jan 09, 2014 construction · in-depth bottom-up analysis of project risks. we examine each...

TRIM SECTORFOCUS

Muhamad Makky [email protected]

Maria [email protected]

ConstructionIn-depth analysis of project risks

Jan 09, 2014

OVERWEIGHT

Construction vs JCI

Sector: Construction

Stock Code Rating Price

Jan 7, 14Target Price

(Rp)Cons.

(Rp)Ups Potential

(%)PE(x)

P/BV(x)

PTPP Buy 1,125 1,500 1,564 33.3% 11.6 2.4

WIKA Buy 1,580 2,200 2,227 39.2% 13.7 2.8

WSKT Buy 405 570 722 40.7% 10.4 1.5

ADHI Buy 1,430 2,100 2,695 46.9% 5.2 1.4

Companies Data

One certainty... We are optimistic on construction sector’s long-term outlook and expect the new government elected this year (regardless of who the president is) will focus on infrastructure. There is potentially Rp188.7tr of infrastructure projects allocated under 2014 state budget, which is 73.8% of the four construction SOEs current order book. We believe construction sector growth will continue to grow faster than GDP growth (construction sector grew by 7% versus GDP by 5% CAGR 2000-13).

…two myths. Investors are concerned that construction work will slow down due to: 1) 2014 being election year, and 2) Rising interest rate environment. We did backtesting of construction value growth during years of election and/or rising interest rates and found that both preconceptions are myths. Construction sector’s growth accelerated in 2004 when there was high uncertainty in presidential election and has low correlation (R2=38%). We expect order book of the four construction SOEs to grow at a healthy rate of 20% in 2014 while revenue to grow by 19% and earnings to grow by 27%.

In-depth bottom-up analysis of project risks. We examine each construction company’s major projects and classify projects based on: 1) Whether they are ongoing-multiyear project (which have lower probability of being delayed, 2) Type of project owner (government, SOE, or private) and 3) Type of work (Building, infrastructure, road, and others). The four construction SOEs’ ongoing-multiyear projects account for 28.6% of total order book target and represents 17.1% of 2014 revenues, of which more than 60% are owned by government and SOE.

Overweight on the sectorWe have Buys on WIKA, PTPP, ADHI, and WSKT (in that order of preference). Both WIKA and PTPP rank well in our proprietary scoring system but we like WIKA better between the two due to valuation and WIKA’s better balance sheet. WIKA currently trades at 0.45x 2014 PEG versus PTPP at 0.55x 2014 PEG.

Market Cap

(Rptr)PTPP 5.5

WIKA 10.1

WSKT 3.9

ADHI 2.6

Sector Market Cap 22.1

TRIM Company Focus - Jan 09, 2014

2

Top-down view remains attractive 3

Positive long-term outlook for construction industry 10

Not all construction companies are the same – introducing our proprietary scoring system to address both growth potential and risks 15

Market overreaction and attractive valuation 17

What is the risk? 20

Company outlook

- PTPP 21

- WIKA 29

- WSKT 38

- ADHI 44

Table of Contents


3

Top-down view remains attractive

Indonesia needs more infrastructure, a lot more. If there is one thing that all potential presidential candidates can agree on, it is that Indonesia needs a lot more infrastructure. WEF (World Economic Forum) ranks Indonesia’s competitiveness in infrastructure at number 61 out of 148 countries, lower than Malaysia (29th) and Thailand (47th) albeit higher than Philippines (96th). Indonesia only has 160km of roads (of which approximately only 50% is paved) per 1mn capita versus approximately 800km average road per 1mn capita in Thailand (Japan: 6,000km of roads per 1 mn capita) . Poor state of infrastructure resulted in high logistics cost, which in turn impedes investment and overall potential economic growth. Logistic cost in Indonesia is ~25% to GDP, far above South Korea’s 16%, Malaysia’s 13% and Thailand’s 20%. There is plenty of potential for construction companies if Indonesian government can execute well on its infrastructure build out. Current government’s infrastructure blueprint (called MP3EI) calls for Rp1,786tr of potential infrastructure buildout, implying Rp268tr of potential project value assuming the four state-owned construction companies we cover maintain their 15% market share (arguably could be higher). This Rp268tr fi gure is 1.9x of the four state-owned companies’ current total order book. We are optimistic that new government in place (whoever the president is) will drive infrastructure growth as one of their important policies.

Figure 02. Indications of infrastructure investment needed under MP3EI

Source: MP3EI

National logistics cost (Rptr) Ratio of logistics cost to GDP (%)

2004 633.8 27.6

2005 762.9 27.5

2006 961.2 28.8

2007 1,016.60 25.7

2008 1,238.40 25

2009 1,397.30 24.9

2010 1,543.80 24

2011 1,829.70 24.6

Figure 01. National Logistics Cost 2004 - 2011

Source: Bappenas, Sislognas Expert Team in Meeting on Measurement of Sislognas Performance,

presented in Bappenas Offi ce, 11 March, 2013.


4

Projects from Ministry of Public Works grew higher than industry. Supporting Indonesia economic growth post the 2008 global economic crisis, the government boosted its spending by increase infrastructure values set up by Ministry of Public Works. The project values from Ministry of Public Works in 2012 accounted for 39.0% of total construction values up from 18.8% in 2007, whereas the values of Ministry of Public Works project grew by 24.1% pa in the past 5 years, higher than industry of 7.1% pa.

Budget realization rate on Ministry of Public Works in 2012 reached only 89.0%, the lowest level in the past 5 years. Government allocates 2013 Ministry of Public Works budget of Rp83.9tr (+11.2% YoY) whereas the budget realization as of end of Sep13 reached Rp37.8tr or 45.1% of FY13 budget.

The National Development Planning Agency (Bappenas) launched the Public Private Partnership (PPP) Book 2013 in 15 Nov’13. The new PPP book lists the project selected by Government to be developed as public private partnerships, opening the door for private sector to participate in Governments’ project.

Figure 03. Ministry of Public Works and Indonesia’s construction value: 2007-2012

Source: BPS and Ministry of Finance

Figure 04. Ministry of Public Works budget realization: 2007-2013

Source: Ministry of Finance


5

The PPP Book 2013 includes 27 projects that have succeeded the evaluation conducted by Central Government to ensure the projects would bring good business opportunities and additional value to the country. The book comprises 14 prospective projects those the feasibility study has been completed and close to tender off er process, and 13 potential projects those are in the process of detailed defi nition, covering water supply, sanitation, transportation, urban development, and power sectors.

Lack of port resulted in longer dwelling time. Compared with another archipelago countries Indonesia has less number of ports than Japan and Philippines. Indonesia’s numbers of port to area is 2.93km2/port compared with Japan’s of 0.34Km2/port and Philippines’ of 0.46Km2/port. Less number of ports results in higher transportation cost and longer dwelling time. Average dwelling time in Indonesia reach 5-6 days compared with less than 1 day in Singapore.

Unit 2008 2009 2010 2011 2012 CAGR08-12

Number of ports managed by govern-ment of Indonesia

Unit 534 534 571 571 571 1.7%

Number of ports managed by Pelindo I-IV

Unit 104 104 113 103 102 -0.5%

Production of cargos terminal services managed by Pelindo I-IV 000 ton/M3 35,243 36,779 41,941 42,564 44,066 5.7%

Average production of cargos terminal services managed by Pelindo I-IV 000 ton/M3 339 354 371 413 432 6.3%

Figure 06. Number of Ports owned by Government and Pelindo I-IV

Source: Ministry of Transportation

Project Value Category

USD mn in Rptr

Soekarno Hatta Airport track 2,570.0 28.3 Prospective

Integrated Terminal of Gedebage Bandung 133.0 1.5 Prospective

Revitalization of railway station and Malioboro Yogyakarta 828.6 9.1 Prospective

Consolidated Urban Development Aceh 160.0 1.76 Prospective

Tanjung Priok - Cilamaya Karawang 1,135.0 12.5 Potential

Port of Maloy - Kalimantan 1,780.0 19.6 Potential

Extension of Tanjung Sauh Batam Port 805.8 8.9 Potential

Kulonprogo Airport, Yogyakarta 500.0 5.5 Potential

Bali Airport 510.0 5.6 Potential

Surabaya MRT 1,170.0 12.9 Potential

Bandung Monorail 2,860.0 31.5 Potential

Track between Muara Enim - Baai Island 3,000.0 33.0 Potential

South Sumatra Monorail 550.0 6.1 Potential

16,002.4 176.0

Figure 05. Transportation projects under PPP Book 2013

Source: Public Private Partnership (PPP) Book 2013


6

in 000 units 2008 2009 2010 2011 2012E CAGR08-12

Passanger Cars 7,490 7,910 8,891 9,549 10,167 7.9%

Truck 4,452 4,452 4,688 4,959 5,062 3.3%

Bus 2,059 2,161 2,250 2,254 2,460 4.6%

Motor cycles 47,684 52,767 61,078 68,839 74,614 11.8%

Particular na na 263 - - 0.0%

Total 61,685 67,291 77,170 85,601 92,303 10.6%

Figure 07. Number of vehicles in Indonesia


Growth of vehicle surpasses the road length growth. The numbers of vehicles by 2012 reached 92.3mn units with around 80.8% are 2W. The number of 4W grew by 7.9% CAGR (2008-12) versus road length growth of 3.6% CAGR (in the same period). We also note that road length 3.6% CAGR in 2008-12 is lower than the long-term growth trend of 4.4% CAGR (1970-2012). Even toll road length only grew by 2.5% CAGR in 2000-13. Indonesia built its fi rst toll road (Jagorawi 59km), in 1978. However, toll road length in Indonesia as of Dec’13 reached only 787km or increase by average 22.3km per year since then.

Figure 08. Indonesia length of road


Figure 09. Toll road length in Indonesia

Source: JSMR, Indonesia Toll Road Authority (BPJT)


7

Prolonged land clearing process is one of the main factors on infrastructure development. In 2012, government issued Land Law for public purpose (UU no.2/2012), which eff ectively applied in 2013. However, the law is not apply retroactively and can be implemented only on new projects, which we believe has not accelerate land procurement process on ongoing projects, especially on toll roads, which most of them are ongoing, such as: Trans Java toll road, and some sections on JORR II.

Train, a very fuel-effi cient mode of transport, has grown the least. Total length of operational tracks as of 2012 reached 4,8k km which grew by only 0.4% of CAGR since 2008. Hence, the number of stations in Java and Sumatra, the two most populous islands in Indonesia, reached only 0.1% of CAGR08-12, lower than passenger growth in Sumatra and freight. However, we see the declining on passengers in Java, which we believe due to shifting to other transportation tools, especially aircraft due to time saving and discount on ticket price.

Many major airports are congested. In the last four years, number of aircraft passenger grew by 18.3% CAGR reached 81.4mn passengers in 2012. Strong passenger growth also shows the middle class growth besides the promotion aggressive promotion from airlines and tour agents backed by massive expansion from the airlines. Nonetheless, the number of airport that served international fl ights remained unchanged since the last 3 years; there are only 29 international airports in Indonesia. International airport required higher standards, including airport services and infrastructure, compared with domestic airport. Soekarno Hatta Airport, one of the major airport in Indonesia, is running almost thrice than its capacity. The 22mn capacity of airport served 57mn passangers in 2012 and is predicted to reach 63mn passangers in 2013. Additionally, Soetta is expanding Terminal 3 with additional capacity of 25mn passengers, which is expected to complete by end 2014. However, the new capacity totaling to 47mn passengers is still lower than current passengers.

Unit 2008 2009 2010 2011 2012 CAGR08-12

Length of operational track km 4,782 4,812 4,816 4,828 4,861 0.4%

No. of stations in Java and Sumatra units 570 570 570 570 573 0.1%

No. of passangers in Java mn person 194 203 197 154 142 -7.5%

No. of passangers in Sumatra mn person 4.0 4.2 5.2 5.2 4.4 2.4%

Freight - Java mn ton 4.3 4.1 3.6 3.7 4.9 3.3%

Freight - Sumatra mn ton 15.2 14.8 15.4 14.9 17.2 3.0%

Figure 10. Railways statistic


Unit 2008 2009 2010 2011 2012 CAGR08-12

Scheduled domestic fl ight production

No. of airport for domestic fl ights units na na 209.0 216.0 210.0 na

Aircraft km mn km 268.3 368.6 356.1 409.1 555.7 20.0%

Aircraft departure 000 times 341.1 390.6 417.7 504.5 614.7 15.9%

Aircraft hours 000 hours 477.6 661.7 639.6 686.8 851.1 15.5%

Passanger carried mn passanger 37.4 43.8 51.8 60.2 71.4 17.6%

Freight carried 000 ton 338.2 344.1 749.2 483.7 571.7 14.0%

Scheduled international fl ight production

No. of airport for international fl ights units na na 29.0 29.0 29.0 na

Aircraft km mn km 67.0 80.6 101.7 126.9 138.7 19.9%

Aircraft departure 000 times 37.6 42.9 50.8 61.8 69.9 107.6%

Aircraft hours 000 hours 98.0 124.0 151.5 184.3 209.1 20.9%

Passanger carried mn passanger 4.1 5.0 6.6 8.2 9.9 24.8%

Freight carried 000 ton 42.5 46.5 79.5 72.2 90.7 20.9%

No. of aircraft based on Air Op. Certifi cate units 704.0 739.0 839.0 865.0 950.0 7.8%

No. of pilot 000 person 6.2 6.5 6.9 7.4 7.9 6.2%

No. of fl ight operation offi cer (FOO) 000 person 2.7 2.8 3.1 3.4 3.7 8.2%

No. of fl ight attendant (FA) 000 person 6.8 7.2 8.1 9.2 10.4 11.1%

No. of aircraft maintenance engineer licence (AMEL) 000 person 5.6 5.8 6.0 6.3 6.8 5.1%

Figure 11. Civil aviation statistic



8

Figure 12. Electrifi cation ratio in ASEAN countries by 2012

Source: ASEAN-RESP 2012

Government targets electrifi cation ratio to reach 90% by 2020 from current 75.8%. Indonesia has lower electrifi cation ratio among ASEAN countries, only above Myanmar (26.0%) and Cambodia (24.0%), while lower than Malaysia (99.4%) and Philippines (89.7%). The government has introduced two accelerated programs: (1) Accelerated Program Phase I consist of 10,000 MW coal fi red power plant (37 projects) and approximately 1,817 km transmission project as PLN’s projects, introduced in 2007, and (2) Program Phase II (total capacity approximately 10,000 MW) introduced in 2010, consist of 93 power plant projects, with composition based on primary energy (hydro 10%, geothermal 34%, coal 40% and gas 15%).

Figure 13. Electrifi cation ratio in Indonesia

Source: Ministry of Energy and Mineral Resources


9

Improving electrifi cation ratio shown in PLN’s portion sales to households, which grew by 8.1% of CAGR04-12 to 72.1k GWh accounted for 41.5% of PLN’s sales volume in 2012.

2004 2005 2006 2007 2008 2009 2010 2011 2012 CAGR04-12

PLN's electricity capacity MW 21,470 22,515 24,846 25,223 25,594 25,637 26,548 29,286 32,951 5.5%

Electricity produce by PLN GWh 96,192 101,282 104,469 111,241 118,047 120,459 131,710 142,739 149,783 5.7%

Electricity produce by Others (IPP) GWh 23,970 26,088 28,640 31,199 31,390 34,379 38,076 40,682 50,508 9.8%

Gross production GWh 120,162 127,370 133,108 142,441 149,437 154,838 169,786 183,421 200,291 6.6%

Internal usage & losses GWh 18,956 14,237 14,736 15,239 15,094 15,484 15,954 17,066 19,429 0.3%

Net production GWh 101,206 113,133 118,372 127,202 134,343 139,354 153,832 166,355 180,862 7.5%

Figure 15. Electricity production: 2004-2012

Source: PLN

Figure 14. Electricity sales by sector: 2004 and 2012

Source: PLN

2004 2012


10

Positive long-term outlook for construction industry

We are optimistic in long-term outlook. Value of construction works has grown by 7% CAGR in 2000-12, above 5.4% GDP CAGR in the same period. Construction sector’s contribution to GDP has risen from 5.6% in 2001 to 6.6% in 2012. We expect this trend to continue in the foreseeable future given the obvious need for infrastructure, the fact that Indonesia’s government debt to GDP is low enough (<30%) that it can aff ord to build more infrastructure, and as we expect private construction (high-rise buildings) market to remain robust in the long-term (albeit likely to slow down in the near-term). If there is one certainty in this election year, it is that new government (regardless of who the president is) will put infrastructure build-out high in its priority list.

Myth #1: Value of construction works falls during election years. Investors are worried that construction works might be postponed during election years. We examined annual growth rate of value of construction works done in years during recent elections (2004 and 2009) and concluded that there was no correlation between election years and project delay. Construction growth accelerated from 6.1% in 2003 to 7.5% in 2004 despite it being a highly contested year for presidential election. Although construction growth decelerated from 7.6% in 2008 to 7.1% in 2009, we believe this is a spillover eff ect from global recession in 2008 rather than due to 2009 election.

Figure 16. Portion construction to GDP: 2001 - 2012

Source: BPS

Figure 17. Growth GDP and construction: 2001 - 2012

Source: BPS


11

Myth #2: Value of construction works falls in a rising interest-rate environment. Interest rate movements have very low correlation with construction growth (R2=38%). We believe this can be explained by the fact that most infrastructure projects are owned by government or state-owned companies (which have healthy balance sheet). As mentioned in previous segment, government (Ministry of Public Works)’s contribution to total construction value has grown from 19% in 2007 to 39% in 2012.

4 listed SOEs dominate Indonesia’s construction industry. In 2012, those companies booked construction revenues totaling to Rp25.6tr, accounted 15% of industry values. The construction revenues on 4 listed SOE grew 10.0%pa of CAGR08-12 much faster than industry growth of 7.0%pa of CAGR08-12 whereas total revenues grew by 13.8%pa. The 4 listed construction SOEs have managed to gain market share despite industry’s competitiveness (there are ~120,000 construction companies as of 2011) as construction SOEs have signifi cant competitive advantage in getting infrastructure project contracts (unlikely to be given to private contractors). We believe this trend is likely to continue for the foreseeable future as we expect infrastructure projects to continue driving total construction growth and as we believe as the construction SOEs grow further, they can also compete better in private projects.

Figure 18. Benchmark interest rate vs. construction growth: 2001-2012

Source: Bloomberg, BPS

Figure 19. Number of construction companies in Indonesia and Java: 2004 - 2011

Source: BPS


12

Diversifi cation businesses strengthen fi nancial performance and creating business opportunities for other divisions. Regarding to increase the margins and to avoid volatile revenues, the construction company expands its business into other business that supports construction business. However, revenues growth from other business in the past 4 years surpassed the constructions’, reducing the construction contribution to company’s performance. Hence, net margins improved from around 1.0% in 2008 to around 3% in 2012.

For those 4 listed government’s construction companies, total revenues from construction services grew by 10.0% CAGR08-12, lower than EPC (+93.3% pa), property division (+27.3% pa) and pre-cast division (+19.7% pa), while diversifi cation business accelerating their net margins from around 1% in 2008 to become around 3% in 2012. EPC projects are driven mostly by power plant projects.

Figure 20. Order book values of 4 listed construction companies owned by government

Source: Trim Research

Figure 21: Revenues breakdown: 2008 and 2012

Source: PTPP, WIKA, ADHI, WSKT


13

Lower new contract growth in 2013... We expect to see 4 contractor companies under our basket to book 2013 new contract totaling to Rp64.3tr up 10.1% YoY, or 11% lower than target announced earlier (Rp72.5tr, +24.3% YoY) due to delay on several projects caused by unexpected fuel hike, increasing interest rate, and Rupiah depreciation. The 2013 new contract growth is lower than 2012 growth of 22.1% YoY (of Rp58.4tr).

…but better outlook in 2014 We expects order book under our basket to grow by 20.4% YoY to Rp139.2tr (2013: Rp115.6tr, +18.1% YoY), supported by higher new contract and carry over. We expect new contract in 2014 to grow by 19.2% YoY to Rp76.6tr (2013: Rp64.3tr, +10.1% YoY); our target is 13.9% lower than companies’ target of Rp88.9tr (+37.8% YoY). Meanwhile carry over is expected to grow by 21.9% YoY to Rp62.6tr (2013: Rp51.4tr, 30.0% YoY), some Government’s huge multiyear infrastructure projects to support 2014 order book are: monorail project, Kalibaru port project, and Jakarta MRT. Furthermore, some of company expanding its property business by developing hotel and mixed use property.

Figure 22. Revenues and gross margins: 2008 vs. 2012


Figure 23. We expect net income to grow 27% CAGR13-15 backed by higher margin

Source: TRIM Research


14

Figure 24. We expect 2014 realization rate to stay at 37% (2013: 38%)



15

Not all construction companies are the same – introducing our proprietary scoring system to address both growth potential and risks

We examine company’s project agreement and commitments. With many constrains as the headwinds the construction sector we believe diversifi cation of business will be the main factors to support companies’ performance whereas government project, including SOE’s, has lower risk given by escalation clause under government regulation and project agreement. Hence, we try to fi gure out the type of project owner for each company based on project agreement and commitments stated on fi nancial notes as of Sep’13. Furthermore, we believe the ongoing multi year projects shows the potential revenues to be booked in 2014. We think most important metrics are ongoing projects’ contribution to order book along with revenue and project owners.

... our fi ndings. The four construction SOEs (state-owned enterprise) own Rp39.8tr of ongoing-multiyear projects which account for 28.6% of total order book target and represents 17.1% of 2014 revenues, of which more than 60% are owned by government and SOEs. PTPP has highest portion of ongoing projects contribution to 2014 order book (43.9%) followed by WIKA (31.2%) while both WSKT (15.9%) and ADHI (10.3%) have low portion of ongoing projects. This implies lower uncertainty to PTPP and WIKA’s 2014 revenues relative to WSKT and ADHI. Large government’s ongoing projects that contribute to PTPP and WIKA’s potential revenues in 2014 are Kalibaru port project in Tanjung Priok Jakarta (PTPP’s), and Jakarta MRT project (WIKA’s).

Of total ongoing projects, PTPP (64.9%) has highest percentage of infrastructure (power plants, airports, MRT, seaports) and road works followed by WSKT (63.7%), WIKA (54.4%) and ADHI (29.2%). Both ADHI (31.3%) and WIKA (29.1%) have considerably higher Others type of work relative to WSKT (11.4%) and PTPP (4.6%). ADHI has contracts to build factories (i.e. Pupuk Sriwijaya) while WIKA has contracts to build markets, EPC works with the end project owners either local governments or SOEs.

Total ongoing Project owner Type of workproject values P G SOE B Inf. Road Others

ADHI 2,704 38.6% 25.2% 36.2% 39.4% 20.4% 8.8% 31.3%

WIKA 14,605 9.4% 29.3% 61.3% 16.5% 44.6% 9.8% 29.1%

PTPP 18,772 29.0% 11.7% 59.4% 30.5% 61.3% 3.6% 4.6%

WSKT 3,715 22.6% 59.4% 18.0% 24.9% 38.2% 25.5% 11.4%

Figure 25a. Summary of fi ndings: project owner and type of work

Notes: P: Private G: Government

B: Building Inf.: InfrastructureSource: TRIM Research

Under agreement 2014 TRIM Target % to FY targetOngoing project 2014 Rev. OB Rev. OB Rev.

ADHI 2,704 1,068 26,200 12,393 10.3% 8.6%

WIKA 14,605 2,928 46,836 14,551 31.2% 20.1%

PTPP 18,772 4,017 42,779 14,500 43.9% 27.7%

WSKT 3,715 820 23,365 10,215 15.9% 8.0%

Figure 25b. Summary of fi ndings: portion to 2014 OB and revenues



16

Figure 26. Scoring system

Contestant Value Rank Score

Based on PE14

ADHI 5.2 1 40

WIKA 13.7 4 10

PTPP 11.6 3 20

WSKT 10.4 2 30

Contribution from non-construction services to revenues in 2014

ADHI 26.0% 2 30

WIKA 59.9% 1 40

PTPP 17.5% 3 20

WSKT 4.1% 4 10

Potential revenues in 2014 under agreements & commitments

ADHI 8.6% 3 20

WIKA 17.2% 2 30

PTPP 27.7% 1 40

WSKT 8.0% 4 10

Absolute values of agreements & commitments to 2014 order book

ADHI 61.4% 4 10

WIKA 90.6% 1 40

PTPP 71.0% 3 20

WSKT 77.4% 2 30

Portion of Govt and SOE projects under agreements & commitments

ADHI (858) 4 10

WIKA (440) 3 20

PTPP 238 1 40

WSKT (12) 2 30

Result

ADHI 3&4 110

WIKA 1&2 140

PTPP 1&2 140

WSKT 3&4 110


Our proprietary scoring system. We conduct a scoring system based on several categories which includes our main concern factors: valuation, business diversifi cation, future growth, project owner, and FCFF (Free cash fl ow to fi rm). Both WIKA and PTPP rank well in our scoring system.


17

Market overreaction and attractive valuation

Market has overreacted on the sector. We believe market has overreacted to the issues of 2014 presidential election and current economic situation (ex.: interest rate hike, USD exchange rate, etc.) which shown by high discount implemented by market. Market’s 2014 earnings target in average is 15.2% lower than company’s compared to our target which 9.1% lower than company’s. We believe our target is quite moderate and reachable.

The sector is still attractive. The four construction SOEs prices have tumbled more than 50% from their picks in 2Q13 allowing attractive valuation with double-digit potential growth, we believe those factors makes the sector is irresistible for investor. Currently, ADHI, PTPP, and WSKT are traded at P/E 14 lower than their average historical ever, while WIKA is traded higher than its average (currently at 13.7x vs. average historical of 11.5x).

Price TP Potential upside

Rec. Market cap EPS 14 P/E 14 PEG 14 OB/EV 14 Market cap/OB 14

(Rp/sh) (Rp/sh) (Rptr) (Rp/sh) (x) (x) (x) (x)

ADHI 1,430 2,100 46.9% Buy 2.6 278 5.15 0.2 16.6 0.1

WIKA 1,580 2,200 39.2% Buy 9.7 115 13.74 0.5 5.4 0.2

PTPP 1,125 1,500 33.3% Buy 5.4 97 11.65 0.5 16.9 0.1

WSKT 405 570 40.7% Buy 3.9 39 10.45 0.6 11.5 0.2

Avg. 10.25 0.4 12.6 0.1

Figure 28. Valuation table


TRIM Research (Rp/sh) Company's guidance (Rp/sh) Variance (%)

ADHI WIKA PTPP WSKT ADHI WIKA PTPP WSKT ADHI WIKA PTPP WSKT

278 115 97 39 317 111 108 46 87.6% 103.9% 89.8% 84.3%

TRIM Research (Rp/sh) Consensus estimates (Rp/sh) Variance (%)

ADHI WIKA PTPP WSKT ADHI WIKA PTPP WSKT ADHI WIKA PTPP WSKT

278 115 97 39 235 118 97 43 118.3% 97.2% 99.2% 91.1%

Figure 27. 2014 Earnings estimates, company’s guidance and consensus estimates

Source: Companies, Bloomberg, TRIM Research


18

Figure 31. PTPP PE band

Source: TRIM Research, Bloomberg

Figure 30. WIKA PE band


Figure 29. ADHI PE band



19

Figure 32. WSKT PE band



20

What is the risk?

We identifi ed that there are several factors which are the key risks for construction sector• Lack of supporting regulations. Beside lack of supporting regulations to boost infrastructure

sector, some of regulations in Indonesia leave the space for diff erent interpretations resulting in uncertainty. Indonesia is still perceived as having a complex regulatory and legal environment. Despite the implementation of some reforms, the tax and customs administrations in Indonesia are still perceived by many in the business community as non-transparent, and many regulations as onerous.

• Weak coordination within government or department. Weak coordination within government and department resulting more application and requirement are needed. Hence, additional documents are needed and also the approval from each department, which would likely to lengthen the project preparation stage and bring additional cost to the project owner.

• Shortage of technically skilled labor or project manager. A project manager averagely in charge with 2-3 projects depends on the project size. In spite of having an appropriate educational background, a project manager is required to have an expertise on the same construction type of fi eld for at least around 3 years before he can be appointed for a project manager for similar project. Through a JV or JO scheme with foreign company, it would bring benefi ciary of transfer knowledge for domestic company.

• Rupiah weakening. Rupiah depreciation against US dollar would increase material cost, since around 40%-60% of the construction costs (exclude land acquisition) are for material.

• Interest rate hike. Increasing interest rate resulting in higher cost of debt to project owner since, most of construction projects are funded by loans. Meanwhile, un-expected interest rate hike would cost project owner to re-calculate its project values, resulting in project delay or cancelation.

• Political issues. Since more than a half projects worked by construction companies are government’s related (central or local government or SOE) and related with the large amounts of money, political issues are inevitable. Even, the political situation will aff ect the tender off er process.

TRIM COMPANYFOCUS

Pembangunan PerumahanUtilize the idle

Revenue (Rpbn) 6,232 8,004 11,767 14,500 18,024

Net profi t (Rpbn) 240 310 386 468 566

EPS 50 64 80 97 117

EPS Growth (%) 17.0 28.9 24.5 21.3 21.0

DPS (Rp) 16 16 19 24 29

BVPS (Rp) 294 342 402 475 563

P/E (x) 22.7 17.6 14.1 11.6 9.6

P/BV (x) 3.8 3.3 2.8 2.4 2.0

Div Yield (%) 1.4 1.5 1.7 2.1 2.6

Revised up FY13 targets. Among the construction companies, only PTPP which increased its FY13 targets, optimist that FY13 performance would surpass its targets which were set up in early of the year. The revised up targets supported by strong 9M13 performances. PTPP revised up its 2013 revenues target by 20.6% to Rp12.3tr (+53.7% YoY) resulting in higher net earning target of Rp407bn (+31.4% YoY), 10% higher than initial target of Rp370bn (+19.5% YoY). Meanwhile, 2013 new contract target is Rp20.0bn (+3.3% YoY) slightly up from initial target of Rp19.5bn. New contract reached Rp12.3tr as of Sep’13 and up to Rp13.9tr by end Oct’13 (70% of FY target).

Strengthening property business. PTPP had spin of its property division into a subsidiary, PP Property, on 23 Oct 2013 with 99.99% stake owned by PTPP. PTPP also allocates Rp150bn out of Rp300bn capex allocated in 2014 for PP Property. PP Property will use company’s idle land for its business or will form a JV with landowner who wants to develop their land. Currently, PTPP owns 40ha of idle land. PP Property will start the development of 6 new projects in 2014, with total expected revenues reach Rp20.2tr in several years ahead. In FY12, property division contribution reached only 1.5% of PTPP’s revenues and is expected to contribute around 15% within the next 5 years. Additionally, PP Property plans to strengthen its hotel chain, Park Hotel, its three-stars rating hotel to outside Java. Currently, PP Property operates 2 Park Hotel, located in Cawang – East Jakarta, and Bandung – West Java.

Management targets 2014 earnings to reach Rp521bn (+28% YoY). PTPP targets new contract in 2014 to grow by 20.0% YoY to Rp24.0tr, while carry over contract to reach Rp19.6tr (+23.3% YoY), resulting in order book of Rp43.6tr (+21.5% YoY). Hence, 2014 revenues is expected to reach Rp16.3tr (+32.8% YoY) and net income of Rp521bn (+27.9% YoY). The management’s 2014 targets are around 12% higher than ours.

We re-initiate a Buy recommendation on PTPP. We apply DCF calculation (WACC: 13.6%) and arrived at target price of Rp1,500/share, with 33.3% potential upside we put a Buy stance on PTPP. We estimate 2013-16 earnings CAGR of 24.8%pa. Currently PTPP is traded at PE14 of 11.6x and PEG14 of 0.5x.

BUY - Rp1,500

Stock Price

Jan 09, 2014

Year end Dec 2011 2012 2013F 2014F 2015F

Forecast & Rating

Reuters Code PTPP.JKBloomberg Code PTPP.IJIssued Shares (m) 4,842Mkt Cap (Rpbn) 5,448

Average Daily T/O (m) 27.5

52-Wk range Rp1,780 / Rp550

Stock Data

Goverment of RI 51.0%Koperasi PTPP 27.5%Public 21.5%

Major Shareholders:

EPS 13F 14FConsensus (Rp) 83 100TRIM VS Cons (%) (3.8) (3.2)

Consensus

Share Price Rp1,125Sector ConstructionPrice Target Rp1,500 (33%)Prev. TP -

Company Update

This state-owned construction company mostly develops offi ces and hotels in Indonesia. Some parts of investments are minority interest in toll road and power plant under BOT scheme.


22

The property division spin-off to a subsidiary is one PTPP’s strategy to strengthen its performance in property business. PP Property will have bigger opportunity to obtain big projects as a company compared to as a subsidiary. The business opportunity could be fi lled by forming a JV with other party whereas the chance to obtain more funding also wider. PP Property will use company’s idle land for its business and will form a JV with landowner who wants to develop their land. PTPP targets revenues from property will contribute 15% of revenue in the next 5 years up from 1.5% in FY12, hence it would support company’s gross margins. Property gross margins stood at around mid-20’s% higher than construction service at around 8%-10%.

PP property will start to develop 6 new projects in 2014 Which some of the lands owned by third party. Potential revenues expected from these projects reach Rp20.2tr. The projects are: Grand Kamala Lagoon - Bekasi, superblock project in Tanjung Duren – West Jakarta, Grand Sungkono Lagoon - Surabaya, Bukit Permata Puri – Semarang, Pavilion Permata – Surabaya, and superblock project in Gunung Putri Bogor. We expects PTPP to book 2014 revenues from property and realty of Rp260bn up 46.1% YoY from (2013: Rp178bn, +43.9% YoY); account for 1.8% of FY14 revenues. Our 2014 order book target is 5.3% lower than PTPP’s. PTPP targets 2014 new contract to grow by 20% YoY to Rp24.0tr resulting 2014 order book of Rp43.6tr (+21.5% YoY) supported by carry over contract of Rp19.6tr (+23.3% YoY). Conservatively, we expects 2014 new contract to grow by 10% YoY to Rp21.7tr allowing order book to reach Rp41.2tr (+15.9% YoY). Hence, our 2014 order book is 5.3% lower than PTPP’s. We believe this is conservative as the implied absolute order book value growth in 2014 of Rp5.6tr is 29% lower than order book growth of Rp7.9tr in 2013.

Figure 33. Revenue breakdown 2012 and 2014

Source: PTPP and Trim Research

Figure 34. We expects 2014 order book to reach Rp41.2tr (+15.9% YoY)

Source: PTPP and Trim Research


23

We estimate PTPP’s OB realization rate in 2014 is 35.2%. That means 35.2% of 2014 order book values will be recorded as revenues in 2014. The rate is slightly below than average rate for period 2006-2012 at 37%. Hence, PTPP might accelerate its revenue recognition by boosting the execution of its existing contract when the new contract obtained is less. Note that JO projects are included in the order book while it’s excluded in revenues account.

We expect higher realization rate in 2014 due to high carry over contract and advance from project owner. PTPP recorded advance from project owner of Rp1.3tr as of Sep’13 jumped 155% from Rp506bn in the end of 2012, which indicates that the project has been kick-off .

Figure 35. Revenues to order book


Figure 36. Advances from project owner

Source: PTPP


24

Figure 37. New contract as of Oct’13 reached Rp13.9tr or around 70% of PTPP’s and our FY13 target

Source: PTPP

We try to fi gure out PTPP’s project risk by identify the type of the work and the project owner. We examine 70 projects disclosed by PTPP with a value totaling to Rp18.8tr, representing 43.9% order book and holds 27.7% potential revenues in 2014, this is higher than industry average of 16.3%. Based on the sample, project owned by private accounts for 29% of project, while the remaining owned by Government and SOE. Consequently, infrastructure projects dominating PTPP’s work (61.3%).

No Project name Value" Project owner

Project breakdown based on

Constructing No of days Poten-tial rev. in 2014

remain-ing work

(Rpbn) Owner Type Start Ending Total 2014

1 Novotel - Makasar 91 PT Grand Shayla Indo. P B 12-Dec-11 28-Dec-13 747

2 Lampung irrigation 66 Dirjen SDA G Inf. 29-Apr-13 28-Oct-13 182

3 Donggi Senoro LNG Building 187 JGC Corporation P Others 29-Jun-11 30-Oct-13 854

4 Dinding penahan tanah S.Siak 82 Dinas PU Propinsi Riau G Inf. 16-Jul-12 5-Dec-13 507

5 Pemb & peningkatan UNJ 144 Universitas Negeri Jkt. G B 20-Jul-12 30-Dec-13 528

6 Gedung Dirjen Bea & Cukai 115 Dirjen Bea & Cukai G B 6-Aug-12 30-Dec-13 511

7 Kantor DPRD Kota Medan 87 Dinas Perumahan Medan G B 26-Nov-12 15-Dec-13 384

8 Cikarang City Center 59 Mutiara Mitra Sejahtera P B 22-Oct-12 21-Oct-13 364

9 Universitas Wales 20 UN Yogya. P B 1-Dec-12 30-Dec-13 394

10 Debale Depok 160 Pem. Kota Depok G Others 20-Dec-12 31-Dec-13 376

11 Gedung B.Mandiri - Palembg. 95 Bank Mandiri Tbk SOE B 18-Feb-13 31-Dec-13 316

12 Gedung Telkomsel Medan 79 Graha Sarana Duta SOE B 1-Mar-13 3-Sep-13 186

13 Struktur Catur Jaya 53 Catur Jaya P Inf. 20-Mar-13 15-Nov-13 240

14 Hotel Bali Promenade 87 Angkasa Pura Hotel SOE B 4-Mar-13 31-Oct-13 241

15 Fasilitas Penunjang Bandara 258 Angakasa Pura II SOE Inf. 24-Oct-12 23-Oct-13 364

16 Tol Pasteur Kopo - F line 64 Jasa Marga Tbk SOE Inf. 29-Apr-13 28-Oct-13 182

17 Jl. Einrip Eks 02 Kalteng 103 Ministry of Public Works G Inf. 6-Oct-10 31-Oct-13 1,121

18 Bandung Convention Center 66 Tritunggal Lestari Makmur P B 31-May-13 8-Nov-13 161

19 Ancol Mariot 80 Tmn Impian Jaya Ancol P B 19-Feb-13 20-Nov-13 274

20 RSU Prov. Sumsel 18 Dinas Kes. Prov. Sumsel G B 26-Apr-13 21-Nov-13 209

21 Hotel Grand Quality Makassar 60 Phinisi Perintis Makassar P B 18-Apr-13 21-Nov-13 217

22 Pemkab Bandung Barat 76 Satker Dinas Cipta Karya G Others 27-Nov-12 22-Nov-13 360

23 Pengaman Pantai Tejakula 50 Kemen PU G Inf. 26-Mar-13 26-Nov-13 245

24 Hotel Cirebon 91 Cirebon Hotel dan Con. P B 28-Nov-12 2-Dec-13 369

25 Vimala Hills Gadog 65 Putra Adi Prima P B 24-Apr-13 2-Dec-13 222

26 Kantor DPRD Kota Medan 87 Dinas Perum. Medan G B 26-Nov-12 15-Dec-13 384

27 SPR Plaza Padang Arts I 44 Cahaya Sumber Raya P B 30-Jun-11 27-Dec-13 911

28 Gedung Pudisklat BKN 102 Bdn. Kepegawaian Neg. G B 23-Nov-12 27-Dec-13 399

29 Upgrading UJN 144 UN Jakarta P B 20-Jul-12 30-Dec-13 528

Figure 38. Project agreements and commitments


25



Constructing No of days Poten-tial rev. in 2014

remain-ing work


30 RSUD Bekasi 126 Pemkot Bekasi G B 1-Oct-12 31-Dec-13 456

31 Stadion Utama Bekasi Tahap V 0 Dinas Bangunan-Bekasi G B 28-May-13 31-Dec-13 217

32 IPDN NTB Tahap III 50 Kementerian Dlm. Neg. G Others 8-May-13 31-Dec-13 237

33 The Samator Surabaya 220 Samator Land P B 17-Mar-13 25-Jun-14 465 176 83

34 Jl. Liquica - Timor Leste 127 Gov. of Timor Leste G Others 28-Aug-12 26-Feb-14 547 57 13

35 PLTG Lampung 70 Sepoetih Daya Prima SOE Inf. 17-Dec-10 30-May-14 1,260 150 8

36 Sei Gelam 842 PLN KITSBS SOE Inf. 17-Dec-10 30-May-14 1,260 150 100

37 Educity Residence Surabaya 445 Pakuwon Jati Tbk P B 1-May-12 31-Dec-14 974 365 167

38 Normalisasi Kali Pesanggrahan 313 Dep PU Dijend SDA G Inf. 25-Oct-11 9-Aug-14 1,019 221 68

39 Chevron Pacifi c Indonesia 58 Cehvron Pacifi c Indo. P Others 1-Dec-11 30-Nov-14 1,095 334 18

40 Jbtn. di Angso Duo Jambi 70 Dinas PU - Jambi G Inf. 1-Oct-12 1-Oct-14 730 274 26

41 Kemang View Apartment 109 Anugrah Duta Mandiri P B 12-Nov-12 7-May-14 541 127 26

42 Bloomington Apartment Twr. 59 Almaron Perkasa P B 15-Oct-12 14-Apr-14 546 104 11

43 Pusat Pendidikan dan Pelatihan 51 Lembaga Adm Negara P B 1-Oct-12 29-Jul-14 666 210 16

44 Panghegar Hotel 50 Panghegar Putra Wijaya P B 3-Dec-12 3-Feb-14 427 34 4

45 Nine Residence 138 Bimasakti Jaya Abadi P B 7-Dec-12 6-Feb-14 426 37 12

46 KPP Sudirman 225 Kementrian Keu. RI G B 11-Dec-12 30-May-14 535 150 63

47 Islamic Center Nunukan 88 Dinas PU Cipta Karya G B 27-Dec-12 16-Dec-14 719 350 43

48 Jalan tol Surabaya-Gempol 116 Jasa Marga Tbk SOE Road 7-Jan-13 2-Mar-14 419 61 17

49 Jalur Ganda KAI NIRU - Tj Enim 218 KAI SOE Inf. 1-Mar-13 28-Feb-14 364 59 35

50 M Gold 126 Metropolitan Land Tbk P B 1-Mar-13 25-Jan-14 330 25 10

51 Swissbel Hotel 89 Bumi Anugrah Sakti P B 12-Nov-12 6-Jan-14 420 6 1

52 Saint Morist Paket fi nishing 324 Mandiri Cipta Gemilang P B 15-Feb-13 10-Jan-14 329 10 10

53 Landmark Building 301 Prasto Propertindo P B 12-Sep-12 9-Feb-14 515 40 23

54 Ruko Citraland Bagya City 105 JO Ciputra Karya P.S.N. P B 25-Apr-13 26-Feb-14 307 57 19

55 Trivium Teras Apartmen 0 Waska Sentana P B 15-Aug-13 8-Dec-14 480 342 0.2

56 Jl. Donggi Senoro - Banggai 707 Donggi Senoro LNG P B 1-Jul-11 31-May-14 1,065 151 100

57 Tol Cikupa Balaraja 113 Marga Mandalasakti P Road 22-Apr-13 4-Mar-14 316 63 22

58 Tol Cikampek - Palimanan 454 KG-NRC Consorsium P Road 2-Apr-13 23-Nov-14 600 327 247

59 Hotel Katamama Struktur 52 ISA Development P B 25-Mar-13 25-Mar-14 365 84 12

60 Tower Sky 18 (Nifaro) 0 Sekar Artha Sentosa P B 1-Jun-13 30-Sep-14 486 273 0

Figure 38. Project agreements and commitments (Countd’)

61 Ged. LAN Banda Aceh 51 LAN Pusat Kajian & Pend. P B 1-Oct-12 29-Jun-14 636 180 14

62 Grand Rubina 189 Aruna Kirana P B 4-Feb-12 25-Apr-14 811 115 27

63 Saint Morist Paket fi nishing 375 Mandiri Cipta Gemilang P B 10-Sep-12 30-Apr-14 597 120 75

64 Kutai Karta. - Coal Terminal 102 Asiatic Universal Indo. P Others 17-Dec-12 17-Dec-15 1,095 365 34 33

65 Tj. Plaza 4 & 5 Surabaya 156 Pakuwon Jati Tbk P B 16-Feb-13 17-May-15 820 365 70 26

66 FO Gatot Subroto Banjarmasin 100 PPK 02 Pemb. Jembatan G Others 30-Aug-12 6-Mar-15 918 365 40 7

67 PLTGU Tanjung Uncang 1,106 PLN Batam SOE Inf. 28-Mar-13 28-Mar-15 730 365 553 132

68 Apartment Ciputra Surabaya 205 Win Win Realty Center P B 21-Apr-13 30-Nov-15 953 365 79 72

69 PLTG Sarulla 0 Hyundai Engin. & Cons. P Inf. 1-Jul-13 30-Jun-15 729 365 0 0

70 Terminal Peti Kemas Kalibaru 8,209 Pelindo II SOE Inf. 11-Sep-12 10-Nov-16 1,521 365 1,970 3,670

Total 18,772 4,017 3,939

Summary Values Portion

Based on owner

P (private) 5,439 29.0%

G (government) 2,191 11.7%

SOE 11,142 59.4%

Based on type of work

B (building) 5,724 30.5%

Inf. (infrastructure) 11,504 61.3%

Road 682 3.6%

Others 861 4.6%

Source: PTPP


26

PTPP has no exposure to USD since all it debts are in Rupiah. However, PTPP is facing the interest rate risk since around 58% of its debts are short term bank loans while the remaining 42% are fi xed rate debts consist of MTN (22.0%) and bonds (20.0%). In Mar’13 PTPP issued 5-years bonds worth Rp700bn with interest rate of 8.375% pa. Consequently, DER stood at 2.0x as of Sep’13 compared to 1.0x by end 2012. However, the debts hike was off set by higher EBIT. Interest coverage reached 4.3x as of Sep’13 up from 3.3x in Dec’12.

We forecast short term bank loans with interest rate of 13% in 2014 up from 11% in 2013. Based on our sensitivity analysis, if the interest rate up by 1% PTPP’s earnings would decrease by 3.9%.

2014 targets. We targets modest new contract growth in 2014 of 10% YoY resulting order book to reach Rp42.8tr (+20.3% YoY); our order book target is in-line with company’s backed by higher carry over contract. However our 2014 revenues and earnings targets are 12% lower than management’s targets.

FY13 FY14

ST bank loans (Rp bn) 1,779 2,062 2,062 2,062 2,062

Interest rate 11% 13% 14% 15% 16%

Net income 386 468 449 431 412

Net income change -3.9% -7.9% -11.8%

Net income growth (YoY%) 21.3% 16.5% 11.7% 6.9%

Figure 40. Sensitivity analysis for interest rate


FY12A PTPP target TRIM ResearchRp bn FY13F FY14F FY13F FY14F

(Rpbn) (YoY %) (Rpbn) (YoY %) (Rpbn) Diff . (%) (YoY %) (Rpbn) Diff . (%) (YoY %)

New contract 19,361 20,000 3.3% 24,000 20.0% 19,700 98.5% 1.8% 21,670 90.3% 10.0%

Carry over 8,313 15,870 90.9% 19,570 23.3% 15,870 100.0% 90.9% 21,109 107.9% 33.0%

Order book 27,674 35,870 29.6% 43,570 21.5% 35,570 99.2% 28.5% 42,779 98.2% 20.3%

Revenue 8,004 12,300 53.7% 16,335 32.8% 11,767 95.7% 47.0% 14,500 88.8% 23.2%

Op. profi t 853 1,162 36.3% 1,574 35.4% 1,060 91.2% 24.3% 1,366 86.8% 28.9%

Net profi t 310 407 31.4% 521 27.9% 386 94.8% 24.5% 468 89.8% 21.3%

Op. margin 10.7% 9.4% 9.6% 9.0% 9.4%

Net margin 3.9% 3.3% 3.2% 3.3% 3.2%

Figure 41. TRIM forecast vs. PTPP’s

Source: PTPP, TRIM Research

Debts Sep-13 Dec-12 YTD (%)

ST Bank Loans Rpbn 2,023 1,008 100.8%

MTN Rpbn 770 680 13.2%

Bonds Rpbn 700 - -

Total debt Rpbn 3,493 1,688 107.0%

Cash Rpbn 577 1,303 -55.7%

Equity Rpbn 1,781 1,656 7.6%

Assets Rpbn 11,340 8,551 32.6%

Sep-13 FY12

EBIT Rpbn 575 711

Funding exp Rpbn (135) (214)

Net debt or (Net cash) Rpbn 2,916 384

DER x 2.0 1.0

Debt to Asset x 0.3 0.2

Interest coverage x 4.3 3.3

Figure 39. DER stood at 2.0x as of Sep’13

Source: PTPP


27

Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Period 1 2 3 4 5 6 7 8 9

EBIT x (1-tax) (Rpbn) 639 795 1,025 1,264 1,574 1,660 1,823 2,037 2,293 - - -

Chg. in non cash work.cap. (-) (437) (664) (387) (643) (818) (182) (330) (429) (510) - - -

Capex (-) (1) (5) (400) (400) (400) (400) (400) (400) (400) - - -

Minority Interest (-) 0 - - - - - - - - - - -

FCFF 201 127 238 221 356 1,078 1,093 1,208 1,383 1,397 1,411 1,425

Discounted factor 1.00 1.14 1.29 1.47 1.66 1.89 2.15 2.44 2.77

Present value of FCFF 221 314 835 746 726 732 650 578 514

Terminal Value 11,432

PV of Terminal Value 4,124

NPV Rpbn 9,440

Cash 2014 Rpbn 1,673

Debt 2014 Rpbn 3,791

Net debt or (net cash) Rpbn 2,119

Firm value in the next 12M Rpbn 7,321

Outstanding shares bn shares 4.8

Equity value per share Rp/share 1,512

Target Px Rp/share 1,500

Px curent Rp/share 1,125

Potential upside/downside % 33.3%

11A 12A 13E 14F 15F

Net income Rpbn 240 310 386 468 566

EPS Rp/share 50 64 80 97 117

Growth (YoY%) % 19.1% 28.9% 24.5% 21.3% 21.0%

P/E current price x 22.7 17.6 14.1 11.6 9.6

PEG x 1.2 0.6 0.6 0.5 0.5

P/E target price x 30.2 23.5 18.8 15.5 12.8

Figure 42. DCF calculation


Valuation

We use DCF method to valuate PTPP’s equity value (WACC: 13.6%) and arrived at target price (TP) of Rp1,500 given potential upside of 33.3%. Our recommendation on PTPP is a Buy with PEG14 of 0.5x.


28

Balance Sheet (Rpbn)

Key Ratio Analysis

Interim Result (Rpbn)

3Q12 4Q12 1Q13 2Q13 3Q13

Sales 1,916 4,061 1,284 2,893 3,078

Gross Profi t 181 475 118 289 319

Operating Profi t 186 496 96 250 287

Net Profi t 41 204 43 101 75

Gross Margins (%) 9.4 11.7 9.2 10.0 10.4

Opr Margins (%) 9.7 12.2 7.5 8.7 9.3

Net Margins (%) 2.1 5.0 3.3 3.5 2.4

Income Statement (Rpbn)

Year end 31 Dec 2011 2012 2013E 2014F 2015F

Revenue 6,232 8,004 11,767 14,500 18,024

% growth 41.6 28.4 47.0 23.2 24.3

Gross Profi t 706 855 1,096 1,438 1,795

Opr Profi t 655 853 1,060 1,366 1,685

EBITDA 663 860 1,071 1,377 1,708

% growth 65.7 29.6 24.5 28.6 24.0

Net Int Inc/(Exp) (179) (214) (278) (408) (475)

Gain/(loss) Forex - - - - -

Other Inc/(Exp) (58) (93) (98) (121) (151)

Pre-tax Profi t 418 545 684 837 1,060

Tax (178) (236) (298) (369) (494)

Minority Int. (0) (0) - - -

Extra. Items - - - - -

Net Profi t 240 310 386 468 566

% growth 19.1 28.9 24.5 21.3 21.0

Year end 31 Dec 2011 2012 2013E 2014F 2015F

Profi tability

Gross Margins (%) 11.3 10.7 9.3 9.9 10.0

Op. Margins (%) 10.5 10.7 9.0 9.4 9.4

EBITDA Margins (%) 10.6 10.7 9.1 9.5 9.5

Net Margins (%) 3.9 3.9 3.3 3.2 3.1

ROE (%) 16.9 18.7 19.8 20.3 20.8

ROA (%) 3.5 3.6 3.4 3.4 3.5

Stability

Current Ratio (x) 1.3 1.4 1.4 1.3 1.3

Net Debt/Equity (x) 0.4 0.1 0.0 0.2 0.5

Int Coverage (x) 3.7 4.0 3.8 3.3 3.6

Effi ciency

A/P days 229 217 215 215 215

A/R days 58 61 61 61 61

Inventory Days 105 80 75 75 75

Capital History

Date

9-Feb-10 IPO @ Rp560

Cash Flow (Rpbn)

Year end 31 Dec 2011 2012 2013E 2014F 2015F

Net Profi t 240 310 386 468 566

Depr/Amort 8 7 11 11 23

Others (4) (204) 0 - 0

Chg in Working Cap. (78) (268) (1,274) (614) (818)

CF's from Oprs 167 (155) (878) (135) (229)

Capex (12) (105) (5) (400) (400)

Others 48 (79) - - -

CF's from investing 36 (183) (5) (400) (400)

Net Change in Debt 217 402 1,452 544 188

Others (74) (67) (93) (116) (140)

CF's from Financing 143 335 1,359 428 47

Net Cash Flow 347 (3) 477 (107) (581)

Cash at BoY 960 1,306 1,303 1,780 1,673

Cash at EoY 1,306 1,303 1,780 1,673 1,091

Free Cashfl ow 135 (120) (947) 174 58

Year end 31 Dec 2011 2012 2013E 2014F 2015F

Cash and Deposits 1,306 1,303 1,780 1,673 1,091

Other Current Assets 5,331 6,886 9,274 11,274 13,885

Net Fixed Assets 76 73 74 269 459

Other Assets 220 289 283 476 664

Total Assets 6,933 8,551 11,410 13,692 16,099

ST Debt 1,243 1,266 2,019 2,592 2,780

Other Curr Liabilities 3,853 4,767 5,828 7,158 8,908

LT Debt 150 530 1,229 1,199 1,199

Other LT Liabs 262 333 385 441 485

Minority Interest (0) (0) - - -

Total Liabilities 5,508 6,895 9,461 11,391 13,373

Shareholder's Equity 1,425 1,656 1,949 2,301 2,727

Net Debt/(Cash) 87 492 1,468 2,119 2,888

Net Working Capital 1,541 2,157 3,207 3,196 3,289

TRIM COMPANYFOCUS

Wijaya KaryaGetting bigger

Revenue 7,742 9,816 12,856 14,551 15,779

Net profi t (Rpbn) 354 458 541 706 915

EPS 61 76 88 115 149

EPS Growth (%) 24.4 29.2 18.1 30.5 29.6

DPS (Rp) 17 17 22 26 34

BVPS (Rp) 344 422 485 574 688

P/E (x) 26.1 20.8 17.9 13.7 10.6

P/BV (x) 4.6 3.7 3.3 2.8 2.3

Div Yield (%) 1.0 1.1 1.4 1.7 2.2

WIKA optimistic to achieve its 2013 targets set up at the beginning of the year. WIKA has no cut or revise up on its 2013 targets. 2013 revenues are targeted to reach Rp11.9tr (+20.8% YoY) while earnings are Rp555bn (+21.2% YoY) backed by strong order book (OB). WIKA targets 2013 OB to reach Rp38.9tr (+15.5% YoY) consists carry over contract of Rp18.2tr (+9.7% YoY) and new contract of Rp20.8tr (+21.2% YoY). Meanwhile, WIKA has booked new contract amounting to Rp15.2tr as of end Oct13 (73.2% of FY target).

WIKA is on process to conduct an IPO for its pre-cast subsidiary, Wika Beton. The action is targeted to occur in 1Q14 using the fi nancial report as of Sep’13 whereas shares to be sell to public reach 23.5% shares (270 mn shares). Currently Wika Beton operates 8 plants spread in Indonesia with production capacity totaling 2mn ton/year. Wika Beton owns 50%-60% of markets shares in pre-cast industry in Indonesia. In FY12, Wika Beton booked both revenues and earnings grew by 24.2% YoY to Rp2.0tr and Rp179bn whereas gross margin stood at 11.4% and net margin at 8.8%. WIKA owns only 78.4% stake in Wika Beton while Wika Beton accounts for 30% of WIKA’s earnings. Our concerns regarding the action that investors likely to switch their portfolio from WIKA to Wika Beton considering more stable business cycle and higher margins.

The prolonged acquisition process of Sarana Karya (SAKA) has completed in Dec’13. WIKA has accomplished the acquisition process of 100% stake in SAKA worth Rp50bn on 30 Dec’13. , the transaction values only represented 0.5% of WIKA’s market cap (Rp9.7tr). SAKA is an asphalt company, which was fully owned by Government and has a 30-year asphalt concession in Buton Island, Southeast Sulawesi. SAKA reserved reaches 80-100mn ton of bitumen asphalt. WIKA plans to build an asphalt plant starting in 1Q14 which will take 1 year period of development with capacity of 50,000 ton/year. Asphalt business in Indonesia is quite promising considering the demand reach 1.5mn ton/year, which around 1.1mn ton or 73% full fi lled by import. We have not yet included the asphalt business on our forecast.

Maintain Buy recommendation. We are targeting 2014 earnings to grow 30.5% YoY backed by revenues growth of 13.2% YoY, our targets are in-line with company’s target. We use DCF method for the valuation with WACC of 12.6% and arrive at new target price of Rp2,200/sh (previous: Rp2,400/sh), while we maintain our Buy recommendation on WIKA. Currently WIKA is traded at PER14 of 13.7x with PEG14 of 0.5x.

BUY - Rp2,200

Stock Price

Jan 09, 2014

Year end Dec 2011 2012 2013F 2014F 2015F

Forecast & Rating

Reuters Code WIKA.JKBloomberg Code WIKA.IJIssued Shares (m) 6,140Mkt Cap (Rpbn) 9,701


52-Wk range Rp2,900 / Rp1,030

Stock Data

Negara RI (Seri B) 66.4%Employee 2.2%Public 31.4%

Major Shareholders:

EPS 13F 14FConsensus (Rp) 97 120TRIM VS Cons (%) (9.7) (4.1)

Consensus

Share Price Rp1,580Sector ConstructionPrice Target Rp2,200(39%)Prev. TP Rp2,400

Company Update

The Company constructs commercial and residential apartment buildings, rail transportation systems and bridges, and manufactures concrete products, en-ergy conversion products, alloy compo-nent casting, as well as property business.


30

Wika Beton contributed 30% to earnings in the last 2 years. Wika Beton operates 8 plants in 6 selling area with production capacity reach 2.0 mn ton per year. Wika Beton revenues grew 18.7%pa of CAGR08-12 while earnings grew by 36.5%pa.

Figure 45. Wika Beton contributed 30% to WIKA’s earnings in the last 2 years

Source: WIKA

Figure 44. Wika Beton margins: 2008 - 2012

Source: WIKA

Source: WIKA

Figure 43. Wika Beton operates 8 plants with capacity totaling 2mn ton per year


31

Type Package Value Contractor Route Length Note

Surface CP101 JPY5.95bn + Rp1.02tr

JO between Wika (30%) and Tokyu (70%)

Lebak bulus - Cipete

1.2km 1 unit depo, 1 lot gedung fasilitas depo, elevated railway, 1 unit elevated station

CP102 JPY2.24bn + Rp898.2bn 4.7km 2 unit elevated station +

elevated railway

CP103 na Nindya Karya na

"Under-ground"

CP104JPY1.4bn + Rp846.28bn

WIKA (15%) + JKON (70%) + Obayashi + Shimisu

Senayan-Istora Bendungan Hilir - Setia-budi

1.8km 30m from surface

CP105JPY1.05bn + Rp959.6bn

2.0km

CP106 na Hutama Karya na

Others CP107 has not been tender off erCP108

Figure 47. WIKA won 4 packages for out of 8 packages worth JPY10.6bn and Rp3.7tr


The consortium consisting WIKA won 4 construction packages in MRT Jakarta project. WIKA is a member of two diff erent consortiums for 4 packages (out of 8 off ered packages) in MRT Jakarta phase I project (South – North Line; 23.8km). The USD1.5bn worth MRT project will take 5 years development period and divided into 8 sections consisting: surface section (CP101 to CP103), whereas CP101 and CP102 has been won by consortium of Tokyu-WIKA; while CP103 has been won by Obayashi-Shimizu-JKON. Underground sections (CP104-106) whereas CP104 and CP105 have been won by consortium of Shimizu-Obayashi-WIKA-JKON, while CP106 has been won by consortium of Sumitomo-Hutama Karya. Meanwhile, CP107 and CP108 and operation and maintenance consultant has not been tender off er. MRT Jakarta has started the construction in Oct’13 for underground section located in Dukuh Atas area, Central Jakarta.

Phase I (south-north line)

Route Lebak Bulus - Bundaran HI

Length 15.7 Km

Station 6 underground stations

7 surface stations

Construction periode 10 Oct'13 - 1H18 (5 years)

No of train 17 Trains

No of carriage 1 trains = 6 carriages

No of passangers 1 carriage = 250 pax

Speed max = 110 km/hr

regular = 30 km/hr

Source of funds APBN + APBD (through soft loans fr JICA

(Japan International Coorporation Agency)

Figure 46. MRT Jakarta Phase I


Source: WIKA

Figure 48. Wika Beton operates 8 plants with capacity totaling 2mn ton per year


32

WIKA acquired 100% stake of Sarana Karya (SAKA) worth Rp50bn. Based on a press release disclosed by WIKA, the company has accomplished the acquisition process of 100% stake in SAKA worth Rp50bn on 30 Dec’13. SAKA is an asphalt company, which was fully owned by Government and has a 30-year asphalt concession in Buton Island, Southeast Sulawesi. SAKA reserved reaches 80-100mn ton of bitumen asphalt compared to 677mn ton reserved available on the island. There are only 3 natural asphalt mines in the world: Trinidad (AS), Gilsonite (Canada), and Buton (Indonesia). WIKA plans to build asphalt plant with 50,000 MT/year of capacity and targeted to start operation in 1Q15. However, our main concern regarding the action is how big is the margin obtained from the asphalt business considering the cost for Bitumen process and the transportation cost from Buton Island to the market, which most likely will be sent to west are of Indonesia.

WIKA has a healthy balance sheet. Short term loans rose four-fold as of Sep’13 compared to end 2012. Consequently, DER stood at 0.7x as of Sep’13 up from 0.5x by Dec’13. However increase in debts has been off set by the increase in EBIT which is shown from better interest coverage. Meanwhile, debt in USD reached USD20mn equivalent to Rp229bn or accounted for 6.5% of debt as of Sep’13; insignifi cant.

Source: WIKA

Figure 49. Location of Buton Island

Debts Sep-13 Dec-12 YTD (%)

ST loan Rpbn 1,018 235 333.8%

Current portion of LT debt Rpbn 146 87 68.7%

MTN Rpbn 100 - na

LT loan Rpbn 825 931 -11.4%

Total debt Rpbn 2,090 1,253 66.8%

Cash Rpbn 886 1,499 -40.9%

Equity Rpbn 2,834 2,574 10.1%

Assets Rpbn 12,040 10,945 10.0%

Sep-13 FY12

EBIT Rpbn 777 514

Funding expense Rpbn (16) (24)

Net debt or (Net cash) Rpbn 1,204 (246)

DER x 0.7 0.5




Source: PTPP


33

We believe WIKA’s strong operational performance is generated by stable new contract obtained. The distribution of new contract obtains in each quarter relatively stable at around 25% of FY target or around Rp4.0tr.

Usually government’s related project accounted for around 70% of WIKA’s contract. However, in FY12 the portion of projects owned by private and government’s project (include SOE) were equal since WIKA won oil and gas project from private worth Rp1.73tr accounted for 10.1% of FY12 new contract. Nonetheless, the portion of government’s project is expected to back to normal; accounts for more than 70% of new contract targeted in 2013. We believe government project has lesser risk compared with private due to the ability of payment.

Figure 51. New contract as of Oct’13 reached Rp15.2tr or 73% of FY13 target

Source: WIKA

Figure 52. New project breakdown based on project owner

Source: WIKA

2012 2013F


34

Figure 53. New project breakdown based on project owner

Source: WIKA

2012 2013F

WIKA’s project agreements and commitments. Based on the project agreement and commitments stated on fi nancial notes as of Sep’13 WIKA owns 59 ongoing projects with value totaling to Rp14.6tr, representing 31.2% of order book and 20.1% of revenues in 2014. Based on project owner, around 61.3% of the projects are owned by SOE followed by government (G) = 29.3% and private (P) = 9.4%; whereas 44.6% of the projects are infrastructure, followed by others (29.1%), building (B = 16.5%), and road (R = 9.8%).



Constructing Date No of days Poten-tial rev. in 2014

remain-ing work


1 Indo. chemical grade alumina 1,618 Indo. Chem. Alumina SOE Others 16-Aug-10 16-Oct-13 1,157

2 Normalisasi sungai Citarum 242 Dirjen SDA S. Citarum G Inf. 1-Nov-11 30-Dec-13 790

3 Jembatan Merah Putih Makasar 227 Dirjen Bina Marga G Road 26-Jul-11 13-Oct-13 810

4 Jembatan Batu Putih Makasar 73 Dirjen Bina Marga G Road 8-Sep-11 15-Dec-13 829

5 Islamic Center Merangin 19 Dinas PU G B 13-Oct-11 31-Dec-13 810

6 Acess road to Gn Putri 118 INTP SOE Road 13-Oct-11 31-Dec-13 810

7 Dermaga car at Tanjung Priok 75 Pelindo II SOE Inf. 14-Feb-12 30-Dec-13 685

8 Train track Smrg Bojonegoro-50 36 Dirjen KA G Inf. 30-Mar-12 26-Oct-13 575

9 Train track Smrg Bojonegoro-58 76 Dirjen KA G Inf. 30-Mar-12 26-Oct-13 575

10 Refi ning MOP - PP Feni 1 312 ANTM SOE Others 27-Feb-12 27-Dec-13 669

11 Stasiun pompa pasar ikan 184 Satuan kerja PPLP G Others 24-Jan-12 22-Dec-13 698

12 Train track Cirebonrujakan 66 SK Kereta api G Inf. 16-Mar-12 5-Nov-13 599

13 Relokasi pipa air PDAM Sby 93 BPLS G Others 5-Nov-12 31-Dec-13 421

14 Tambak garam Cirebon 147 SNVT Cimanuk Cisang. G Others 16-Aug-12 9-Dec-13 480

15 Dermaga Sampit 54 Pelindo III SOE Inf. 5-Sep-12 30-Sep-13 390

16 Rehabilitasi Bengawan Solo 54 Dirjen SDA G Inf. 1-May-13 12-Dec-13 225

17 Road Gempol Pandaan 232 Margabumi Adhika. SOE Road 4-May-12 17-Aug-13 470

18 Fly over toll road BORR 310 Maraga Sarana Jabar SOE Road 20-Jun-12 13-Nov-13 511

19 Condensate tank Conoco Philips 32 Conoco Philips Indo. P Others 1-Jun-12 28-Aug-13 453

20 Lempung secondary canal 81 Dirjen SDA Sumatra G Inf. 26-Jun-12 19-Sep-13 450

21 Peninggian jalan Tj Priok 102 Pelindo II SOE Road 10-Jun-13 7-Dec-13 180

22 Saluran Sungai Pamusian 61 Dinas PU G Inf. 8-Feb-13 2-Aug-13 175

23 Fly over Jakabaring Palembang 80 Dirjen Bina Marga G Road 5-Apr-13 21-Dec-13 260

24 Loading Facility Jetty Senoro 61 JO Pertamina Medco SOE Inf. 25-Mar-13 1-Dec-13 251

25 Normalisasi kali Pesanggrahan 282 Dirjen SDA S.Citarum G Inf. 27-Oct-11 11-Aug-14 1,019 223 62

26 PLTD Ambon 25MW 229 Artho Ageng Enrg. P Inf. 1-Jan-11 31-Aug-14 1,338 243 42

27 Train track Smrg Bojo.-9 87 Dirjen KA G Inf. 30-Mar-12 18-Apr-14 749 108 13

28 Train track Smrg Bojo.-10 87 Dirjen KA G Inf. 30-Mar-12 18-Apr-14 749 108 13

29 Dermaga Batu Ampar Batam 350 Pelabuhan Batam G Inf. 28-Mar-12 15-Sep-14 901 258 100



35



Constructing Date No of days Poten-tial rev. in 2014

remain-ing work


30 Irigasi Kontan Bangun 104 Dinas PU Kab. Kutai G Inf. 28-Dec-11 14-Jun-14 899 165 19

31 Gedung Prasjal Tarkim 35 Dinas Parjal Tarkim G B 1-Nov-12 31-Dec-14 790 365 16

32 Pasar Bekonang 22 Deperindag G B 1-Nov-12 31-Dec-14 790 365 10

33 Fly over Palur 75 Dirjen Bina Marga G Road 21-Jun-13 13-Dec-14 540 347 48

34 KolamTeluk Lamong, Jawa Timur 65 Pelindo III SOE Inf. 13-Jun-13 13-Dec-14 548 347 41

35 MRT Underground CP 104 143 MRT Jakarta G Inf. 11-Jun-13 15-Feb-14 249 46 26

36 MRT Underground CP 105 152 MRT Jakarta G Inf. 11-Jun-13 15-Feb-14 249 46 28

37 Sewerage system Medan 90 Dept. PU Sumut G Inf. 1-Jan-13 6-May-14 490 126 23

38 Road Yos Sudarso, Kutai Timur 150 Dinas PU Kutai Tim. G Road 21-Sep-12 11-Sep-14 720 254 53

39 Trass limestone handling sys. 128 INTP SOE Others 2-Jan-13 18-Mar-14 440 77 22

40 Jaringan pipa air Sumber Pitu 87 Dirjen SDA Malang G Inf. 21-Mar-13 20-Dec-14 639 354 48

41 Muara Wahau Road 69 Kaltim Prima Coal P Road 1-Jan-13 20-Dec-14 718 354 34

42 Shoreline PLTGU Tj Priok 54 Mistubishi Corp P Inf. 16-Apr-13 31-Mar-14 349 90 14

43 Fixing work for Cilacap Expantion 77 DC Engineering Co. P Others 23-May-13 28-Feb-14 281 59 16

44 Pengelola air tanggul & transmisi 82 PDAM Tritanadi Sumut G Inf. 24-Jun-13 13-Feb-15 599 365 50 6

45 Jembatan KA Bogor - Yogya 64 Satker Jalur Ganda G Inf. 28-Jun-13 4-Mar-15 614 365 38 7

46 EPC Duri Utara area 13 54 Caltex Indonesia P Others 9-Jul-12 22-Jan-15 927 365 21 1

47 Soetta terminal 3 1,796 Angkasa Pura II SOE B 18-Mar-13 6-Jul-15 840 365 780 400

48 University Hospital at UI 539 UI SOE B 13-Jun-13 13-Jun-15 730 365 270 121

49 EPCC of condesate 382 BP Berau Kal. P Others 20-Jun-13 11-Jun-15 721 365 193 86

50 PLTG 188 MW 322 PLN SOE Inf. 8-Jul-13 26-Feb-16 963 365 122 141

51 PLTMG Rawa Minyak 270 PLN SOE Inf. 20-Oct-12 20-Apr-17 1,643 365 60 138

52 PLTMG Renggat 25MW Riau 294 PLN SOE Inf. 1-Oct-11 1-Feb-19 2,680 365 40 164

53 PLTG Borang 2x30 MW 816 PLN SOE Inf. 20-Jun-13 1-Jan-19 2,021 365 147 590

54 PLTD Pesanggaran Bali 50MW 930 Indonesia Power SOE Inf. 1-Oct-09 1-Sep-19 3,622 365 94 438

55 Jakarta MRT 1,030 MRT Jakarta G Inf. Sep-13 na assume 20% 206 824

56 EPC ESF 1 MOP PP 335 ANTM SOE Others Jul-13 na assume 20% 67 268

57 EPC SKG Rantau Panjang 409 Pertamina Gas SOE Others Jul-13 na assume 20% 82 327

58 Banggai Amonia Plant 477 Panca Amara Utama P Others Sep-13 na assume 20% 95 382

59 Bandara Sepinggan Balikpapan 167 Angkasa Pura I SOE Inf. Jul-13 na assume 20% 33 133

Total 14,605 2,928 4,025


Based on owner

P (private) 1,375 9.4%


SOE 8,950 61.3%


B (building) 2,411 16.5%


Road 1,435 9.8%

Others 4,249 29.1%

Source: WIKA

FY12A WIKA target TRIM ResearchRpbn FY13F FY13F FY14F

(Rpbn) (YoY %) (Rpbn) (YoY %) (Rpbn) Diff . (%) (YoY %)

New contract 17,125 20,756 21.2% 20,756 100.0% 21.2% 23,869 15.0%

Carry over 16,593 18,119 9.2% 18,119 100.0% 9.2% 22,134 22.2%

Order book 33,718 38,875 15.3% 38,875 100.0% 15.3% 46,003 18.3%

Revenue 9,816 15,411 57.0% 13,689 88.8% 39.5% 17,003 24.2%

Op. profi t 845 1,240 46.7% 1,151 92.8% 36.2% 1,448 25.8%

Net profi t 458 555 21.2% 552 99.5% 20.7% 706 27.7%

Op. margin 8.6% 8.0% 8.4% 8.5%

Net margin 4.7% 3.6% 4.0% 4.2%

Figure 55. TRIM forecast vs. WIKA

Source: WIKA, TRIM Research

2014 targets. WIKA targets 2014 revenues to grow by 18.9% YoY to Rp14.1tr, compared to 07-13 CAGR of 18.5%; our target is in-line with company’s. We target 2014 revenues to reach Rp14.6tr (+13.2% YoY) supported by strong order book (Rp46.8tr, +20.5% YoY).

Figure 54. Project agreements and commitments (Cont’d)


36

Valuation

We use DCF method to valuate WIKA’s equity value (WACC: 12.6%) and arrived at new target price (TP) of Rp2,200/sh given potential upside of 39.2%. We maintain our Buy recommendation on WIKA given PE14 of 13.7x and PEG14 of 0.5x.

2012 2013 2014 2015 2016 2017 2018

1 2 3 4

EBIT x (1-tax) (Rpbn) 634 835 1,042 1,253 1,479 1,745 2,059

Changes in non cash work.cap. (-) 192 195 282 120 142 167 197

Capex (-) (500) (400) (440) (484) (571) (674) (795)

Minority Interest (-) -47 -59 -70 -82 (97) (115) (135)

FCFF 279 571 815 807 952 1,123 1,326

Discounted factor 1.00 1.13 1.27 1.43

Present value of FCFF 807 845 886 929



NPV Rpbn 12,480

Cash 2014 Rpbn 1,874

Debt 2014 Rpbn 1,253

Net Debt or (net cash) Rpbn (621)

Firm value Rpbn 13,101

Outstanding shares bn shares 6,139

Equity value per shares Rp/share 2,134


Px current Rp/share 1,580

Potnetial upside/downside % 39.2%

2010 2011 2012 2013 2014 2015

Net income Rp bn 285 354 458 541 706 915

Growth (YoY %) % 24.4% 29.2% 18.1% 30.5% 29.6%

EPS Rp/share 46 58 75 88 115 149

Growth % 50.6 24.4 29.2 18.1 30.5 29.6

P/E current price x 34.0 27.4 21.2 17.9 13.7 10.6

PEG x 1.1 0.7 1.0 0.5 0.4

P/E target price x 47.4 38.1 29.5 25.0 19.1 14.8

Figure 56. DCF calculation (New table, harga saham)



37


Key Ratio Analysis


3Q12 4Q12 1Q13 2Q13 3Q13

Sales 2,346 3,446 2,628 2,655 2,630

Gross Profi t 231 323 291 281 273


Net Profi t 103 175 157 123 110

Gross Margins (%) 9.8 9.4 11.1 10.6 10.4

Opr Margins (%) 8.4 9.6 10.4 9.4 9.6

Net Margins (%) 4.4 5.1 6.0 4.7 4.2


Year end 31 Dec 2011 2012 2013E 2014F 2015F

Revenue 7,742 9,816 12,856 14,551 15,779

% growth 28.5 26.8 31.0 13.2 8.4

Gross Profi t 865 1,111 1,461 1,784 2,098

Opr Profi t 654 845 1,113 1,390 1,671

EBITDA 709 930 1,229 1,536 1,850

% growth 39.7 31.2 32.1 25.0 20.5

Net Int Inc/(Exp) 19 0 (89) (125) (137)

Gain/(loss) Forex 23 3 - - -

Other Inc/(Exp) (66) (40) (19) (27) (34)

Pre-tax Profi t 685 893 1,121 1,384 1,679

Tax (239) (303) (405) (462) (503)

Minority Int. 36 47 59 70 82


Net Profi t 354 458 541 706 915

% growth 24.4 29.2 18.1 30.5 29.6

Year end 31 Dec 2011 2012 2013E 2014F 2015F

Profi tability

Gross Margins (%) 11.2 11.3 11.4 12.3 13.3

Op. Margins (%) 8.4 8.6 8.7 9.6 10.6

EBITDA Margins (%) 9.2 9.5 9.6 10.6 11.7

Net Margins (%) 4.6 4.7 4.2 4.9 5.8

ROE (%) 17.1 17.8 18.2 20.0 21.7

ROA (%) 4.3 4.2 4.1 4.9 5.8

Stability

Current Ratio (x) 1.1 1.1 1.1 1.1 1.1

Net Debt/Equity (x) (0.4) (0.1) (0.2) (0.2) (0.2)

Int Coverage (x) (41.6) (23.3) (8.9) (8.6) (9.6)

Effi ciency

A/P days 108 101 108 108 108

A/R days 62 50 62 62 62


Capital History

Date

29-Oct-07 IPO @ Rp420

Cash Flow (Rpbn)

Year end 31 Dec 2011 2012 2013E 2014F 2015F

Net Profi t 354 458 541 706 915

Depr/Amort 55 85 116 146 179

Others - - - - -

Chg in Working Cap. 259 (495) 137 206 23

CF's from Oprs 668 48 794 1,058 1,117

Capex (348) (416) (355) (823) (539)

Others (314) (218) - - -

CF's from investing (661) (633) (355) (823) (539)

Net Change in Debt 94 795 - - -

Others (85) 45 (137) (162) (212)

CF's from Financing 9 840 (137) (162) (212)

Net Cash Flow 17 255 301 73 366

Cash at BoY 1,228 1,244 1,499 1,801 1,874

Cash at EoY 1,244 1,499 1,801 1,874 2,240

Free Cashfl ow 335 (367) 372 141 475

Year end 31 Dec 2011 2012 2013E 2014F 2015F

Cash and Deposits 1,244 1,499 1,801 1,874 2,240


Net Fixed Assets 753 1,169 1,453 1,747 2,051

Other Assets 1,731 2,590 2,661 3,190 3,424

Total Assets 8,323 10,945 13,039 14,546 15,898

ST Debt 206 321 321 321 321


LT Debt 251 931 931 931 931

Other LT Liabs 725 672 672 672 672

Minority Interest 148 240 299 369 451


Shareholder's Equity 2,072 2,574 2,978 3,521 4,224

Net Debt/(Cash) (787) (246) (548) (621) (987)

Net Working Capital 712 659 766 556 803

TRIM COMPANYFOCUS


Waskita KaryaA contractor

BUY – Rp570

Stock Price

Jan 09, 2014

Year end Dec 2011 2012 2013F 2014F 2015F

Forecast & Rating

Republic of Indonesia 68.0%Public 32.0%

Major Shareholders:

EPS 13E 14FConsensus (Rp) 35 44TRIM VS Cons (%) (6.2) (11.5)

Consensus

Share Price Rp405Sector ConstructionPrice Target Rp570(41%)Prev. TP Rp860

Initiate Coverage

Reuters Code WSKT.JKBloomberg Code WSKT.IJIssued Shares (m) 9,632Mkt Cap (Rpbn) 3,901



Stock Data

Waskita Karya Persero is a general contractor engaged in diverse range of construction activities, such as road, bridges, harbors, airports, buildings, sewerages factories and others indutrial facilities

New contract target revised down 33% due to delay on several projects.

At the beginning of 2013 WSKT set up new contract target amounting to Rp17.9tr

(+45.8% YoY) however the target has been revised down by 33% to Rp12.0tr

(-2.2% YoY) due to delay on several projects to 2014. Hence, order book 2013 is

expected to reach Rp20.8tr (+10.5% YoY), including carry over contract of Rp8.8tr

(+34.2% YoY). New contract booked as of Nov’13 reached Rp10.6tr (88% of new

FY13 target). Furthermore, 2013 revenues target has been revised down 13.7%

to Rp9.7tr (+10.1% YoY) due to delay on several projects and reclassifi cation on

some projects into joint operation from regular project. Consequently 2013 net

income has not much changed from initial target, which lowered by 4% to Rp350bn

(+37.8% YoY). WSKT new 2013 revenues target are in-line with our (95%) but the

earnings are higher than ours (90.6%).

Compared to other construction companies WSKT’s business

diversifi cation is the lowest.

In 2012 almost 100% of WSKT revenues were generated from construction

services. WSKT’s precast business has started the production in 2013, but around

70% are for internal use. WSKT owns 4 plants which two of them has started the

operation in 2013 while another two are expected to start operation in 1Q14. Pre-

cast division expects to book revenues of Rp780bn almost double than FY13 target

of Rp401bn whereas the external sales portion is expected to increase to 54% or

to reach Rp417bn (+220.8% YoY) contribute 4.1% of FY14 revenues.

Maintain Buy.

We are targeting 2014 earnings to grow by 17.8% YoY lower than CAGR11-13 of

35.8%. Our revenues and earnings target are 15% lower than company’s. However,

WSKT share price has downed 61.4% from its peak at Rp1,050/sh on 31 May’13.

Consequently, WSKT is traded at PE14 of 10.4x (historical average: 17.7x) and

PEG14 of 0.6x. We maintain a Buy recommendation on but we do not put WSKT

as one of our top-picks considering the low diversifi cation, around 96% revenues

are derived from construction service. Our TP is Rp570/sh with 40.7% potential

upside.

Revenue 7,274 8,808 9,222 10,215 11,678

Net profi t (Rpbn) 172 254 317 373 474

EPS 9,555 38 33 39 49

EPS Growth (%) 38.6 (99.6) (13.7) 17.8 27.0

DPS (Rp) - - 2 10 12

BVPS (Rp) 34,457 208 239 268 306

P/E (x) 0.0 10.6 12.3 10.4 8.2

P/BV (x) 0.0 1.9 1.7 1.5 1.3

Div Yield (%) 0.0 0.0 0.5 2.4 2.9


39

Pre-cast contribution to revenues is expected up to 4.1% in 2014. We expect pre-cast division to book revenues of Rp417bn, tripled than 2013 target of Rp130bn supported by commencement of two new plants, Sadang plant (200,000 ton/year) and Palembang plant (200,000 ton/year), in 1Q14. Hence, pre-cast contribution to revenues in 2014 will increase to 4.1% from 1.4% in 2013. Currently, WSKT operates 2 pre-cast plants; Pasuruan plant (200,000 ton/year) and Cibitung plant (150,000 ton/year).

Government construction projects (include SOE) accounts for more than three-quarter of WSKT’s projects.

We examine 21 projects disclosed by WSKT. Based on the project agreements and commitments stated on fi nancial statement as of Sep’13 WSKT owned 21 projects with value totaling Rp3.7tr, representing 15.9% order book and 8.0% revenues in 2014, this is lower than average of 16.3%. Project from government and SOE accounted for 77.4% of the project, resulting in domination of infrastructure project (38.2%).

Figure 57. Revenues breakdown


2013F 2014F

Figure 58. New project based on project owner

Source: WSKT

2012F 2013F


40

No

Project nameValue

(Rpbn)

Owner Project

based on Date

No of days

Poten-tial rev. in 2014 (Rpbn)

Remain-ing work(Rpbn) Own-

erType Start Finish Total 2014

1 Djuanda Airport 462 Angkasa Pura I SOE Inf. 09-Sep-11 05-Nov-13 788

2 Sangata Port 272 Dinas Perhub. Kom.&Infor. G Inf. 08-Dec-11 12-Dec-13 735

3 Manhattan Square 163 Kimset Chandra P B 08-Jun-12 01-Oct-13 480

4 Bosko Green City 130 Bosko Green Tower P B 01-Oct-12 30-Nov-13 425

5 New Samarinda Airport 209 Dishub East Kalimantan G Inf. 25-Jul-12 16-Dec-13 509

6 E-library building in Rempoa 68 Bank Mandiri Tbk SOE B 15-Jan-13 30-Dec-13 349

7 Jatigede stank landslide project 81 Ministry of Public Works G Inf. 18-Mar-13 13-Nov-13 240

8 Dr.H.Moch Ansari Sales Hospital 87 Prov. Gov. of South Kal. G B 02-May-13 28-Dec-13 240

9 Salt ponds Indramayu 185 SNVT PJPA Cimanuk G Others 28-Aug-12 15-Dec-14 839 349 77

10 Woodland Residence 391 Pardika Wisthi Sarana P B 12-Sep-12 11-Sep-14 729 254 136

11 Pesanggrahan river-#1 342 SNVT Pelaksanaan Jaringan G Inf. 27-Oct-11 12-Aug-14 1020 224 75

12 Habema - Mugi road 288 Direktorat Jend. Binamarga G Road 02-Oct-12 30-Nov-14 789 334 122

13 Road and bridge 108 Ministry of Public Works G Road 08-Feb-13 02-Aug-14 540 214 43

14 Double track Balambanganumpu 54 Kereta Api Indonesia SOE Inf. 25-Feb-13 24-Feb-14 364 55 8

15 Indah Kapuk bridge 238 Dinas Tata Kota G Road 13-Jan-13 29-Jul-14 562 210 89

16 Semen Padang plant 83 Semen Padang SOE Others 04-Mar-13 26-Jan-14 328 26 7

17 King Abbdullah expansion 64 Saudi Bin Laden Group P Others 18-Mar-13 18-Sep-14 549 261 31

18 Bridge project 133 Bina Marga G Road 15-May-13 21-Dec-14 585 355 81

19 Bangko Rohil AD Primier Jakarta 92 Puriampera Intipratama P Others 01-May-13 01-Jul-14 426 182 39

20 Sport facility in Buton 85 DPU Kab. Buton Utara G B 15-May-13 08-Jul-14 419 189 38

21 Expansion of Bulutuban road 179 Ministry of Public Works G Road 01-Oct-12 28-Feb-15 880 424 74 12

Total 3,715 820 12


Based on owner

P (private) 841 22.6%


SOE 667 18.0%


B (building) 925 24.9%


Road 946 25.5%

Others 424 11.4%


Source: WSKT

WSKT booked negative CF from operation in 9M13. Due to the construction service is the main source of revenues and more than three-quarters of WSKT construction projects are government’s which most of the payment occurred in the second semester especially in the 4Q, WSKT suff ered negative cash fl ow in the interim period. In the last 7 quarters WSKT booked only twice of positive CF from core operation (cash receipts from customers minus payment to suppliers and subcontractors).

Figure 60. Cash receipts from customers minus payment to suppliers



41

Sep-13 Dec-12 YTD (%)

ST bank loans Rpbn 1,684 1,172 43.7%

Bonds Rpbn 748 747 0.1%

Total debt Rpbn 2,432 1,919 26.7%

Cash Rpbn 570 2,184 -73.9%

Equity Rpbn 2,104 2,007 4.8%

Assets Rpbn 8,375 8,366 0.1%

Sep-13 FY12

EBIT Rpbn 299 254


Net debt or (Net cash) Rpbn 1,862 (264)

DER x 1.2 1.0




Source: WSLT

Old forecast New Forecst Diff erent

2013 YoY 2014 YoY 2013 YoY 2014 YoY 2013 2014

New contract 17,877 45.8% 21,452 20.0% 12,000 -2.2% 13,914 16.0% -32.9% -35.1%

Carry over 8,814 34.2% 10,755 22.0% 8,814 34.2% 9,451 7.2% 0.0% -12.1%

Order book 26,691 41.7% 32,207 20.7% 20,814 10.5% 23,365 12.3% -22.0% -27.5%

Revenues 11,008 25.0% 13,479 22.4% 9,222 7.8% 10,215 10.8% -16.2% -24.2%

Op. income 760 40.7% 937 23.2% 722 36.2% 819 13.4% -5.0% -12.6%

Net income 331 30.2% 464 40.3% 317 32.0% 373 17.8% -4.1% -19.5%

Op. margin 6.9% 6.9% 7.8% 8.0%

Net margin 3.0% 3.4% 3.4% 3.7%

Figure 62. Old and new forecast


Consequently, WSKT debt up 26.7% to Rp2.4tr as of Sep’13 from Dec’12, while cash dropped signifi cantly to Rp570bn from Rp2.2tr due to negative cash fl ow from operation during the fi rst 9-months in 2013.

Change of forecast. We lowered our 2013 revenues target by 33% due to reclassifi cation on several projects from regular into joint operation project, while net income relatively unchanged (-4.1%) at Rp317bn (+32.0% YoY). Therefore 2014 revenues and net income are targeted to reach Rp10.2tr (+10.8% YoY) and Rp373bn (+17.8% YoY), respectively. Our 2014 revenues and earnings targets are 13.4% and 15.7% lower than WSKT’s.


42

FY12A WSKT targets TRIM Research

RpbnFY13F FY14F FY13F FY14F

(Rpbn) (YoY%) (Rpbn) (YoY %) (Rpbn) Diff . (%) (YoY%) (Rpbn) Diff . (%) (YoY %)

New contract 12,264 12,000 -2.2% 18,000 50.0% 12,000 100.0% -2.2% 13,914 77.3% 16.0%

Carry over 6,567 8,814 34.2% 10,000 13.5% 8,814 100.0% 34.2% 9,451 94.5% 7.2%

Order book 18,831 20,814 10.5% 28,000 34.5% 20,814 100.0% 10.5% 23,365 83.4% 12.3%

Revenue 8,808 9,700 10.1% 11,800 21.6% 9,222 95.1% 4.7% 10,215 86.6% 10.8%

Op. income 540 na na 722 na 33.7% 819 na 13.4%

Net income 254 350 37.8% 443 26.6% 317 90.6% 24.8% 373 84.3% 17.8%

Op. margin 6.1% na 7.8% 8.0%

Net margin 2.9% 3.6% 3.4% 3.7%

Figure 63. TRIM forecast vs. WSKT’s


Maintain Buy with TP of Rp570/sh. We use DCF valuation (WACC: 14.4%) to arrive at TP of Rp570/sh (40.7% potential upside). Our TP is implying PE14 of 14.7x while currently is traded at PE14 of 10.4x compared to average historical PE of 17.7x. WSKT shares price has down 61.4% from its peak at Rp1,050 on 31 May’13. Hence, we maintain our Buy recommendation on WSKT.

Year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

1 2 3 4 5 6 7 8

EBIT * (1-tax) 337 405 542 614 697 820 922 1,069 1,233 - -

Chg. In non-cash work. Cap. 178 (678) 620 (162) (135) (150) (120) (128) (137) - -

Capex (17) (14) (66) (464) (452) (338) (326) (313) (300) - -

Minority interest - - - - - - - - - - -

FCFF 497 (287) 1,095 (12) 111 332 476 627 795 795 795

Discounted factor 1.00 1.14 1.29 1.47 1.67 1.90 2.17 2.46

Present value of FCFF (12) 98 257 324 375 418 367 323

Terminal value 6,302

PV of terminal value 2,558

NPV Rp bn 4,706

Cash 2014 Rp bn 2,185

Debt 2014 Rp bn 1,769

Net Debt or (net cash) Rp bn (415)

Equity value Rp bn 5,122

Outstanding shares Rp bn 9.63

Equity value per shares Rp/share 532

Target Px Rp/share 530

Px current Rp/share 465


Year 2012 2013 2014 2015

Net income Rp bn 254 317 373 474

Growth (YoY%) % 47.7% 24.8% 17.8% 27.0%

EPS Rp/share 38.1 32.9 38.8 49.2

P/E current price x 12.2 14.1 12.0 9.4

PEG x 0.3 0.6 0.7 0.4

P/E target price x 13.9 16.1 13.7 10.8




43


Key Ratio Analysis


3Q12 4Q12 1Q13 2Q13 3Q13

Sales 1,974 4,106 957 2,051 2,140

Gross Profi t 165 357 99 169 159


Net Profi t 66 151 5 51 62

Gross Margins (%) 8.3 8.7 10.3 8.2 7.4

Opr Margins (%) 4.0 8.2 5.1 6.1 5.9

Net Margins (%) 3.3 3.7 0.6 2.5 2.9


Year end 31 Dec 2011 2012 2013E 2014F 2015F

Revenue 7,274 8,808 9,222 10,215 11,678

% growth 24.3 21.1 4.7 10.8 14.3

Gross Profi t 663 732 834 951 1,091

Opr Profi t 449 540 722 819 930

EBITDA 472 574 746 844 958

% growth 19.1 21.7 29.9 13.2 13.5

Net Int Inc/(Exp) (125) (138) (128) (157) (152)

Gain/(loss) Forex (4) 2 - - -

Other Inc/(Exp) 12 55 (19) (21) (15)

Pre-tax Profi t 332 460 576 641 762

Tax (160) (206) (259) (267) (288)

Minority Int. - - - - -


Net Profi t 172 254 317 373 474

% growth 38.6 47.7 24.8 17.8 27.0

Year end 31 Dec 2011 2012 2013E 2014F 2015F

Profi tability

Gross Margins (%) 9.1 8.3 9.0 9.3 9.3

Op. Margins (%) 6.2 6.1 7.8 8.0 8.0

EBITDA Margins (%) 6.5 6.5 8.1 8.3 8.2

Net Margins (%) 2.4 2.9 3.4 3.7 4.1

ROE (%) 27.7 12.7 13.8 14.5 16.1

ROA (%) 3.4 3.0 4.1 4.7 5.8

Stability

Current Ratio (x) 1.0 1.5 1.5 1.5 1.5

Net Debt/Equity (x) 1.0 (0.1) (0.4) (0.2) (0.1)

Int Coverage (x) 2.9 3.2 3.7 4.0 4.9

Effi ciency

A/P days 70 82 65 55 48

A/R days 39 50 45 40 36


Capital History

Date

19-Dec-12 IPO @ Rp380

Cash Flow (Rpbn)

Year end 31 Dec 2011 2012 2013E 2014F 2015F

Net Profi t 172 254 317 373 474

Depr/Amort (23) (34) (24) (26) (29)

Others (117) (80) (146) (178) (167)

Chg in Working Cap. (139) (416) 500 (144) (106)

CF's from Oprs (119) (216) 793 204 339

Capex (17) (14) (66) (464) (452)

Others 173 (17) (152) (48) (27)


Net Change in Debt 194 714 (75) (75) (150)

Others (2) 1,132 (20) (95) (112)

CF's from Financing 191 1,847 (95) (170) (262)

Net Cash Flow 228 1,601 479 (478) (402)

Cash at BoY 355 583 2,184 2,663 2,185

Cash at EoY 583 2,184 2,663 2,185 1,783

Free Cashfl ow (195) (306) 764 551 676

Year end 31 Dec 2011 2012 2013E 2014F 2015F

Cash and Deposits 583 2,184 2,663 2,185 1,783


Net Fixed Assets 192 240 330 820 1,300

Other Assets 320 337 489 536 564

Total Assets 5,116 8,366 7,776 7,877 8,171

ST Debt 1,205 1,172 1,097 1,022 947


LT Debt - 747 747 747 672

Other LT Liabs 78 320 200 218 246

Minority Interest - - - - -


Shareholder's Equity 620 2,007 2,304 2,582 2,944

Net Debt/(Cash) 622 (264) (819) (415) (164)

Net Working Capital 186 2,498 2,432 2,191 1,999

TRIM COMPANYFOCUS


Adhi KaryaBig projects

BUY – Rp2,100

Stock Price

Jan 09, 2014

Year end Dec 2011 2012 2013F 2014F 2015F

Forecast & Rating

Government RI 51.0%ABN Amro Bank NV 5.1%Public 43.9%

Major Shareholders:

EPS 13F 14FConsensus (Rp) 192 238TRIM VS Cons (%) 7.9 16.3

Consensus

Share Price Rp1,430Sector ConstructionPrice Target Rp2,100(47%)Prev. TP Rp4,500

Initiate Coverage

Reuters Code ADHI.JKBloomberg Code ADHI.IJIssued Shares (m) 1,801Mkt Cap (Rpbn) 2,576



Stock Data

New 2013 targets. At the beginning of 2013 ADHI set full year targets of new contract of Rp14.4tr (+50.1% YoY) however the target has been revised down by 18% to Rp11.8r due to delay on several projects, allowing 2013 new order book (OB) target to reach Rp22.2tr (+25.8% YoY); 11% lower than initial target. Consequently, 2013 revenues target is decreased by 25% to Rp10.4tr (+36.4% YoY) while net income is lowered by 11% to Rp402bn (+90.1% YoY). We also revised our forecast; our new revenues and net income targets are 7% lower than management’s. ADHI booked new contract amounting to Rp8.3tr as of Oct’13 representing 70.5% of FY13 target.

Boost property sector. Through its subsidiaries; Adhi Persada Realty (APR; 99.9% stake) and Adhi Persada Property (APP; 97.9% stake), ADHI engages in property and realty business which currently has seven big projects with value totaling to Rp1.6tr. In FY12 both subsidiaries contributed revenues totaling to Rp482bn or 6.3% of revenues, while for 2013 ADHI is targeted revenues of Rp849bn (+76.1% YoY) backed by higher order book of Rp1.2tr (+127.9% YoY). Additionally, ADHI has been developing a 4-star hotel, GrandDhika Hotel, in order to enter hotel business. The fi rst hotel will be located in Blok M, Jakarta and will start the operation in 4Q14.

Three monorail projects on the pipeline. ADHI has 3 monorail projects in the pipeline with total projects value around Rp16.0tr, they are: 1) Automated Container Transportation (ACT) in Tanjung Perak Port, Surabaya, East Java, 2) Automated People Mover (APM) project in Soekarno-Hatta airport (Soetta), Cengkareng, Baten; and 3) Outer Jakarta Monorel with route of: Bekasi Timur – Cawang, Cibubur-Cawang, and Kuningan-Cawang. In the other hand, ADHI await for the payment of 90 stake of monorail from PT Jakarta Monorail (ADHI was part of the consortium but now 90% are owned by Singapore based Ortus group) with a value of Rp190bn due to the development of Jakarta Monorail route: Casablanca – Rasuna Said.

Maintain Buy recommendation. We apply DCF valuation (WACC: 12.2%) and arrived at target price (TP) of Rp2,100/shares (previously Rp4,500/share). Our new target price implies PE14 of 7.6x; currently ADHI is traded at PE14 of 5.8x and PEG14 of 0.2x with 46.9% potential upside, we maintain our Buy recommendation on ADHI.

Revenue (Rpbn) 6,695 7,628 9,624 12,393 16,334

Net profi t (Rpbn) 182 212 374 500 664

EPS 104 117 207 278 368

EPS Growth (%) (3.9) 13.3 76.5 33.8 32.7

DPS (Rp) 34 33 35 62 83

BVPS (Rp) 560 652 824 1,039 1,324

P/E (x) 13.8 12.2 6.9 5.2 3.9

P/BV (x) 2.6 2.2 1.7 1.4 1.1

Div Yield (%) 2.4 2.3 2.5 4.4 5.8

The Company is a state-owned company that provides construction services

as well as the mechanical electrical and also the property development.


45

ADHI owns 7 big ongoing projects totaling to Rp1.6tr. Currently ADHI has 7 major properties and realty projects with total investment value reaching Rp1.6tr and is expected has started to deliver revenues in 2013. We expect both subsidiaries to book revenues of Rp734bn in FY14 up 28.7% YoY and have CAGR13-17 of 27.3% pa. Our FY14 target is 13.6% lower than ADHI’s.

We examine 25 ongoing projects stated under the project agreements and commitments as of Sep’13. These projects have a value totaling to Rp2.7tr, representing 10.3% order book and 8.6% revenues in 2014, this is lower than average industry of 16.3%. However, 38.6% of the project is owned by private sector, this is the highest private ownership in the industry (average: 21.9%). Consequently, infrastructure projects accounts for only 20.4% of type of the project.

Figure 65. Revenues breakdown


2013F 2014F

Figure 66. New project based on project owner

Source: ADHI

2012F 2013F


46

No

Project nameValue

(Rpbn)

Owner Project

based on Constructing date No of days

Poten-tial rev. in 2014 (Rpbn)

Remain-ing work(Rpbn) Own-

erType Start Finish Total 2014

1 Syariah Hotel Solo 118 Hotel Solo & Lorin Moderate P B 1-Feb-13 27-Jan-14 360 27 9

2 Interior project (5E package) 110 Angkasa Pura SOE Others 11-Jan-13 8-Sep-14 605 251 46

3 Project Bigleap Unilever Oleochemical 105 Unilever Oleochemical Ind. P Others 1-Jul-13 1-Jul-14 365 182 52

4 Building renovation Drg. Gusti Rizali 89 Askes SOE B 27-Dec-12 1-Jan-14 370 1 0

5 Apron & taxiway 89 Angkasa Pura SOE Others 14-May-13 14-Apr-14 335 104 28

6 Expansion on Perla port 88 Pelindo SOE Inf. 17-May-13 8-Nov-14 540 312 51

7 Kota Baru Parahyangan bridge 78 Bellaputera Intiland P Inf. 31-Jan-13 25-Jul-14 540 206 30

8 Bridge on outer road of Jatiluhur tank 77 Ministry of Public Works G Inf. 27-Feb-13 27-Nov-14 638 331 40

9 Development of train academy 76 Ministry of Transportation G B 30-May-13 13-Jun-14 379 164 33

10 Bank Mandiri offi ce in Solo 75 Bank Mandiri SOE B 20-Mar-13 10-Sep-14 539 253 35

11 Construction of silo on Semen Padang 60 Semen Padang SOE Others 27-Jun-13 27-Jun-14 365 178 29

12 Civil, architectural, plumbing 56 Belefi na Sarana Medika P Others 22-Apr-13 25-Dec-14 612 359 33

13 Bridge of Balang Bentang Pendek 53 Local government G Inf. 15-Apr-13 30-Jun-14 441 181 22

14 Pembangunan UBS III and CS Pusri 330 Pupuk Sriwidjaya SOE Others 27-Mar-13 17-Nov-15 965 365 125 110

15 Gedung penataan ruang 237 Ministry of Public Works G B 17-Apr-13 17-Jun-15 791 365 109 50

16 Building 138 Pelindo II SOE B 3-Jun-13 2-May-15 698 365 72 24

17 Kontrak paket 6 96 Puri Zuqni P Others 22-Apr-13 30-Sep-15 891 365 39 30

18 Cikupa- Balaraja road widening 93 Marga Mandalasakti G Road 12-Apr-13 12-Mar-15 699 365 49 9

19 Andalan headquarter & Show room 89 New Ratna Motor P B 22-May-13 16-May-15 724 365 45 17

20 Jamapngkulon-Surade road widening 82 Local government G Road 17-Apr-13 10-Dec-15 967 365 31 29

21 Bridge IC Solo and toll road 64 Ministry of Public Works G Road 5-Jun-13 27-Dec-15 935 365 25 25

22 Dock no.5 Sima Maspion Terminal 55 Siam Maspion Terminal P Inf. 3-Jun-13 31-Jan-15 607 365 33 3

23 Marvell City Building 130 Assa Land P B 14-May-13 3-Mar-16 1,024 365 46 54

24 3.1ha land area 114 KSO TPK Koja P B 5-Apr-13 5-Mar-16 1,065 365 39 46

25 A coal-fi red power plant 201 Sumitomo/Mitsui P Inf. 1-May-13 18-Aug-17 1,570 365 47 123

2,704 1,068 520


Based on owner

P (private) 1,043 38.6%

G (government) 682 25.2%

SOE 979 36.2%


B (building) 1,066 39.4%

Inf. (infrastructure) 552 20.4%

Road 239 8.8%

Others 846 31.3%


Source: ADHI

Three monorail projects on the pipeline. ADHI has 3 monorail projects in the pipeline with total projects value around Rp16.0tr, they are: 1) Automated Container Transportation (ACT) in Tanjung Perak Port, Surabaya, East Java, 2) Automated People Mover (APM) project in Soekarno-Hatta airport (Soetta), Cengkareng, Baten; and 3) Outer Jakarta Monorel with route of: Bekasi Timur – Cawang, Cibubur-Cawang, and Kuningan-Cawang. In Rp2.5tr ACT project, ADHI will build a monorail for container transportation from Tanjung Perak port to Lamong Bay Terminal (11.4km length of track) while in Soetta and Outer Jakarta monorail projects ADHI will build passenger monorail. Soetta project value is Rp2.3tr while Outer Jakarta monorail is USD1.5tr or around Rp16tr. In the other hand, ADHI await for the payment of 90 stake of monorail from PT Jakarta Monorail (90% owned by Singapore based Ortus group) with a value of Rp190bn due to the development of Jakarta Monorail route: Casablanca – Rasuna Said.


47

DER stood at 1.3x as of Sep’13 up from 0.7x in Dec’12 due to bonds issuance in 1H13. ADHI has issued the second phase of the continuous bonds issuance and Sukuk in 1H13 with nominal value totaling to Rp750bn, resulting in higher DER at 1.3x as of Sep’13 compared with 0.7x in Dec’12. According to ADHI’s CFO, the DER covenant is 2.75x; hence based on current equity position ADHI has potential debt rooms amounting to Rp1.9tr, which we think it would be suffi cient for their current projects.

We revised our forecast on ADHI. Our new FY13 earnings target is 10% lower than our previous targets due to lower order book (-18%). However, our FY13 new earnings targets are 7% lower than ADHI’s. For 2014, we expects revenues to grow by 28.8% YoY resulting in earnings growth of 33.8% YoY. Our 2014 targets are 15.7% and 12.4% lower than ADHI’s.

Sep-13 Dec-12 YTD (%)

ST bank loans Rpbn 251 201 24.8%

Bonds Rpbn 1,497 623 140.4%

Total debt Rpbn 1,748 824 112.2%

Cash Rpbn 750 949 -20.9%

Equity Rpbn 1,313 1,174 11.8%

Assets Rpbn 9,031 7,872 14.7%

Sep'13 FY12

EBIT Rpbn 413 274


Net debt or (Net cash) Rpbn 997 (125)

DER x 1.3 0.7

Debt to Asset x 0.1 nm



Source: WSLT

Old forecast New Forecst Diff erent

2013 YoY 2014 YoY 2013 YoY 2014 YoY 2013 2014

New contract 14,418 50.1% 17,302 20.0% 11,794 22.8% 17,101 45.0% -18.2% -1.2%

Carry over 10,394 29.3% 13,647 31.3% 8,560 6.5% 9,099 6.3% -17.6% -33.3%

Order book 24,812 40.7% 30,948 24.7% 20,354 15.4% 26,200 28.7% -18.0% -15.3%

Revenues 12,873 68.8% 15,805 22.8% 9,624 26.2% 12,393 28.8% -25.2% -21.6%

Op. income 1,166 47.1% 1,443 23.8% 949 19.8% 1,220 28.5% -18.6% -15.5%

Net income 415 96.2% 567 36.7% 374 76.5% 500 33.8% -10.0% -11.9%

Op. margins 9.1% 9.1% 9.9% 9.8%

Net margins 3.2% 3.6% 3.9% 4.0%

Figure 69. Old and new forecast



48

FY12A ADHI targets TRIM Research

RpbnFY13F FY14F FY13F FY14F

(Rpbn) (YoY%) (Rpbn) (YoY %) (Rpbn) Diff . (%) (YoY%) (Rpbn) Diff . (%) (YoY %)

New contract 9,604 11,794 22.8% 21,100 78.9% 11,794 0.0% 22.8% 17,101 81.0% 45.0%

Carry over 8,036 10,394 29.3% 7,547 -27.4% 8,560 -17.6% 6.5% 9,099 120.6% 6.3%

Order book 17,640 22,188 25.8% 28,647 29.1% 20,354 -8.3% 15.4% 26,200 91.5% 28.7%

Revenue 7,628 10,406 36.4% 14,700 41.3% 9,624 -7.5% 26.2% 12,393 84.3% 28.8%

Op. profi t 792 na na na na 949 na 19.8% 1,220 na 28.5%

Net profi t 212 402 90.1% 571 41.9% 374 -7.1% 76.5% 500 87.6% 33.8%

Op. margin 10.4% na na 9.9% 9.8%

Net margin 2.8% 3.9% 3.9% 3.9% 4.0%

Figure 70. TRIM forecast vs. WSKT’s


Maintain Buy recommendation. We apply DCF valuation (WACC: 13.5%) and arrived at new target price (TP) of Rp2,100/shares (previously: Rp4,500/share). Our new target price implies PE14 of 7.6x while currently ADHI is traded at PE14 of 5.2x lower than average historical PE of 11.5x. ADHI share price has dropped 63.3% from its highest position at Rp3,900/sh on 31 May’13, the decrease is the highest among 4 listed construction SOEs.

Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

1 2 3 4 5 6 7 8

EBIT x (1-tax) (Rpbn) 475 570 732 958 1,243 1,508 1,796

Changes in non cash working cap. (86) (430) (889) (914) (819) (646) (691)

Capex (109) (75) (700) (700) (600) (400) (300)

Minority Interest (2) (2) (2) (2) (2) (2) (2)

FCFF 279 63 (858) (658) (178) 460 803 803 803 803 803

Discounted factor 1.00 1.13 1.29 1.46 1.66 1.88 2.14 2.43

Present value of FCFF (658) (157) 357 549 484 427 376 331



NPV Rpbn 4,387

Cash 2014 Rp bn 1,026

Debt 2014 Rp bn 1,556

Net Debt Rp bn 530

Firm value Rp bn 3,857

Outstanding shares bn shares 1.8

Equity value per shares Rp/share 2,141


Px current Rp/share 1,430


11A 12A 13E 14F 15F

Net income Rp bn 182 212 374 500 664

Growth (YoY%) % 16.2% 76.5% 33.8% 32.7%

EPS Rp/share 104 117 207 278 368

P/E current price 13.8 12.2 6.9 5.2 3.9

PEG 0.8 0.1 0.2 0.1

P/E target price 20.3 17.9 10.1 7.6 5.7




49


Key Ratio Analysis


3Q12 4Q12 1Q13 2Q13 3Q13

Sales 1,790 4,063 1,360 1,969 2,326

Gross Profi t 202 570 108 204 232


Net Profi t 59 123 12 57 112

Gross Margins (%) 11.3 14.0 7.9 10.4 10.0

Opr Margins (%) 9.0 12.8 6.2 8.1 7.4

Net Margins (%) 3.3 3.0 0.8 2.9 4.8


Year end 31 Dec 2011 2012 2013E 2014F 2015F

Revenue 6,695 7,628 9,624 12,393 16,334

% growth 18.0 13.9 26.2 28.8 31.8

Gross Profi t 734 956 1,161 1,495 1,970

Opr Profi t 556 792 949 1,220 1,596

EBITDA 562 799 956 1,226 1,606

% growth (0.3) 42.2 19.6 28.3 31.0

Net Int Inc/(Exp) (85) (81) (118) (132) (146)

Gain/(loss) Forex 4 18 - - -

Other Inc/(Exp) (149) (306) (242) (312) (411)

Pre-tax Profi t 326 423 589 777 1,040

Tax (144) (210) (214) (275) (374)

Minority Int. 1 2 2 2 2


Net Profi t 182 212 374 500 664

% growth (3.9) 16.2 76.5 33.8 32.7

Year end 31 Dec 2011 2012 2013E 2014F 2015F

Profi tability

Gross Margins (%) 8.5 12.5 11.0 12.5 12.1

Op. Margins (%) 7.0 9.7 8.3 10.4 9.9

EBITDA Margins (%) 7.4 9.9 8.4 10.5 9.9

Net Margins (%) 2.1 3.3 2.7 2.8 3.9

ROE (%) 22.6 22.0 18.5 18.0 25.2

ROA (%) 2.9 3.8 3.0 2.7 4.3

Stability

Current Ratio (x) 1.1 1.2 1.1 1.2 1.4

Net Debt/Equity (x) 0.7 0.6 0.0 (0.1) (0.0)

Int Coverage (x) 4.0 5.1 6.4 9.2 7.4

Effi ciency

A/P days 133 184 161 200 180

A/R days 57 71 48 52 55


Capital History

Date

18-Mar-04 IPO @ Rp150

Cash Flow (Rpbn)

Year end 31 Dec 2011 2012 2013E 2014F 2015F

Net Profi t 182 212 374 500 664

Depr/Amort (6) (7) (6) (6) (10)

Others 1 2 2 2 2

Chg in Working Cap. 327 318 (380) (389) (414)

CF's from Oprs 503 524 (12) 107 242

Capex (40) 26 29 (200) (201)

Others 47 (405) (50) (500) (500)


Net Change in Debt (152) 257 663 194 99

Others (60) (18) (63) (112) (150)

CF's from Financing (211) 239 600 82 (51)

Net Cash Flow 298 384 567 (511) (510)

Cash at BoY 242 552 949 1,527 1,026

Cash at EoY 552 949 1,527 1,026 534

Free Cashfl ow 480 438 (129) 208 333

Year end 31 Dec 2011 2012 2013E 2014F 2015F

Cash and Deposits 552 949 1,527 1,026 534


Net Fixed Assets 221 187 152 347 537

Other Assets 407 402 402 402 402

Total Assets 6,113 7,872 8,680 10,533 13,081

ST Debt 539 201 241 310 408


LT Debt 28 623 1,246 1,246 1,246

Other LT Liabs 220 216 215 340 340

Minority Interest 7 7 7 7 7


Shareholder's Equity 984 1,174 1,484 1,872 2,386

Net Debt/(Cash) 15 (125) (40) 530 1,121

Net Working Capital 609 1,431 2,399 2,717 3,040

PT Trimegah Securities Tbk18th Fl, Artha Graha BuildingJl. Jend. Sudirman Kav. 52-53Jakarta 12190, INDONESIA

Tel : (6221) 2924 9088 Fax : (6221) 2924 9163

DISCLAIMER

This report has been prepared by PT Trimegah Securities Tbk on behalf of itself and its affi liated companies and is provided for information purposes only. Under no circumstances is it to be used or considered as an off er to sell, or a solicitation of any off er to buy. This report has been produced inde-pendently and the forecasts, opinions and expectations contained herein are entirely those of Trimegah Securities. While all reasonable care has been taken to ensure that information contained herein is not untrue or misleading at the time of publication, Trimegah Securities makes no representation as to its accuracy or completeness and it should not be relied upon as such. This report is provided solely for the information of clients of Trimegah Securities who are expected to make their own investment decisions without reliance on this report. Neither Trimegah Securities nor any offi cer or employee of Trimegah Securities accept any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. Trimegah Securities and/or persons connected with it may have acted upon or used the information herein contained, or the re-search or analysis on which it is based, before publication. Trimegah Securities may in future participate in an off ering of the company’s equity securities.

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