Wika Beton: NDR Key Takeaways
We brought Wika Beton ($WTON) management for one day NDR to Hong Kong. Most of the clients we met still positive on the overall Indonesia infrastructure story. The current currency volatility as well as the recent escalation in political tension appear to become the main concerns.
The key highlights:
¨ WTON management is still positive on infra development on infrastructure development in Indonesia as the progress and execution capabilities have been considerably improved under the current government.
¨ WTON is confident to exceed this year new contract target of IDR4.3trn. As of 10M16, the company has secured IDR3.3trn worth of new contract and estimates to obtain around IDR5trn by year end, mainly due to Balikpapan - Samarinda toll road project
¨ WTON expects to have 13%-15% GM vs 9M16 GM of 13.6%, while the management remain positive on the new contract outlook next year and expect an increase of 25%YoY.
¨ High speed train project will benefit WTON next year. The company will likely to receive IDR1.5trn precast & ready-mix order from its parents Wijaya Karya (WIKA IJ, BUY, TP IDR3,370) and to pursue another IDR1.5trn order from China party.
¨ They are confident to compete with other precast players as they have more variety of products and well known reputation in term of precast quality. However, we do acknowledge the current stiffer competitive landscape especially from SOEs such as Waskita Beton Precast ($WSBP).
We maintain our BUY call on the company as we anticipate more new projects will be signed by year-end and will likely be recognized as revenue next year. We expect stronger year for WTON in FY17 underpin by the start of the HST project next year and government’s bigger infrastructure budget in FY17F.
As one of the biggest suppliers of railway sleepers in Indonesia, Wijaya Karya Beton (Wika Beton) will also benefit from the Government’s plan to build 3,258km of railway tracks across the country in five years.
Our TP of IDR1,070 is based on a DCF valuation assuming the following: RF of 7.5%, WACC of 12.7% and TG of 5%. It also implies 28.5x FY17F P/E. (Dony Gunawan)