Mar 07, 2016 10:10:43
Wijaya Karya Beton ($WTON), We Expect Its GPM To Improve ….

… although it may still be below its historical highs of 13.1-14.9% since competition in the precast industry may intensify this year as its competitors increase their capacities. Also uncertainty of the high-speed train project could have a negative impact on its performance. FY15 NPAT was above our estimates, but lower then consensus, therefore we remain NEUTRAL on Wika Beton, while our DCF-derived TP of IDR870 (from IDR830, 8% downside) implies a 31.9x FY16F P/E.

¨ Competition remains stiff. We expect Wijaya Karya Beton (Wika Beton) to see intense competition from other state-owned enterprises (SOEs) such as Waskita Karya ($WSKT), Pembangunan Perumahan ($PTPP) and Adhi Karya ($ADHI). Waskita Karya is scheduled to grow its capacity to 2.35m tonnes pa from 1.63m tonnes pa and would become the second biggest precast producer in the market. Meanwhile, Pembangunan Perumahan may add 400,000 tonnes pa production capacity via its facilities in Sentul and Bekasi.

¨ We expect GPM to recover this year, given increased spending by the Government, while Wika Beton’s parent Wijaya Karya’s ($WIKA) new contract target would benefit the former. Thus, we expect its GPM to improve to approximately 12.8% in FY16-17, vs 12.4% last year. However, this is far below its historical high GPMs of c.13.1-14.9% (recorded in 2012-2014), given the potentially tough competition in the precast industry.

¨ The high-speed train (HST) project still has an uncertain future. The Ministry of Transportation has not given yet the approval for the project to the consortium (made up of Indonesian SOEs and a Chinese partner) tasked to the project. Meanwhile, the Chinese counterpart is requesting for a guarantee from the Government. While revenue contribution from the HST project may reach IDR6trn-8trn in 3-4 years, we expect contributions to begin in FY17– if the project goes through.

¨ FY15 results. Earnings of IDR174bn (-47% YoY) were about 9% above our estimate – but 10% below consensus – on lower-than-expected tax expenses, while revenue of IDR2.6trn (-19% YoY) was in line. GPM fell to 12.4% due to the lower utilisation rate early last year.

¨ Improvement in 4Q15. 4Q15 revenue (+68% QoQ, +16% YoY) contributed 42% of total revenue last year – above its normal c.27% contribution due to an increase in projects in the quarter. Meanwhile, NPAT surged >100% QoQ but fell by 18% YoY, due to the lower tax expenses.

¨ Maintain NEUTRAL with a DCF-derived TP of IDR870 (from IDR830) that also implies 31.2x FY16F P/E. Currently, the stock is trading at 33.9x FY16F P/E.