May 02, 2016 14:29:40
Adhi Karya – 1Q16 result – Below (ADHI; Rp2,675; BUY; Rp3,200)

- Weak 1Q16 result. ADHI booked 1Q16 net earnings of Rp11bn (+0.5% y-y), accounted for only 2% of ours and consensus estimate. This weak result was caused by Rp13bn forex loss (1Q15: forex gain of Rp15bn) as well as loss in EPC business.

- Slow growth in construction revenues. We noticed that ADHI recorded the slowest growth in construction and EPC business (1Q16: +8.3% y-y) among listed construction companies. We believe that this was contributed high number of contracts from private segments in 2015. On a brighter side, ADHI was actually recorded an impressive GPM in construction of 13.1% (1Q15: 9.2%) while property GPM still hovering at 30% mark (1Q16: 28.8%; 1Q15: 29.4%). However,  ADHI’s EPC business continues to underperform by recorded a negative GPM of 32.1% (1Q15: 5.8%) which due to loss in several projects from PLN. (LRT) project.

- End of five consecutive quarters of forex gain. In 1Q16, ADHI recorded its forex loss of Rp13bn, the first since 4Q14. ADHI stated that the loss was attributed to account receivable in USD denomination from Pertamina’s RFCC project. Going forward, we believe that the impact from forex loss/gain would be reduced following the completion of RFCC project in 2015.

- High cash level on LRT signing delay. On balance sheet level, ADHI owns a high cash level of Rp3.7tn (1Q15: Rp903bn) by the end of 1Q16 as the company still have not fully utilize the Rp2.75tn proceeds from 2015 rights issue. Delay in contracts signing has caused slow progress in the construction delay in the Greater Jakarta Light-Rail-Transit (LRT) project which only contributed around Rp200bn in sales in 1Q16. Note that ADHI expects around Rp4-4.5tn from the project in 2016 with the expectation that the LRT contracts would be signed in 1H16.

- Recommendation under review. We are currently reviewing our numbers and rating for ADHI due to the worse-thanexpected performance from ADHI’s EPC division. We will publish our new recommendation following a conference call with management.