Wijaya Karya

Equity Research

HOLD

Wijaya Karya

(Unchanged)

WIKA IJ / WIKA.JK Company Update | BCAS Virtue | Construction Sector

2 May 2018

The waiting is over

Michael Ramba

First loan disbursement for Jakarta Bandung HSR project Two years after the official groundbreaking of the Jakarta-Bandung HSR, China Development Bank (CDB) has finally disbursed its first tranche, amounting to USD170mn (around IDR2.3tn), of which USD80mn is denominated by USD, while USD90mn is RMB-denominated. Note that this figure is considerably lower than the number proposed by KCIC, who were looking for a first-phase disbursement of USD500mn. However, WIKA, in its capacity as the main contractor, has announced that CDB will disburse another USD500mn in the next two weeks, as construction process is already underway. All disbursements are to be gradually released, according to civil construction progress. Note that total investment for the project is estimated to reach USD5.9bn (around IDR79tn), of which CDB will fund 70% (USD4bn). Given that construction is already started and will complete around 2020, HSR revenue may begin to be recognized this year. This could support our revenue assumption of 20%/40%/40% for 2018-2020.

Net gearing level increased – but manageable. Maintain Hold On the balance sheet side, the company posted a 1Q18 net gearing position of 12.7%, compared to net cash in 1Q17 as interest-bearing debt jumped significantly, by 43.6% YoY to IDR12.2tn. Despite short-term bank loan easing significantly (-46.9% YoY) the Company already piled on IDR5.4tn of Komodo bonds, bring total MTN of IDR6.4tn in 1Q18. We believe high interest expense is inevitable, going forward, conceivably rising to 71.1% YoY, while net gearing escalates to 34.4% in 2018. Maintain Hold on WIKA, with TP of IDR1,510. Downside risks: postponement of HSR loan disbursement, slower-thanexpected HSR construction progress. Exhibit 1. Financial summary

+6221 23587222 ext 184 Pandu Anugrah [email protected] +6221 23587222 ext 168

Current Price: IDR1,585 Target Price: IDR1,510 (Previous TP: IDR1,920) Downside potential: -4.7%

12M PRICE PERFORMANCE (IDR)

(%)

3,000

-

2,500

(10.0)

(20.0)

2,000

(30.0)

1,500

(40.0)

1,000

WIKA IJ (LHS)

(50.0) Rel. to JCI performance (RHS)

200

Vol (mn)

1Q18 earnings dropped 30.1% YoY, below our estimate WIKA posted lower 1Q18 net profit of IDR171bn (-30.1% YoY), only achieving 12.2% of our and 11.8% of consensus. Lower 1Q18 earnings were mostly due to a combination of smaller JV project profit (-56% YoY), higher opex (+41% YoY) and higher interest expense (+105.4% YoY). Consequently, EBIT and net margin slipped to 8.4% and 2.7%, vs. 11.6% and 6.4%, respectively, in 1Q17. On the top line, the Company recorded a strong IDR6.3tn revenue, on the back of robust infrastructure and building revenue (+100.0% YoY) and higher EPC segment (+101.6% YoY). Note that WIKA booked a fat IDR106tn order book during 2017. Going forward, it could continue to post strong revenue, as we expect HSR project to start contributing this year. We expect WIKA’s order book to grow 19.2% YoY to IDR127tn in FY18.

[email protected]

100 Apr-17

Aug-17

Dec-17

Apr-18

Source: Bloomberg

STOCK PERFORMANCE YTD

1M

2.3%

-5.7%

-5.7%

-3.1%

7.9%

-2.5%

Absolute JCI Return Relative

3M

12M

-22.7% -33.1% -8.8%

5.4%

-13.8% -38.6%

Source: Bloomberg

MARKET DATA

YE to Dec 31 IDRbn

2015

2016

2017

2018F

2019F

12M price range (IDR)

:

1,505 - 2,380

Revenue EBITDA EV/EBITDA (x) Net profit BCAS/Consensus (%) EPS (IDR) EPS growth (%) DPS (IDR) PE (x) Dividend yield (%) BVPS (IDR) P/B (x)

13,620 1,786 6.1 625 102 2.8 20 25.2 0.8 886 2.9

15,669 2,371 3.9 1,059 118 16.0 24 21.8 0.9 1,393 1.5

26,176 2,772 3.5 1,202 97.7 134 13.5 27 15.7 1.3 1,631 1.2

29,998 3,867 4.6 1,403 99.6 156 16.7 31 10.1 1.6 1,662 1.2

35,097 4,732 4.4 1,530 90.0 171 9.0 34 9.3 1.8 1,697 1.1

12M PE range (x)

:

10.5 - 16.5

Outstanding shares (mn)

:

8,970

Market cap (IDRbn)/(USDmn)

:

14,217 / 1,022

Avg daily turn. (IDRbn/USDmn)

:

50.8 / 3.6

Government of Indonesia

:

65.1%

Others

:

35.0%

13.8 17.5

16.7 n.c.

14.3 n.c.

12.7 38.1

14.2 64.9

ROE (%) Net Gearing (%) Source: Company, BCA Sekuritas

Source: Bloomberg

SHAREHOLDERS

Source: Bloomberg

Exhibit 2. WIKA’s Financial Summary Income Statement Year–end 31 Dec (IDRbn) Revenue Cost of revenue EBITDA Opex EBIT Interest income Interest expense FX gain (losses) Other income (expense) Pre-tax profit Taxes Minority interests Net income EPS (IDR)

2015 13,620 11,965 1,786 (429) 1,514 60 (431) 28 (72) 1,098 395 78 625 102

2016 15,669 13,442 2,371 (527) 2,079 51 (435) (38) (61) 1,295 84 152 1,059 118

2017 26,176 23,300 2,772 (677) 2,772 242 (678) 1 (245) 1,462 106 154 1,202 134

2018F 29,998 26,436 3,867 (1,007) 3,192 92 (1,164) (1) (306) 1,730 126 202 1,403 156

2019F 35,097 30,803 4,732 (1,179) 3,861 68 (1,561) (383) 1,887 137 220 1,530 171

Balance sheet Year–end 31 Dec (IDRbn) Cash and equivalents Account receivables Inventories L-T Invest & receivables Fixed assets Other assets Total assets S-T liabilities Other S-T liabilities L-T liabilities Other L-T liabilities Total liabilities Minority interest Equity Total liabilities & equity

2015 2,560 2,782 1,031 1,898 3,184 8,147 19,602 1,818 8,780 1,692 1,874 14,164 1,063 5,438 19,602

2016 9,270 2,730 1,248 2,554 3,466 11,829 31,097 5,407 9,199 1,341 2,651 18,598 1,147 12,499 31,097

2017 11,254 4,930 1,663 3,210 4,983 19,645 45,684 6,424 19,552 2,011 3,065 31,052 1,998 14,632 45,684

2018F 8,560 5,277 1,651 3,210 10,244 22,267 51,208 5,292 18,984 8,955 3,065 36,296 1,998 14,912 51,208

2019F 9,281 6,174 1,924 3,210 14,356 23,336 58,279 6,167 20,834 12,995 3,065 43,061 1,998 15,218 58,279

Cash Flows Statement Year–end 31 Dec (IDRbn) Net Income Depreciation Change in working capital Operating cash flow Capital expenditure Others Investing cash flow Dividend paid Net change in debt Others Financing cash flow Change in cash Beginning cash flow Ending cash flow

2015 625 272 (659) 238 (713) (325) (129) 479 (4) 346 259 2,301 2,560

2016 1,059 292 (2,471) (1,120) (353) (458) (811) (125) 2,654 6,108 8,638 6,707 2,560 9,270

2017 1,202 547 137 1,885 (997) (1,641) (2,638) (345) 2,202 870 2,728 1,976 9,270 11,254

2018F 1,403 675 (6,338) (4,260) (3,905) (1,151) (5,056) (281) 6,033 870 6,623 (2,694) 11,254 8,560

2019F 1,530 871 61 2,461 (6,069) (1,151) (7,220) (306) 4,915 870 5,479 720 8,560 9,281

Key Ratios Gross margin (%) EBITDA margin (%) EBIT margin (%) Pretax margin (%) Net margin (%) ROAE (%) ROAA (%) Current ratio (x) Acid ratio (x) Gearing (%) Net gearing (%) AR turnover (days) Inventory turnover (days) AP turnover (days)

2015 12.1 13.1 11.1 4.2 4.6 12.1 3.5 1.2 0.5 64.5 17.5 64 13 125

2016 14.2 15.1 13.3 8.3 6.8 11.8 4.2 1.5 0.8 54.0 n.c. 64 12 122

2017 11.0 10.6 10.6 5.6 4.6 8.9 3.1 1.3 0.6 57.6 n.c. 64 16 107

2018F 11.9 12.9 10.6 5.8 4.7 9.5 2.9 1.3 0.6 95.5 38.1 64 16 107

2019F 12.2 13.5 11.0 5.4 4.4 10.2 2.8 1.3 0.6 125.9 64.9 64 16 107

Key Assumptions New contract growth (%) Total order book growth (%)

2015 43.0 18.8

2016 117.1 71.6

2017 (22.6) 28.0

2018F 10.0 19.2

2019F 10.0 16.8

Source: Company, BCA Sekuritas estimate

Wijaya Karya, 2 May 2018

2

Exhibit 3. WIKA’s 1Q18 result WIKA IJ Profit and loss statement (IDRbn) Revenue COGS Gross profit EBIT Other income/(expenses) Net interest income/(expense) Net forex gain/(losses) Others Pre-tax profit Net profit

1Q17 3,813 3,401 413 442

6,257 5,632 625 525

10,300 9,073 1,227 1,200 (244) 1 (82) 621 519

(158) 0 26 243 171

10.8 11.6 7.5 6.4

11.9 11.7 6.0 5.0

10.0 8.4 3.9 2.7

7,999 32,766 20,002 7,027 12,764

11,254 45,684 31,052 8,435 14,632

10,247 50,174 35,440 12,116 14,734

3.0 7.7 55.1 n.c.

4.5 14.2 57.6 n.c.

1.4 4.6 82.2 12.7

(57) 2 (8) 287 245

Gross margin (%) EBIT margin (%) Pre-tax margin (%) Net margin (%) Balance sheet (IDRbn) Cash and equivalents Total assets Total liabilities Interest bearing liabilities Equity

1Q18

4Q17

ROA (%) ROE (%) Gearing (%) Net gearing (%)

QoQ (%) (39.2) (37.9) (49.1) (56.3)

YoY (%) 64.1 65.6 51.5 18.6

(35.3) (66.1) n.a (60.9) (67.0)

176.4 (90.8) n.a (15.4) (30.1)

FY18/ BCAS 20.9

FY18/ Cons 20.3

16.4

16.9

12.2

11.8

Source: Company, BCA Sekuritas

Exhibit 4. Segment contribution

Infrastructure and building segment contributed 70% of total 1Q18 revenue. This was supported by several projects, including Kelapa GadingVelodrome LRT

120%

100%

0%

0%

10%

11%

0% 13%

26%

21%

21%

25%

18%

44%

48%

2015

2016

1%

0% 2% 12%

6% 13%

80%

60% 26%

15%

15%

40%

20%

38%

65%

70%

2017

1Q18

0% 2014 Infrastructure and building

Energy and industrial plant

Industry (precast)

Realty and property

Other


Exhibit 5. WIKA’s earnings seasonality 1Q18 earnings was accounted for 12.2% of our FY18 forecast, which was below compared to 20.0% in 1Q17

70% 57%

60%

50% 43% 38%

40%

30%

20%

34% 30%

28% 22%

19% 19%

17% 19%

20% 16%

21% 12%

10% 7%

10%

0% 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18



3

Teguh Hartanto Director of Equity, ext: 129 [email protected] RESEARCH DIVISION [email protected] Pandu Anugrah Head Of Research, ext: 168 Strategy, Consumer, Heavy Equipment [email protected]

Aditya Eka Prakasa Equity Analyst, ext: 182 Automotive, Telco, Media, Metal Mining [email protected]

Arga Samudro FI Analyst, ext: 181 FI Strategies & Macroeconomist [email protected]

Johanes Prasetia Equity Analyst, ext: 185 Retail, Poultry, Hospital [email protected]

Michael Ramba Equity Analyst, ext: 184 Construction, Property Residential [email protected]

Nyoman Widita Prabawa Equity Analyst, ext: 180 Cement, Plantation, Oil & Gas [email protected]

Gilang Purnama Equity Analyst, ext: 178 Banking, Industrial Estate [email protected]

Willy Suwanto Equity Analyst, ext: 178 Banking, Consumer, Petrochemical [email protected]

Prasetya Gunadi Equity Analyst, ext: 183 Banking, Coal, Heavy Equipment [email protected]

Achmad Yaki Yamani Technical Analyst, ext: 186 Technical Analyst [email protected]

Indra Taurean Research Associate, ext 186

Rachel Christabelle Sual Research Associate, ext 179

[email protected]

[email protected]

Yuni Pratiwi Research Assistant, ext: 183 [email protected]

Anindra Alief Mattawang Research Assistant, ext: 186 [email protected]

EQUITY CAPITAL MARKET DIVISION [email protected] Ermawati Agustina Erman Head of Institutional Sales, ext: 159 [email protected]

Jennifer Frederika Yapply Institutional sales, ext: 187 [email protected]

Wilson Budiarto Sutarko Institutional sales, ext: 195 [email protected]

Haslienda Equity Capital Market, ext: 137 [email protected]

Santoso Jodikin Sales Trader, ext: 164 [email protected]

Arief Iskandar Institutional Dealer, ext: 136 [email protected]

DISCLAIMER By receiving this research report ("Report"), you confirm that: (i) you have previously requested PT BCA Sekuritas to deliver this Report to you and you are legally entitled to receive the Report in accordance with Indonesian prevailing laws and regulations, and (ii) you have fully read, understood and agreed to be bound by and comply with the terms of this Report as set out below. Your failure to comply with the terms below may constitute a violation of law. This Report is strictly confidential and is for private circulation only to clients of PT BCA Sekuritas. This Report is being supplied to you strictly on the basis that it will remain confidential and that you will maintain its confidentiality at all times. Without the prior written consent of PT BCA Sekuritas authorized representative(s), no part of this Report may be (i) copied or reproduced in any form by any means, (ii) redistributed or delivered, directly or indirectly, to any person other than you, or (iii) used for any other purpose that is not in line with the terms of the Report.. PT BCA Sekuritas, its affiliates and related companies, their directors, associates, connected parties and/or employees (excluding the individual analysts who prepare this Report) may own or have positions in securities of the company(ies) covered in this Report and may from time to time buy or dispose, or may have material interest in, those securities. Further, PT BCA Sekuritas, its affiliates and its related companies do and seek to do business with the company(ies) covered in this Report and may from time to time: (i) act as market maker or have assumed an underwriting commitment in the securities of such company(ies), (ii) sell to or buy those securities from other investors for its own account, (iii) perform or seek to perform significant investment banking, advisory or underwriting services for or relating to such company(ies), or (iv) solicit any investment, advisory or other services from any entity covered in this Report. Furthermore, the personnel involved in the preparation of this Report may also participate in the solicitation of the businesses as described above. The views expressed in this Report reflect the personal views of the individual analyst(s) at PT BCA Sekuritas about the securities or companies mentioned in the Report and the compensation of the individual analyst(s), is, or will be directly or indirectly related to the performance of PT BCA Sekuritas’ activities. PT BCA Sekuritas prohibits the individual analyst(s) who prepared this Report from receiving any compensation, incentive or bonus based on specific investment banking transactions or for providing a specific recommendation for, or view of, a particular company (including those covered in the Repot). However, the individual analyst(s) may receive compensation based on the scope of his/their coverage of company(ies) in the performance of his/their duties or the performance of his/their recommendations. In reviewing this Report, you should be aware that any or all of the above activities of PT BCA Sekuritas, its affiliates and related companies, their directors, associates, connected parties and/or employees, among other things, may give rise to real or potential conflicts of interest between them and you. The content of this Report is prepared based on data believed to be correct and reliable on the date of this Report. However, this Report: (i) is not intended to contain all necessary information that a prospective investor may need, (ii) is not and should not be considered as an investment advice in any way, and (iii) cannot be relied as a basis for making an informed investment decision. Accordingly, PT BCA Sekuritas does not guarantee the adequacy, accuracy, completeness, reliability or fairness of any content of this Report and PT BCA Sekuritas, its affiliates and related companies, their directors, associates, connected parties and/or employees (including the analysts) will not be liable in any way for any consequences (including but not limited to any direct, indirect or consequential losses, loss of profits and damages) arising from or relating to any reliance on or use of the content of this Report by any person (including you). This Report is general in nature and has been prepared for information purposes only. It is intended for circulation amongst PT BCA Sekuritas’ clients only and does not consider any specific investment objectives, financial situation and the particular needs of any specific person who may receive this Report. The entire content of this Report is not and cannot not be construed or considered as an offer, recommendation, invitation or solicitation to enter into any transaction (including trading and hedging) relating to the securities, other financial instruments, and other form of investments issued or offered by the company(ies) covered in this Report. It is your own responsibility to: (i) independently evaluate the content of this Report, (ii) consider your own individual investment objectives, financial situation and particular needs, and (iii) consult your own professional and financial advisers as to the legal, business, financial, tax and other aspects before participating in any transaction in respect of the securities of company(ies) covered in this Report. Please note that the securities of the company(ies) covered in this Report might not be eligible for sale in all jurisdictions or to all categories of investors. The availability of those securities and your eligibility to invest in those securities will be subject to, among others, the prevailing laws of the relevant jurisdiction covering those securities. Furthermore, the value and income of any of the securities covered in this Report can fall as well as rise and an investor (including you) may get back less than invested. Future returns are not guaranteed, and a loss of original capital may be incurred. Foreign-currency denominated securities are subject to fluctuation in exchange rates that could have a positive or adverse effect on the value, price or income of such securities and financial instruments. Past performance is not indicative of comparable future results and no guarantee regarding future performance is provided in this Report. This Report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to the applicable laws or regulation of such jurisdiction.


4