, providing attractive point of entry

for the investors. Downside risk may come from delay in payment for projects,

upcoming presidential election in Indonesia and unforeseen delays in WSKT’s

projects.

Waskita Karya Beton (WSBP IJ)

13 November 2017

Initiating Coverage

BUY (New)

Year To 31 Dec 2015A 2016A 2017F 2018F 2019F

Revenue (RpBn) 2,644 4,717 7,288 9,481 11,154

EBITDA (RpBn) 451 1,070 1,910 2,419 2,786

EBITDA Growth (%) 0.0 137.4 78.4 26.7 15.2

Net Profit (RpBn) 334 635 1,016 1,325 1,553

EPS (Rp) 13 24 39 50 59

EPS Growth (%) 0.0 89.9 60.0 30.4 17.2

Net Gearing (%) 49.8 (11.5) 35.5 42.0 (5.9)

PER (x) 32.2 16.9 10.6 8.1 6.9

PBV (x) 8.1 1.5 1.3 1.2 1.0

Dividend Yield (%) 0.0 0.0 1.8 2.8 3.7

EV/EBITDA (x) 4.3 8.1 6.0 4.7 5.8

Source : WSBP, IndoPremier Share Price Closing as of : 09-November-2017

Equity |

Indonesia

| C

onstr

uction

50

60

70

80

90

100

110

120

Nov-1

6

Nov-1

6

Dec-1

6

Jan-1

7

Feb-1

7

Feb-1

7

Mar-

17

Apr-

17

Apr-

17

May-1

7

Jun-1

7

Jun-1

7

Jul-

17

Aug

-17

Aug

-17

Sep-1

7

Oct-

17

Nov-1

7

WSBP-Rebase JCI Index-Rebase

WSBP Initiating Coverage


Fig. 1: WSKT vs. WSBP new contract Fig. 2: High dependency to WSKT

18%

8%

17%

15% 15%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

-

10

20

30

40

50

60

70

80

90

2014A 2015A 2016A 2017F 2018F

WSKT WSBP WSBP as % of WSKT

(Rp tn)


85%

Other parties 15%

Source: WSBP, IndoPremier Source: WSBP, IndoPremier

Fig. 3: WSBP precast capacity and utilization rate Fig. 4: Revenue to grow CAGR 33% 2016-19F

58%

64%59% 68%

71%73%

0%

10%

20%

30%

40%

50%

60%

70%

80%

-

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

2014A 2015A 2016A 2017F 2018F 2019F

Installed capacity Used capacity Utilization rate

(mn ton/year)

-

2,000

4,000

6,000

8,000

10,000

12,000

2015A 2016A 2017F 2018F 2019F

Ready mix Precast

(Rp bn)


Fig. 5: Earnings to grow CAGR 35% 2016-19F Fig. 6: Flattish net margin due to rising interest expense

12.6%

13.5%

13.9% 14.0% 13.9%

11.5%

12.0%

12.5%

13.0%

13.5%

14.0%

14.5%

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2015A 2016A 2017F 2018F 2019F

Net profit Net margin

(Rp bn)

15.9%

22.3%

25.6% 25.1% 24.7%

13.7%

20.2%

23.6% 23.1% 22.7%

12.6%13.5% 13.9% 14.0% 13.9%

2015A 2016A 2017F 2018F 2019F

Gross margin Operating margin Net margin




Synergy with WSKT to provide strong earnings visibility in the next 3-4 years

Waskita Beton (WSBP) was established in 2014 as a subsidiary of Waskita Karya (WSKT)

which is arguably one of the biggest State Owned Enterprise (SOE) contractors in Indonesia.

WSBP produces, distributes and provides installation for its product (precast and ready mix

cement) with precast contributed 64% from FY16 revenue. As WSKT’s subsidiary, majority of

WSBP’s revenue is dominated by sales with WSKT and its subsidiaries, whereas only as little

as 15% came from other parties.

We believe the synergy with WSKT will provide much opportunity for WSBP given WSKT’s

strong network to pursue new contracts and its existing toll road projects in Waskita Toll Road

(WTR), another subsidiary of WSKT that owns 14 toll road concessions (8 as majority owner)

with estimated total investment and construction works to reach Rp83tn and Rp55tn until

2019, respectively. Among these are National Strategic Projects, namely: Kayu agung –

Palembang – Betung and Medan – Kualanamu – Tebing Tinggi which is part of Trans Sumatra

toll road, and Batang – Semarang that is section of Trans Java toll road. WSKT’s equity

participation on these projects would almost certainly promise the construction job for WSKT

which would translate to WSBP’s new contract within six months after the official new contract

is awarded to WSKT. Note that precast and ready mix concrete for toll road construction may

account for 30% for grade and 75% for elevated toll roads from total construction cost.

Fig. 7 : FY16 revenue based on products Fig. 8 : FY16 revenue based on source

Precast

64%

Ready mix

36%


85%

Other parties 15%

Source : WSBP, IndoPremier Source : WSBP, IndoPremier

Fig. 9: WSKT's toll road ownership in projects

No. Project name stake (%) total investment (Rp bn) Length (km) End construction

1 Pejagan – Pemalang section I & II, III & IV 99 5,572 57 2018

2 Becakayu section II & III 60 9,012 35 2017

3 Cimanggis – Cibitung 90 8,680 25 2018

4 Kanci – Pejagan 77.7 1,177 35 2017

5 Pasuruan – Probolinggo 80 3,991 31 2019

6 Bocimi 81.6 7,775 54 2019

7 Pemalang – Batang 60 5,446 39 2019

8 Kayu Agung – Palembang – Betung 60 14,435 112 2019

9 Solo – Ngawi 40 5,442 69 2018

10 Ngawi – Kertasono 40 4,067 50 2018

11 Cinere – Serpong 35 2,591 10 2018

12 Medan – Kualanamu – Tebing Tinggi 15 4,072 60 2018

13 Depok – Antasari 25 2,999 22 2017

14 Batang - Semarang 40 7,233 75 2019

Total 82,492 674

Source: Company, IndoPremier



Benefitting from WTR projects, we expect WSBP to obtain potential new contract of around

Rp5tn annually in 2018-19F, much higher compared to 2015 new contract of Rp2.2tn. The

company should also obtain benefit from Jokowi’s infrastructure development plan in 2015-19

that plans to build new roads of 2,650km and toll road of 1,000km.

WSBP booked strong new contract growth of CAGR 75% 2014-16 to Rp12.2tn in 2016, thanks

to solid government commitment to develop infrastructure in Indonesia which led to abundant

WSKT’s new contract growth of CAGR 76% 2014-16 that reached Rp69tn in FY16. Moving

forward, WSKT targets new contract at Rp80tn of new contract FY17 and has achieved 46% as

of 7M17 which prompt us to believe that the company will achieve its FY17 target. WSBP aims

FY17 new contract target at Rp12.3tn,flat yoy, but revised its revenue and earnings estimates

to Rp7.7tn (+4%) and Rp1.1tn (+13%) to reflect higher burn rate from its order book of

Rp15tn in FY16. As of 9M17, WSBP’s new contract stands at Rp8.4tn, in-line with 68%

achievement to FY17 target. With FY17 new contract target and carry over FY16, we estimates

WSBP’s order book to reach Rp20tn in FY17, translating to 4.3x order book to FY16 revenue

and should secure WSBP’s revenue for the next 3-4 years given short term nature of work

orders around 9-12 months only. We also expect faster revenue recognition in 2H17 from

higher burn rate of several projects, namely: Legundi – Bunder, Cimanggis – Cibitung (section

II) and Batang – Semarang.

Outer Java expansion to catch new market

WSBP currently owns 11 precast plants with capacity of 3.25mn ton per year and 62 ready-

mix batching plants for ready mix. 84% of precast factories are located in Java while

remaining (14%) are Sumatera. In last two years, WSBP has aggressively grown its capacity

at 82% CAGR, which puts WSBP at higher capacity compared to its peers, Wijaya Karya Beton

(WTON).

Fig. 12: Precast capacity as of 9M17

No. Location Capacity Region % contribution

1 Gasing 250,000 Sumatera 8%

2 Kalijati 250,000 Java 8%

3 Palembang 200,000 Sumatera 6%

4 Karawang 450,000 Java 14%

5 Cibitung 350,000 Java 11%

6 Sadang 350,000 Java 11%

7 Sidoarjo 400,000 Java 12%

8 Klaten 150,000 Java 5%

9 Bojonegara 200,000 Java 6%

10 Legundi 275,000 Java 9%

11 Subang 350,000 Java 11%

Total 3,225,000

Source : WSBP, IndoPremier

Fig. 10: WSKT and WSBP new contract Fig. 11: WSBP sales compared to WSKT

18%

8%

17%

15%15%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

-

10

20

30

40

50

60

70

80

90

2014A 2015A 2016A 2017F 2018F


(Rp tn)

19%20% 20%

24%

0%

5%

10%

15%

20%

25%

30%

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

2015A 2016A 2017F 2018F





The company further plans to grow its capacity by allocating capex of Rp4tn in 2016-18F

which will be used to: 1) build new precast factories in Medan (Sumatera) and Panajam

(Kalimantan) as well as three new locations (Central Java, Palembang and Sulawesi), 2)

upgrade its existing precast plan for bigger capacity. Note that the upcoming precast factory

in Palembang will have the largest capacity compared to other factories in order to capture

growing demand in local region. WSBP also plans additional 42 new batching plants and

purchase of two new quarries in West and Central Java to ensure maintain supply and price of

raw material. We expect WSBP’s expansion plan to outer Java will bring positive impact for the

company as it will provide new market to penetrate and reduce logistic cost for projects

outside Java island.

W

e

b

e

l

i

e

v

e

t

h

e

To expand, the company employs careful planning and approach which involved obtaining a

project in selected region before adding a factory. For instance, WSBP stated plant expansion

in Panajam would depend on the approval of Rp5.4tn Panajam – Balikpapan bridge project

which is handled by WSKT, currently. New precast plant normally takes 6-8 months to build

with initial capex of Rp90-100bn while standard batching plant costs around Rp3-5bn per

location. We believe these new plants would not be in full operation during its first two years

as it mostly built in 2H17, but we expect utilization rate to pick up in 2018 as company

establish better presence in the region.

x

x

Fig. 13: Precast plants and expansion plan

Source : WSBP

Fig. 14: Utilization rate of precast

58%

64%59% 68% 71%

73%

0%

10%

20%

30%

40%

50%

60%

70%

80%

-

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

2014A 2015A 2016A 2017F 2018F 2019F

Installed capacity Used capacity Utilization rate

(mn ton/year)




Expects positive net cash flow in 2019

WSBP still expects negative cash flow in 2017-18, given huge backlog in turnkey projects that

still under construction and turnkey scheme, namely: Kunciran – Serpong, Legundi – Bunder,

Cimanggis – Cibitung section II, Batang – Semarang and LRT Palembang. However, company

expect payment of Rp1.8tn this December for becakayu toll road section II and III, while

remaining payment (Rp1.2tn) to be paid in 2018. WSBP also expect WSKT to pay Rp4.5-6tn

for other projects in 2018. In the meantime, WSBP is planning to add loan of Rp3tn to fund

working capital which may resulted higher DER of 0.8x in FY17F (vs. 0.4x in FY16) which is

still manageable for the company.

Even so, we expect WSBP to generate positive free cash flow (FCF) in 2019 with the

completion of most turnkey projects. Furthermore, recent IPO proceeds of Rp5.2tn may allow

plenty of room for leverage and invest on more projects.

Rp1tn share buyback to improve share price sentiment

WSBP is planning to conduct share buyback amounting to Rp1tn with maximum of 7% of its

outstanding shares, equivalent to 1.8tn shares, over the next 18 months in order to stabilize

share price which has been underperformed since the IPO due to downgrading of Indonesia

construction sector outlook. The action has been approved by WSBP’s shareholders.

Funding source might come from early receivable receipt from faster ramp up on WSKT’s

projects, namely: Semarang-Batang and Pasuruan – Probolinggo toll road which have been

categorized as turnkey. Furthermore, we also believe successful sell off of WTR to provide exit

strategy with premium valuation to WSBP from its investment on Becakayu (Bekasi – Cawang

– Kampung Melayu) toll road and other projects.

Fig. 15: WSBP vs WTON FCF comparison Fig. 16: DER WSBP vs. WTON

(3,931) (3,705)

(695)

4,828

(603)

(176) 202 457

(5,000)

(4,000)

(3,000)

(2,000)

(1,000)

-

1,000

2,000

3,000

4,000

5,000

6,000

2016A 2017F 2018F 2019F

WSBP WTON(Rp bn)

0.6

0.5

0.8 0.8

0.7

0.2 0.3

0.4 0.4 0.4

-

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

2015A 2016A 2017F 2018F 2019F

WSBP WTON(x)




Initiate with BUY, TP of Rp620.

Despite arising concern of construction sector, we believe WSBP still have strong earnings

visibility thanks to its parent dependency, WSKT, that has booked the highest new contract

growth of CAGR 76% (vs. peers of only 49% CAGR) in 2014-16 and its existing ownership on

WTR that almost guarantee precast job to WSBP. Furthermore, strong government

commitment towards infrastructure development should also result in abundant new contracts

for SOEs which should translate to higher demand for precast and ready mix concrete. Despite

lower WSKT’s FY17F new contract target of Rp60tn only, we expect WSBP revenue to grow

54% yoy to Rp7.3tn FY17 (CAGR 33% 2016-19F) and earnings to grow 60% yoy to Rp1.0tn

(CAGR 35% 2016-19F) due to higher interest expense. Even so, this growth is still above

other sectors.

We initiate our coverage on WSBP with BUY and DCF based TP of Rp620 which implies 12.3x

PER FY18. The company is now trading at 12% below its IPO price (Rp490/share), providing

attractive point of entry for the investors. Downside risk for the company may come from

upcoming presidential election in Indonesia and unforeseen delays in WSKT’s projects.

Fig. 17: Valuation - Free Cash Flow to the Firm (FCFF) - Two Stages

(Rp bn) 2015A 2016A 2017F 2018F 2019F 2020F 2021F 2022F 2023F

EBIT 363.4 953.1 1,348.2 1,631.6 1,874.0 1,941.0 2,255.3 2,643.9 2,423.8

Tax (11.2) (332.5) (513.8) (617.1) (699.8) (790.0) (917.8) (1,074.1) (1,036.2)

After tax cash flow

352.2 620.5 834.4 1,014.5 1,174.2 1,151.0 1,337.5 1.569.8 1,387.7

Depreciation and amort 87.4 117.1 189.7 232.1 249.2 267.6 287.4 308.5 331.1

Minority interest - - - - - - - - -

Change in working capital - (3,190.1) (4,094.2) (1,342.9) 3,152.1 4,742.6 (917.4) 446.4 (1,561.2)

Net capital expenditure - (1,062.6) (937.6) (228.5) (244.8) (262.1) (280.8) (300.7) (322.0)

FCF for the firm 439.6 (3,515.1) (4,007.6) (325.0) 4,330.8 5,899.0 426.6 2,024.0 (164.5)

Year

0 1 2 3 4 5

Discount factor

1.0 0.9 0.8 0.7 0.6 0.6

PV of FCF

(324.97) 3,872.86 4,717.41 305.10 1,294.34 (94.09)

Value of FCF in the forecasted period 11,825.64

Value of FCF after the forecasted period (2,510.1)

Value of the firm 9,315.50

(Net cash)/net debt 3,889.4

Interest bearing liab 7,140.4

Cash and equiv 3,251.1

Value of equity 5,426.14

# of shares (bn shares) 8.7

value of equity per share 622.59

Target price 620

BUY

Source: IndoPremier



Year To 31 Dec (RpBn) 2015A 2016A 2017F 2018F 2019F

Income Statement

Net Revenue 2,644 4,717 7,288 9,481 11,154

Cost of Sales (2,225) (3,667) (5,424) (7,106) (8,396)

Gross Profit 419 1,050 1,864 2,375 2,758

SG&A Expenses (56) (97) (145) (188) (221)

Operating Profit 363 953 1,720 2,187 2,537

Net Interest (17) 13 (202) (204) (207)

Forex Gain (Loss) (1) 0 0 0 0

Others-Net 0 2 12 10 10

Pre-Tax Income 346 967 1,530 1,993 2,339

Income Tax (11) (333) (514) (668) (786)

Minorities 0 0 0 0 0

Net Income 334 635 1,016 1,325 1,553

Balance Sheet

Cash & Equivalent 98 4,206 3,737 3,251 7,859 Receivable 517 3,052 5,395 6,905 5,134 Inventory 55 232 238 381 409 Other Current Assets 334 643 970 1,265 1,491

Total Current Assets 1,004 8,133 10,340 11,802 14,894 Fixed Assets - Net 987 1,933 2,681 2,677 2,673 Goodwill 0 0 0 0 0

Non Current Assets 2,341 3,648 6,055 7,646 5,725 Total Assets 4,332 13,734 19,100 22,152 23,322 ST Loans 302 1,907 4,009 4,740 3,346 Payable 730 1,542 0 2,969 2,364 Other Payables 1,400 1,317 1,923 2,522 2,964

Current Portion of LT Loans 0 0 1,449 0 0 Total Current Liab. 2,432 4,766 9,430 10,231 8,674

Long Term Loans 459 1,449 1,200 2,400 3,900 Other LT Liab. 110 114 239 270 342

Total Liabilities 3,002 6,329 10,869 12,901 12,916 Equity 856 6,675 6,675 6,675 6,675 Retained Earnings 475 730 1,556 2,576 3,731 Minority Interest 0 0 0 0 0

Total SHE + Minority Int. 1,331 7,405 8,231 9,251 10,406 Total Liabilities & Equity 4,332 13,734 19,100 22,152 23,322




Year to 31 Dec 2015A 2016A 2017F 2018F 2019F

Cash Flow

Net Income (Excl.Extraordinary&Min.Int) 334 635 1,016 1,325 1,553 Depr. & Amortization 95 117 190 232 249 Changes in Working Capital 1,194 (2,188) (1,520) (381) 1,387

Others 49 (167) 201 153 171 Cash Flow From Operating 1,672 (1,603) (113) 1,330 3,361

Capital Expenditure (3,423) (2,369) (3,345) (1,819) 1,676 Others 2 40 96 109 102

Cash Flow From Investing (3,421) (2,329) (3,249) (1,710) 1,778 Loans 761 2,595 3,301 483 106 Equity 762 5,819 0 0 0 Dividends 0 0 (190) (305) (397) Others 184 (43) (174) (285) (240)

Cash Flow From Financing 1,707 8,371 2,937 (107) (532) Changes in Cash (42) 4,439 (425) (488) 4,607 Financial Ratios

Gross Margin (%) 15.9 22.3 25.6 25.1 24.7

Operating Margin (%) 13.7 20.2 23.6 23.1 22.7 Pre-Tax Margin (%) 13.1 20.5 21.0 21.0 21.0

Net Margin (%) 12.6 13.5 13.9 14.0 13.9 ROA (%) 7.7 7.0 6.2 6.4 6.8 ROE (%) 25.1 14.5 13.0 15.2 15.8 ROIC (%) 16.1 10.8 8.2 9.2 9.7

Acct. Receivables TO (days) 70.7 137.7 211.1 236.3 196.5 Acct. Receivables - Other TO (days) 0.7 0.4 0.4 0.5 0.5

Inventory TO (days) 40.8 25.6 23.1 23.0 21.3 Payable TO (days) 119.8 113.1 120.8 128.9 115.9 Acct. Payables - Other TO (days) 0.0 0.0 0.0 0.0 0.0

Debt to Equity (%) 57.2 45.3 80.9 77.2 69.6 Interest Coverage Ratio (x) 0.1 0.0 0.2 0.1 0.1 Net Gearing (%) 49.8 (11.5) 35.5 42.0 (5.9)


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 12-month period

HOLD : Expected total return between -10% and 10% within a 12-month period

SELL : Expected total return of -10% or worse within a 12-month period

ANALYSTS CERTIFICATION.

The views expressed in this research report accurately reflect the analyst;s 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 reserch is based on information obtained from sources believed to be reliable, but we do not make any representation or warraty nor accept any

responsibility or liability as to its accruracy, 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, finacial 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.

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