Indonesia Construction - DBS Bank [PDF]

Indonesia Industry Focus

Indonesia Construction Refer to important disclosures at the end of this report

DBS Group Research . Equity

Adjusting expectations   

Decelerating new contract growth and rising capital needs cap sector’s upside potential; turning Neutral on the sector Contractors with ample balance sheet capacity stand a better chance of winning more projects Execution and earnings are key catalysts. Top picks: PTPP and WTON

Turning Neutral on Indonesia’s construction sector; the stock-picking game continues. We are turning Neutral on the sector (from Positive previously) as we expect new contract growth to decelerate while the higher capital needs pose a risk to profitability. We advise investors to stay selective. We like PTPP due to its attractive valuation at 0.34x EV/order book, lower than peers. PTPP also has a smaller capex commitment compared to its peers, and a less leveraged balance sheet to support its future earnings and new contract growth. As the government and project owners accelerate the execution of infrastructure projects, we believe precast producers, including WTON, are in a sweet spot. Contractors with ample balance sheet capacity stand a better chance of winning more projects. Job opportunities are aplenty for contractors given Indonesia’s massive need for infrastructure. Nonetheless, funding remains a challenge with fiscal deficit being capped at 3% by law while the government has been taking a break from injecting capital into SOEs. A number of funding alternatives are taking place but mostly require the contractors to also invest in the infrastructure projects or work under a turnkey scheme. Capital requirements to win a project will continue to rise, hence we prefer contractors with ample balance sheet capacity, established JVs with foreign players and good cash flow management.

5 Jul 2017 JCI : 5,825.10 Analyst Chong Tjen-San +60 3 26043972 [email protected] Tiesha PUTRI +6221 30034931 [email protected]

STOCKS Price Rp

Waskita Karya Pembangunan Perumahan Wijaya Karya Wijaya Karya Beton

Mkt Cap Target Price Performance (%) 12 mth 3 mth US$m Rp

2,270

2,306

2,400

(2.1)

(6.8)

HOLD

3,330

1,545

4,100

2.8

(7.2)

BUY

2,220 605

1,491 395

2,050 760

(4.7) (21.5)

(15.6) (33.7)

HOLD BUY

Source: AllianceDBS, DBSVI, Bloomberg Finance L.P. Closing price as of 5 Jul 2017 Waskita Karya : Waskita Karya is a stated owned construction company engaging in a wide variety of construction activities including highways, bridges, ports, airports, and LRT. Pembangunan Perumahan : PT PP (Persero) is Indonesia's leading construction company with business portfolio encompassing from building and civil infrastructure constructions. Wijaya Karya : Wijaya Karya is a construction company with interests in EPC, civil, building works, precast and realty. Wijaya Karya Beton : Wika beton (a subsidiary of Wikaya Karya) is a leader in precast in Indonesia with c.40% market share.

Construction companies’ PE valuation range since 2012 (x) 75 65 55

Where we differ. Consensus' blanket overweight stance on the sector implies an expectation that earnings delivery will be smooth for all listed state-owned contractors, which may not be the case as some contractors are facing land acquisition issues and funding constraints. We also expect new contracts to peak out this year and decline by 6% in 2018. On contrary to consensus Buy call on all listed state-owned contractors, we believe selective investing in the sector is the best approach given the peaking new contract growth and differing risk profile among the contactors. Our top picks in the sector are PTPP and WTON.

ed-TH / sa- MA, PY

Rating

45 35 25 15 5 WSKT

Source: AllianceDBS, DBSVI

PTPP

WIKA

WTON

Industry Focus

We identify three key issues that will shape the sector's performance for the rest of the year: 1)

The speed of project execution. The three contractors under our coverage are now sitting on a record-high order book. After two years of stellar new contract growth, we expect the pace of project awards for the big three state-owned contractors (Wijaya Karya, PT PP and Waskita Karya) to decelerate in the coming months given the already high new contract base last year (Rp157tr vs Rp84tr in 2015). That said, the focus will shift to project delivery, and consequently earnings.

2)

Land acquisition funding. A number of land-intensive toll road projects have been awarded by the government and there are more new toll road concessions that are in talks. We identify over 2,500 km toll roads in the pipeline, exceeding the government’s initial target of developing 1,000 km new toll roads by 2019. Land acquisition for infrastructure projects are typically funded by the government, but the disbursement of the funds has been delayed since last year due to bureaucratic hurdles. A new scheme that allows the project owner to prefinance the land acquisition cost while awaiting the government to disburse the funds has been adopted since then. However, this has also become an additional burden for the project owners’ balance sheets. We believe the fund disbursement would be a positive catalyst for the sector to speed up land acquisition activities and project delivery.

3)

Asset recycling and securitisation, particularly for Waskita Karya (WSKT), which has the highest exposure to toll road projects. WSKT has been actively acquiring stakes in greenfield toll road projects with the aim of selling them after the construction works complete. This strategy has also been adopted by other listed contractors, albeit at a much less aggressive pace. A timely and value-accretive divestment will be a positive catalyst for the contractors. In addition, we estimate that a potential new contract worth Rp80tr would come from JSMR. However, given JSMR’s hefty funding needs, the execution of its securitisation and divestment plans are important to ensure that its new projects would take off.

Page 2

Industry Focus

New contract growth to peak out; execution to take the spotlight The three state-owned contractors under our coverage booked Rp47.5tr worth of new contracts in 5M17, a 71% increase y-o-y. This was driven largely by SOE and to some extent private contracts. We nonetheless anticipate the new contract growth to slow down in the coming months with the three contractors only guiding for a 4% increase in new contracts for FY17.

awarded the Rp15.8tr Jakarta-Bandung HSR civil works construction contract. As new contracts are peaking out this year, project execution and earnings delivery would take the spotlight. New contract trend Rp tr 163.9 157.4

180.0 160.0 140.0 120.0

5M17 new contracts

100.0

Rp tr 25.0

46%

20.0

33%

31%

15.0 19%

10.0 5.0 -

80.0 70.0

80.0

20.0 7.6 WIKA 5M16 new contracts

12.6 7.2 PTPP

13.0

14.9

WSKT

5M17 new contracts

1.6

2.3

50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0%

54.8 43.2

60.0 40.0 20.0 -

60.5

40.6 20.2 27.0

17.6 25.3

84.4

WIKA

32.1 22.6

32.6

PTPP FY14A

FY15A

WSKT FY16A

Total

FY17F*

*based on management’s target Source: Company, AllianceDBS, DBSVI

WTON

% of FY17 guidance (RHS)

*based on management’s target Source: Company, AllianceDBS, DBSVI

New contract growth trend 140% 120%

118%

117%

100%

Among the three state-owned contractors under our coverage, PTPP is guiding for the highest new contract growth of 25%, coming from a relatively low base last year where it won Rp32.6tr new contracts over the year (vs. WSKT at Rp70tr and WIKA at Rp54.8tr). WSKT announced its ambitious new contract growth of 14% to Rp80tr after more than doubling its new contracts last year. This forecast is above our expectations. WSKT has been able to secure large order books in the past two years by shifting its business model from a pure civil contractor to toll road developer. The company currently owns 18 toll road concessions through its subsidiary Waskita Toll Road. We estimate that most of the construction contracts were awarded and included in WSKT’s 2016 order book. Unlike last year where its new contract target was relatively secured, the company has to resume its toll road acquisition spree. This means that a strong and sustainable new contract growth will likely come at the expense of its balance sheet strength. In our view, this is a key negative given its already poor operating cashflow. Meanhile, WIKA expects its new contracts to decline by 21% due to the high base last year where the company was

87%

80% 60%

70% 43%

25% 21%

20% 0% -20% -40%

42%

34%

40%

40% 14%

19% 4%

3% -1% WIKA

PTPP

WSKT

Total

-21% FY14A

FY15A

FY16A

FY17F*

*based on management’s target Source: Company, AllianceDBS, DBSVI

Due to the government’s fiscal constraint, the rule of the game has changed. In the past, contractors were largely dependent on government-funded projects (with the exception of PTPP which in the past won a number of projects from private property developers), specifically infrastructure projects under Ministry of Public Works and Housing and Ministry of Transportation. Nowadays, balance sheet strength is becoming increasingly important as more big-ticket projects are implemented using the Public-Private Partnership (PPP) scheme. That said, contractors typically had to acquire equity stakes in the project to be able to win the civil work contracts.

Page 3

Industry Focus

Government-funded projects that are up for bidding remain aplenty, but are more prone to delay, especially if the state’s revenue collection falls short of target. Meanwhile, the government’s strategy to decentralise its infrastructure budget from ministries to regional government also means a smaller chance for large-scale state-owned contractors, i.e. WIKA, PTPP and WSKT, to win the projects due to their relatively small ticket size, slower execution and tighter competition against regional players. New contracts from government-funded projects

Rp76.2tr backlog contracts, of which 21% comes from the Jakarta-Bandung high-speed railway project (where WIKA has an effective stake of 23%). Meanwhile, PTPP has Rp58.1tr backlog contracts. Among the three contractors, PTPP’s order book is more diverse and least concentrated to a single or one type of project. Note that the majority of WKST’s order book are highly leveraged to toll road projects in Java while 21% of WIKA’s order book is from the Jakarta-Bandung high-speed railway project.

Rp tr

Contractors’ revenue visibility

35.0 30.0

6.1

25.0

5.1

20.0

15.6 9.9

15.0

4.0

10.0

7.9

5.0

10.9

10.7

2.7

-

2014A

2015A WIKA

WSKT

2016A PTPP

Contribution of government-funded projects* to total new contract 43%

40%

35% 31%

35%

20% 15%

15%

24% 20%

19%

21%

19%

10% 5% WIKA

WSKT 2014

PTPP 2015

Total

2016

*Excluding projects funded by SOE Source: Company, AllianceDBS, DBSVI

Record-high order book to support revenue visibility On the positive side, the three contractors under our coverage are now sitting on a record-high order book. WSKT is leading with Rp92.9tr outstanding order book supported by the greenfield toll road acquisition spree by its 70%-owned subsidiary Waskita Toll Road. In second position is WIKA with

Page 4

3.5 2.7

3.0 2.5

76.2

37.7

58.1 22.8

2.5 2.0

92.9

21.9

1.5 1.0 0.5 -

PTPP

WSKT

Outstanding order book* (LHS) Revenue FY17F (LHS) Outst. order book/revenue FY17F (RHS)

*As et end of May 2017 Source: Company, AllianceDBS, DBSVI

Land acquisition risk – same old story?

22%

20%

3.3

30%

30% 25%

(x) 4.0

WIKA

Source: Company, AllianceDBS, DBSVI

45%

Rp tr 100.0 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 -

The three contractors under our coverage recorded a strong new contract growth of 86% y-o-y in FY16. Nonetheless, execution was slower than expected, particularly in 4Q16 with combined revenue of WSKT, WIKA and PTPP (ex-property and toll road operations) in the quarter only growing by 21% y-oy, decelerating from the 40% growth booked in 9M16. The deceleration was mostly due to WIKA and PTPP, whose revenue ex-property grew by only 6% and 2% y-o-y respectively. Based on our checks, land acquisition issue remained the key hurdle as most of the contracts awarded in the past 12 months are land-intensive toll road projects. In our view, aside from technical issues, the project execution to some extent hinges on the disbursement of land acquisition funds. Our discussions with industry players suggest that land clearing process is typically faster when the funding is ready.

Industry Focus

Under the 2016 revised state budget and 2017 state budget, the government allocated Rp16tr and Rp20tr respectively to fund land acquisitions for infrastructure projects. As at the time of writing, a large part of the budget has yet to be disbursed due to bureaucratic and regulatory hurdles. As a result, toll road concession owners are asked to cover for the land costs to speed up execution. Land acquisition bailout fund from project owners Rp tr 25.0 20.0 15.0

86%

20.2

16.4 43%

35%

10.0 5.0

5.4

7.0

7.1 4.7

Jasa Marga* Total equity (LHS)

Hutama Karya** Bailout fund (LHS)

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% -

Waskita Karya*

Bailout fund/total equity (RHS)

Source: Company, AllianceDBS, DBSVI

Our discussions with project owners suggest that reimbursement will likely take time as the claim must be verified by two government agencies, Audit Board (BPK) and State’s Asset Management Agency (BLU LMAN). It is also worth noting that the budget allocation can only cover 57% of land acquisition cost estimated by Ministry of Public Work and Housing. Hence, the concession owners will likely continue to pre-finance the shortage to speed up the project execution. We have highlighted that more capital is required by contractors to grow their order books – either to acquire some stakes in the infrastructure projects they bid for or to work under semi-turnkey or turnkey projects. Given the high capital needs, the disbursement of the land acquisition budget will help to ease the cash flow burden of the project owners and allow them and the contractors to execute more projects. Projects up for bidding In our past report (Indonesia Construction: Bridging ASEAN connectivity gap through port build-out), we listed down a number of transport-based infrastructure projects in the government’s pipeline. Job opportunities remain aplenty for contractors given Indonesia’s massive need for infrastructure upgrade. We however note that funding remains a challenge

especially with fiscal deficit being capped at 3% by law. In addition, the government is no longer actively injecting capital into SOEs. Alternative funding such as Private-Public Partnership (PPP) is required to enable the project to take off, but bureaucratic bottlenecks and complexity of land acquisition issues may push these projects backward. The government may also be more active in leveraging on foreign funding in line with One Belt One Road where the JakartaBandung High Speed Rail is being financed by the China Development Bank. We narrow down our list to a number of transport-based infrastructure projects that in our view are the most plausible to be executed in the next 12 months based on our checks with contractors and project owners. Toll road – Rp80tr potential new contracts in 2017-2019 The government continues its aggressive rollout of new toll road projects although toll roads entering land acquisition or construction phases already far exceed the initial goal of 1,000 km. At the end of last year, Indonesia’s leading toll road operator Jasa Marga (JSMR) announced its plan to further expand its toll road network by another 800 km. This toll road expansion plan, if realised, will translate to c. Rp80tr worth of new jobs for contractors in 2017-2019. In our previous sector reports, we had noted that among all infrastructure projects, toll roads have shown the best progress among all of the government’s infrastructure initiatives, supported by land acquisition reform, capital injection to infra-related SOEs and given the less complex designing and civil work process. Based on our discussion with JSMR, a number of new toll roads will be rolled out in the near future. However, due to JSMR’s hefty funding needs, most of the projects will adopt contractor pre-financing (CPF) scheme (also known as “turnkey”) where contractors will only receive the payment once the toll road construction is entirely completed. We see a risk that these projects would command a lower profit margin compared to non-CPF toll road projects won in the past due to the higher working capital requirement. Port – eyes on Patimban project Port projects, on the other hand, have moved slower than our expectation. Two key issues are funding and the higher complexity of the projects, particularly on the design. Two port projects are currently in the tender process with one of them being the mega Patimban port project in West Java

Page 5

Industry Focus

worth US$3bn (c. Rp40tr). Japan will likely finance most of the projects with the loan deal expected to be signed this year. Based on our channel check, local contractors can win at least 40% of the total contract value, or approximately Rp16tr, while the remaining will likely be awarded to foreign contractors, depending on the loan term. In a recent Belt and Road Forum in Beijing, there are also two port projects offered to China for financing, namely Kuala Tanjung port and Bitung port. The projects will comprise several phases. Both ports are estimated to cost Rp34tr each. High-speed and urban railway – some changes to the initial plans The likelihood of government expanding the planned JakartaBandung high-speed railway network to Surabaya appears to be lower now. Instead, it is mulling over revitalising the existing railway by building an elevated track. Nevertheless, the potential new order book from this railway revitalisation project would still be sizeable at Rp80tr.

On the subsequent page, we present our new contract estimates after taking into account the contribution from the central government’s annual capex spending. New contracts – what can surprise on the upside? For power plant projects, competition is tighter as state-owned contractors also compete with private players, both from local and foreign countries. As at end of December 2016, only power plants with total capacity of 14.6 GW were still in the initial phase (planning and procurement). Assuming US$1.5m investment per megawatt, this would translate to potential new contracts of Rp291.9tr. However, a big chunk of the investment is related to EPC while for the civil works, the size is typically less than 30% of the total investment. Given the high complexity of power plant projects and intense competition from more experienced foreign EPC players, we only take into account the civil works with 50% winning rate for the three contractors. An increase in winning rate is possible if the contractors actively participate as an equity investor in the power plant projects. Progress of 35 GW programme (as at end of 2016)

The plan to build an LRT in Bandung was also called off. Based on our checks, the project will likely be replaced by metro capsule which has a lower investment cost (c. Rp1tr). Meanwhile, there has been a discussion on LRT development in Surabaya. A feasibility study for the project is currently taking place, however the contract size is estimated to only reach Rp3.8tr. Another urban railway project scheduled to start this year is MRT phase 2. The MRT track will be entirely underground and span 14 km from Hotel Indonesia Roundabout to Ancol. The project is estimated to cost at least Rp22.5tr. Note that WIKA has constructed 15% of the underground portion for the current Jakarta MRT line and should be a front runner for this portion. We expect 2018 new contracts to start declining. New contracts of the big three state-owned contractors have surged from a mere Rp60.5tr in FY14 to Rp157.3tr in FY16, supported by higher government infrastructure spending, both through ministerial spending and the multiplier of capital injection to SOEs. In 2017, the big three state contractors only guided for a 4% y-o-y growth after almost doubling their new contracts y-o-y in 2016. With the government being less active in injecting capital into SOEs and given that the contractors already have a sizable outstanding order book to be delivered over the next 1-2 years, we think a further surge in new contracts is less likely.

Page 6

Operational, 707

Start Planning, 5,824

Construction, 10,291 Procurement, 8,810 Power Purchase Agreement, 10,063

Source: PLN

Industry Focus

We also note that there are a number of refinery projects with estimated total investment of Rp596tr listed as the government’s priority projects. These projects are overseen by a special committee called KPPIP (Committee for Acceleration of Priority Infrastructure Delivery which reports directly to President. We have yet to include the potential contracts from these projects while awaiting more clarity on the project funding. Recently, Pertamina announced its plan to delay the project completion to after 2020 due to financing issues.

Potential new contracts from 35 GW programme Ca p a c i ty (M W) Planning

5,824

Procurement To ta l

8,810 1 4 ,6 3 4

Ke y a s s u mp ti o n s : Investment (USD/mn)

1.50

Civil work portion

25%

USDIDR

13,300

Potential new contract (Rp bn)

72,987

Big 3 state-owned contractors' winning rate Po te n ti a l n e w c o n tra c t fo r b i g 3 s ta te -o wn e d c o n tra c to rs (R p b n )

Given the high complexity of the refinery projects, we think only a small part of the contract size can be awarded to the listed state-owned contractors. If this projects go through, we believe the contract can provide potential upside to WIKA, which has better experience in refinery projects compared to PTPP and WSKT.

50% 3 6 ,4 9 4

Co n tra c t a wa rd e d p e r a n n u m a s s u mi n g : 3 years contract award (Rp bn)

12,165

2 years contract award (Rp bn)

18,247

Source: PLN, AllianceDBS, DBSVI

New contracts from government-funded projects

Go ve rnm e nt -funde d ne w co nt ra ct s (Rp bn) 2014A

2015A

2016A

2017F

2018F

2019F

WIKA

2.7

10.7

10.9

10.6

11.1

11.8

WSKT

7.9

9.9

15.6

15.2

15.9

16.9

PTPP

4.0

5.1

6.1

5.9

6.2

6.6

1 4 .6

2 5 .7

3 2 .7

3 1 .7

3 3 .3

3 5 .4

To ta l n e w c o n tra c ts Growth y-o-y

75%

27%

-3%

5%

6%

160.8

252.8

206.6

194.3

201.8

211.9

1 3 8 .3

2 0 9 .0

1 6 6 .4

1 6 1 .4

1 6 9 .5

1 8 0 .1

86%

83%

81%

83%

84%

85%

Budget

57%

-18%

-6%

4%

5%

Actual

51%

-20%

-3%

5%

6%

Actual t-1 vs. budget

83%

-1%

17%

25%

25%

Gov't capex budget Go v't c a p e x s p e n d i n g Actual spending/budget Gov't capex growth y-o-y

WI KA, WSKT a n d PTPP's ma rke t s h a re *

11%

12%

20%

20%

20%

20%

* New contracts of WIKA+WSKT+PTPP / gov't capex spending Source: Company, AllianceDBS, DBSVI

Page 7

Industry Focus

Identifiable projects in 2017F – 2018F Investment (Rp bn)

Project

Location

Jasa Marga's toll road expansion plan

Indonesia

80,000

Toll road

Railway Bandung-Surabaya railway revitalisation

West Java, East Java

80,000

Bandung Metro Capsule

West Java

1,000

Surabaya LRT

East Java

3,800

Jakarta

3,375

West Java

7,052

North Sumatra

3,200

Indonesia

18,247

Indonesia

33,281

Jakarta MRT Phase 2*

Port Patimban Port Stage 1 Phase 1* Kuala Tanjung Port Phase 2*

Power 2018F

Government-funded projects 2018F state budget

Total

229,955

2018F new contract assuming two years of contract award

149,955

New contracts FY15A

84,380

FY16A

157,337

FY17F

159,787

FY18F

149,955

New contract growth y-o-y FY16A

86%

FY17F

2%

FY18F

-6%

* Civil work portion only Source: Company, various media sources, AllianceDBS, DBSVI

Page 8

Industry Focus

On to the next catalysts 4)

2018 Fiscal Budget proposal (August 2017) The government is scheduled to submit the budget proposal to parliament in August 2017. The amount the government allocates for infrastructure development and state-owned enterprises (if any) will be important to gauge the direction of contractors’ order book growth in 2018.

PTPP’s 2Q17 earnings release After recording a weaker-than-expected construction revenue in the past two consecutive quarters mainly due to land acquisition issue, 2Q17 will be an important quarter to regain investor’s confidence on PTPP’s ability to execute its large outstanding order book. In May 2017 analyst briefing, the management assured investors that the revenue should catch up in 2Q17 with a target revenue of Rp10tr in 1H17. This implies Rp7.1tr revenue target in 2Q17 vs. Rp2.9tr achieved in 1Q16.

5)

Waskita Toll Road divestment WSKT plans to further divest its stake, while Waskita Toll Road also plans to sell 3-4 toll roads this year. The contractor has shifted its business model to become a toll road developer, which is highly capital intensive. While the impact on WSKT will depend on the toll road’s valuation, the divestment proceeds should help to ease WSKT’s cash flow burden.

Jasa Marga’s securitisation and subsidiary IPO plan JSMR is planning to expand its toll road network up to 800 km by 2019, on top of the c. 600 km greenfield toll roads in its existing pipeline. Due to the hefty investment needed, any fund-raising activities, particularly the securitisation of its mature toll roads and divestment of its subsidiaries, will help to ensure that its existing and upcoming pipelines can be executed timely.

6)

Patimban port The location of Patimban port has been approved by the government. More clarity on the project should come after the signing of the loan commitment from Japan, which is expected to take place in July 2017. The tender of the project is ongoing. Based on our checks, two contractors under our coverage, PTPP and WIKA, are vying for the project.

7)

Jakarta-Surabaya railway revitalisation Given the sizeable project size, that is Rp80tr or approximately 51% of the combined FY16 new contract achievement of WIKA, PTPP and WSKT, more clarity on the project would be positive catalyst for the sector.

Below we highlight five upcoming events and two mega projects that will likely become the key catalysts for the sector and the individual companies. 1)

2)

3)

CDB loan disbursement for Jakarta-Bandung high-speed railway (HSR) project The construction of Jakarta-Bandung HSR has come to a halt after the groundbreaking ceremony in January 2016 due to prolonged delay on financial close. The loan agreement was finally signed in May 2017. Nonetheless, the disbursement will be pending the verification of land acquisition progress by an independent auditor. WIKA, which leads the local consortium for the project, expects the loan to be disbursed and the construction works to resume in July 2017. The resumption of the project will be positive for both WIKA and WTON.

Page 9

Industry Focus

What is consensus expecting?

Valuation and recommendation

Consensus is expecting 47% y-o-y revenue growth in FY17 for the big three state-owned contractors with net profit growing slower at 33% y-o-y. As a comparison, the big three stateowned contractors booked 34% y-o-y revenue growth and 54% headline net profit growth in FY16.

Construction sector’s 12-month forward PE 30 +2sd

25

+1sd

20

Current consensus’ earnings forecasts imply an expectation that consolidated EBIT and net margin would shrink in FY17. A similar trend was also implied on consensus’ 2018 earnings forecast. We believe this is because the consensus expects competition among contractors to tighten, coupled with higher financing needs. The magnitude of net margin decline in 2017 based on consensus expectation is the largest on WSKT, followed by WIKA.

Source: Bloomberg Finance L.P, AllianceDBS, DBSVI

Consensus’ 2017 net profit revision

Construction sector’s 12-month forward PE relative to JCI

‐1sd

10 ‐2sd

28%

Jan-17

Apr-17

Jul-16

Oct-16

Jan-16

Apr-16

Jul-15

Oct-15

Jan-15

Apr-15

Jul-14

Oct-14

Jan-14

Apr-14

Jul-13

Oct-13

Jan-13

Apr-13

Jul-12

Oct-12

Jan-12

Apr-12

5

30

35%

40% 30%

27%

25

25%

20% 10%

20%

16%

20

15%

15%

0% -10%

15

10%

-20%

6%

Source: Bloomberg Finance L.P

Jul-16

Jan-16

Apr-16

Oct-15

Jul-15

Apr-15

Jan-15

Jul-14

Oct-14

Post 1Q17 results

Jan-14

-60%

Apr-14

Post FY16 audited results

-50%

Oct-13

YTD

5

-6%

-10% Past 12 months

WTON

Jul-13

PTPP -3%

Jan-13

WIKA

-40%

Apr-13

WSKT

-5%

-0.2%

10

Jul-12

0%

3% -1%

Oct-12

1%

1%

-30%

0%

Jan-12

5%

Apr-12

30%

Avg.

15

Construction PE premium to JCI (RHS)

Construction PE

JCI PE

Avg. construction PE premium to JCI (RHS)

Source: Bloomberg Finance L.P, AllianceDBS, DBSVI

Consensus’ 2018 net profit revision We are turning Neutral on Indonesia’s construction sector from Positive previously. The sector’s PE multiple has derated significantly in the past few months. However, we do not see any significant catalyst that will support a broad-based upward re-rating in the near future.

40% 28%

30%

17%

20%

14%

12%

10%

5% 1%

0% WSKT

WIKA

3%

-4% -1% PTPP -1%

WTON

-10% -20%

-18% Past 12 months

YTD

Post FY16 audited results

Source: Bloomberg Finance L.P

Post 1Q17 results

We expect new contract growth to decelerate in the coming months and we think government-funded projects are unlikely to provide significant upside potential to our order book forecasts as the government continues to decentralise infrastructure development. As the government seeks funding alternatives and push the PPP scheme, capital requirement to win a project will continue to rise up to the point where contractors have to choose between growing their order books (at the expense of higher interest expense and margins) or coping with a declining order book. We like PTPP due to its attractive valuation and promising growth outlook. The company now trades at 0.34x EV/order

Page 10

Industry Focus

book, lower than WSKT at 0.61x. It is also worth noting that PTPP has a smaller capex commitment compared to WSKT, and a relatively less leveraged balance sheet to support its future earnings and new contract growth. We forecast PTPP’s net profit to grow at a CAGR of 27% in 2016A-2018F. While WIKA’s EV/order book multiple is on par with PTPP, it is now trading at 17.5x 17F PE (vs. PTPP at 15.4x 17F PE). Given the higher PE multiple and downside risk on earnings, we prefer to wait for the Jakarta-Bandung HSR progress to accelerate before turning more positive on the stock.

Where we differ We are less bullish on the sector compared to the street, particularly on WIKA and WSKT. The consensus Buy call on all listed state-owned contractors (refer to the table below) suggests that a broad-based execution improvement is expected to lift the share prices of all state-owned contractors. On the contrary, given the peaking new contract growth and differing risk profile among the contractors, we believe selective investing in the sector is the best approach. DBS vs. consensus’ recommendation

As work on the projects commence, WTON is in a sweet spot as it starts to receive new orders from contractors/project owners. We view WTON as a good proxy to the infrastructure sector given its strong presence across Indonesia. EV/order book 0.70

0.61

0.60

80.0

0.50

0.41 60.0

0.40

56.8

0.34

0.26

40.0

0.30 0.20

20.0 76.2

20.0

WIKA

58.1

19.9

PTPP

Outstanding order book* (LHS)

0.10

92.9

-

WSKT EV** (LHS)

Avg. EV/outst. order book* (RHS)

*As at end of March 2017; ** As of 5 July 2017 Source: Company, AllianceDBS, DBSVI

1.40

1.28

1.00

0.83

0.80 0.54

0.47 0.32

0.40

-0.20

SELL

DB S' re c o mme n d a ti o n

25 29 25 14

7 0 4 1

0 0 0 1

HOLD BUY HOLD BUY

-0.08 WIKA

Our FY17 net profit forecasts for WIKA and WSKT are one of the lowest on the street. We have a HOLD call among consensus Buy calls on both companies. WIKA. WIKA’s FY17 net profit largely depends on the construction progress of Jakarta-Bandung high-speed railway. Assuming 6.3% net margin and 37% progress for FY17, the project (ex-precast) should contribute Rp183bn net profit to WIKA or 30% of management’s net profit target for FY17. We see downside risk on WIKA’s net profit given that the construction work is expected to resume only in July 2017.

WSKT. Our net profit forecasts for WSKT are 9%/27% lower relative to consensus as we have factored in potential start-up losses from its toll road business.

1.20

0.00

HO LD

Our FY17 net profit forecast for WIKA is 9% lower than consensus as we expect higher capital requirement and debt to support its new contract and earnings growth.

Gross and net gearing*

0.20

32 29 29 16

B UY

(x)

100.0

0.60

WIKA PTPP WSKT WTON

Co n s e n s u s ' re c o mme n d a ti o n

Source: AllianceDBS, DBSVI, Bloomberg Finance L.P.

Rp tr

-

No . o f a n a l ys t

0.25

Summary of net profit forecast changes F Y 17F net prof it O ld

-0.16 PTPP

WSKT

-0.40 Gross gearing

*As at end of March 2017 Source: Company, AllianceDBS, DBSVI

Net gearing

WTON

New

F Y 18F net prof it

Change

Old

New

Change

WSKT

1,824

2,168

19%

1,745

2,209

27%

WIKA

1,111

1,140

3%

1,530

1,595

4%

PTPP

1,331

1,341

1%

1,645

1,644

0%

366

366

0%

418

418

0%

4,632

5,016

8%

5,338

5,865

10%

WTON A ggregat e

Source: AllianceDBS, DBSVI

Page 11

Industry Focus

Summary of recommendation and TP changes T arget Price Old

New

Rec ommendat ion

Change

WSKT

2,950

2,400

-19%

Maintain Hold

WIKA

2,780

2,050

-26%

Maintain Hold

PTPP

4,950

4,100

-17%

Maintain Buy

WTON

1,050

760

-28%

Maintain Buy

Source: AllianceDBS, DBSVI

DBS’s net profit forecast relative to consensus 1.20 1.00 0.80

1.05 0.92

0.91

0.99 0.96

0.99

0.94

0.73 FY17F

0.60

FY18F

0.40 0.20 WSKT

WIKA

PTPP

WTON

Source: AllianceDBS, DBSVI, Bloomberg Finance L.P

Key risks Delay in project execution due to technical, land acquisition and funding issues, and bureaucratic hurdle. Tax revenue shortfall. The government has set a target to increase tax revenue by 17% this year to Rp1,499tr. Failure to meet this target could lead to spending cuts and delays in project execution. Political headwinds. Conflicting interest between government and opposing parties may impede reform momentum. A case in point is the delay in SOE capital injection last year. Tightening competition among contractors, especially in 2018 where we project aggregate new contracts to decline. This may lead to a drop in margins. Further slowdown in property sector. PTPP, and to a lesser extent WIKA, have exposure to the property sector.

Page 12

Industry Focus

Valuation summary M a rk e t C ap

P ric e

R ec.

( ID R bn) HOLD

TP

D ilut e d P E ( x)

P / B ( x)

EV/ E B IT D A ( x)

R OA E

EP S C A GR

EV/

N et

o rde r bo o k **

G e a ring ( x)

( ID R )

F Y 17

F Y 18

F Y 17

F Y 18

F Y 17

F Y 18

F Y 17

F Y 18

F Y 16 A - 18 F

2,050

17.5

12.5

1.6

1.5

9.1

7.4

10%

12%

6%

0.26

Net Cash

Wijaya Karya

19,913

2,270

P T P P (P ersero )

20,646

3,330

B UY

4,100

15.4

12.6

1.9

1.7

8.6

7.4

13%

14%

12%

0.34

Net Cash

Waskita Karya

30,813

2,270

HOLD

2,400

14.2

13.9

2.4

2.1

13.0

12.4

18%

16%

14%

0.61

0.83

A dhi Karya*

7,763

2,180

N/R

N/A

12.8

8.8

1.3

1.1

Wijaya Karya B eto n

5,273

605

B UY

760

14.4

12.6

1.9

1.7

8.4

7.4

14%

15%

24%

1.07

0.25

S im ple a v e ra ge

14 .8

12 .1

1.8

1.6

9 .7

8 .7

14 %

14 %

We ight e d a v e ra ge

15 .1

12 .7

2 .0

1.7

9 .5

8 .6

13 %

13 %

*Non-rated; based on Bloomberg consensus **Order book as at end of May 2017 Source: AllianceDBS, DBSVI, Bloomberg Finance L.P

Page 13

Industry Focus

Company Guides

Page 14

Indonesia Company Guide

Waskita Karya Refer to important disclosures at the end of this report

Version 6 | Bloomberg: WSKT IJ | Reuters: WSKT.JK

DBS Group Research . Equity

5 Jul 2017

HOLD

Further fund raising needed

Last Traded Price ( 5 Jul 2017): Rp2,270 (JCI : 5,865.40) Price Target 12-mth: Rp2,400 (6% upside) (Prev Rp2,950) Analyst Chong Tjen-San +60 3 26043972 [email protected] Tiesha PUTRI +6221 30034931 [email protected]

What’s New 

Funding risk reduced post sale of stake in Waskita Toll Road but further fund raising required



Maintain HOLD with a lower SOP-based TP of Rp2,400



Toll road divestment is key catalyst

Where we differ. We are one of the few houses in the market with a HOLD call compared to Buy calls on the stock. Our earnings forecast for FY17F/FY18F are 8%/27% below consensus as we have factored in potential start-up losses from WSKT’s toll road business. We are also concerned on its persistent negative operating cash flow arising from increasing contribution of turnkey projects. We believe consensus may be over estimating the ease of further equity raising to fund its toll road expansion. This is especially in light of diminishing prospects of more capital injections by the government.

Price Relative

Forecasts and Valuation FY Dec (Rp m) Revenue EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) Net Pft Gth (Pre-ex) (%) EPS (Rp) EPS Pre Ex. (Rp) EPS Gth Pre Ex (%) Diluted EPS (Rp) Net DPS (Rp) BV Per Share (Rp) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%)

2015A 14,153 2,041 1,398 1,048 955 90.4 77.2 70.4 35 77.2 15.4 703 29.4 32.3 46.8 16.4 0.7 3.2 0.3 17.0

Earnings Rev (%): Consensus EPS (Rp): Other Broker Recs:

2016A 23,788 3,527 2,481 1,713 1,713 79.4 126 126 79 126 25.2 816 18.0 18.0 nm 14.5 1.1 2.8 0.9 16.6

2017F 37,666 5,332 3,688 2,168 2,168 26.6 160 160 27 160 32.0 950 14.2 14.2 nm 13.0 1.4 2.4 1.7 18.1

2018F 49,997 6,674 4,113 2,209 2,209 1.9 163 163 2 163 32.5 1,081 13.9 13.9 nm 12.4 1.4 2.1 2.1 16.0

7 N/A B: 25

19 181 S: 0

27 230 H: 4

Source of all data on this page: Company, AllianceDBS, DBSVI, Bloomberg Finance L.P

ASIAN INSIGHTS ed: JS / sa:MA, PY

Funding risk reduced post sale of stake in Waskita Toll Road but further fund raising is needed. Waskita Karya (WSKT) has shifted to a more capital-intensive business model with 18 toll road concessions in its portfolio (of which 10 concessions are majority owned by WSKT through Waskita Toll Road or WTR). Hefty funding will be required to keep growing its order book and earnings at the current pace. WSKT recently raised Rp3.5tr cash through a 29% stake sale in WTR to SMI and a state-owned pension fund Taspen. We view this positively as it would help to reduce funding concerns and ease potential start-up losses. Nonetheless, further fund raising or divestments would be needed. Post divestment to Taspen and SMI, we estimate that WSKT would still need more than Rp7.2tr cash to fund its equity portion for its toll road concessions over the next three years.

Potential catalysts. WSKT plans to further divest its stake in WTR, while its subsidiary Waskita Toll Road also plans to sell 3-4 toll roads this year. While the impact on WSKT will depend on the toll road’s valuation, divestment proceeds should help to ease WSKT’s cash flow burden. Valuation: We valued WSKT’s construction business at 10x FY17F EPS (1.5SD below sector historical mean PE), precast business at 15x FY17F EPS and toll road concessions using the DCF method. Our sum-of-the-parts TP of Rp2,400 implies 15x FY17F PE. Key Risks to Our View: Failure to divest its toll roads could result in lower earnings and an overstretched balance sheet. At A Glance Issued Capital (m shrs) Mkt. Cap (Rpbn/US$m) Major Shareholders (%) Republic of Indonesia Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Industrials / Construction & Materials

13,574 30,813 / 2,306 68.0 32.0 2.7

VICKERS SECURITIES

Company Guide Waskita Karya

WHAT’S NEW Cutting TP to Rp2,400; further toll road divestment is key catalyst Order book at record high, boosting its revenue visibility to 2.5 years. We estimate WSKT’s outstanding order book stood at Rp92.9tr as at end of May 2017 after winning Rp14.9tr worth of new contracts in 5M17. WSKT’s sizeable backlog which mainly comprises of Trans Java toll roads and Palembang LRT offers revenue visibility for 2.5 years. Revised up new contract assumptions and earnings. Due to the strong new contract flows in 4Q17, we raised our FY17F new contract assumption to Rp78tr (from Rp40tr previously). With a higher order book, we revised up our FY17F/FY18F net profit by 19%/27%. Despite the upward revision, our earnings forecast for FY17F/FY18F are 8%/27% below consensus as we have factored in potential start-up losses from WSKT’s toll road business. Cutting TP to Rp2,400. We updated our sum of parts (SOP) valuation, resulting in a lower TP of Rp2,400, from Rp2,950 previously. We value WSKT’s ex-precast and toll road business at 10x PE 17F (1.5SD below sector’s historical mean). Our PE multiple is at discount to sector’s historical mean PE given the nature of WSKT’s business where the big chunk of the construction earnings can only be converted to cash upon the divestment of its toll road concession.

because of its smaller geographical presence, less extensive product range and narrower clientele. Lastly, we value WSKT’s toll road concessions using DCF. We apply 10% WACC and 0% long-term growth as we run our DCF until the end of the concession period. Note that we have yet to take into account WSKT’s five newly acquired toll roads into our calculation i.e. Kuala Tanjung – Tebing Tinggi – Parapat (143 km), Cileunyi – Sumedang – Dawuan (60 km), Cibitung – Cilincing (35 km), Krian – Legundi – Blunder – Manyar (38 km) and Kaya Agung – Palembang – Betung (112 km), as we await more details on these concessions. Looking beyond this year’s strong earnings outlook. We maintain our Hold call on WSKT. We think the stock is fairly valued at current price, trading at 14.2x 17F PE with net profit CAGR of 14% in 2016-2018F. Despite the strong earnings growth outlook this year (we forecast 27% net profit growth in FY17F), we reserve our concern over the company’s cash flow generation and its high capex commitment to fund its toll road concessions. We believe hefty funding is needed to keep growing its order book and earnings at the current pace. Further divestment of its toll road concession at a favourable price is key catalyst for the stock.

We pegged Waskita’s precast business, WSBP, at 15x PE FY17F, a 20% discount to our target multiple for Wijaya Karya Beton (WTON). We think the discount is justified Gearing trend and forecasts

Operating cash flow and capex trend and forecasts Rp bn

(x)

20,000

2.50 13,983

15,000

10,661

10,000

7,086

5,000 0 (5,000)

(89)

1,210

2014A

(10,000)

2.00

1.00

658 2015A

2016A

(7,762) Operating cash flow

1.50

1.50

6,261

2017F (3,201)

2018F (1,747)

1.68

1.84

2.05 2.10

1.14 0.83

0.54

0.50

0.87

0.26

2014A

2015A Net gearing

Capex

Source: Company, AllianceDBS, DBSVI

2016A 2017F Gross gearing

2018F

Source: Company, AllianceDBS, DBSVI

WSKT’s sum of parts (SOP) valuation Equity value (Rp bn)

WSKT's effective ownership

Equity value (adj. to ownership)

Equity value per share

% of TP

Remarks

WSKT ex-precast and toll road business

18,118

100%

18,118

1,335

56%

Based on target PE of 10x; -1.5SD below sector historical mean

Precast (WSBP IJ)

14,389

60%

8,633

636

27%

Based on target PE of 15x

395

16%

DCF; 10% WACC

Toll road (WTR)

5,366

Target price (Rp/share) Implied PE 17F (x)

2,400 15.0

Source: AllianceDBS, DBSVI

ASIAN INSIGHTS Page 16

VICKERS SECURITIES

Company Guide Waskita Karya

Earnings revision 2017F

Revenue

Old

New

32,055

37,666

2018F % change 18%

Old

New

37,900

49,997

% change 32%

Gross profit

4,687

6,111

30%

5,381

7,699

43%

EBIT

3,767

4,932

31%

4,281

6,141

43%

Net Profit

1,824

2,168

19%

1,745

2,209

27%

GP margin (%)

14.6

16.2

14.2

15.4

EBIT margin (%)

11.8

13.1

11.3

12.3

Net margin (%)

5.7

5.8

4.6

4.4

New contracts (Rp bn) Cum. order book (Rp bn) Net interest exp.

40,000

78,000

95%

25,000

67,939

172%

116,219

155,514

34%

114,361

184,788

62%

641

1,245

94%

783

2,029

159%

Source: AllianceDBS, DBSVI

ASIAN INSIGHTS

VICKERS SECURITIES Page 17

Company Guide Waskita Karya

CRITICAL DATA POINTS TO WATCH

New Contract Wins (Rp bn)

Critical Factors A shift in business model. Following the toll road acquisition spree over the past two years, WSKT has shifted its business model to become more of a toll road developer from a pure civil contractor previously. The company would continue to acquire greenfield toll road concessions in the foreseeable future, build them and divest the stakes after the construction is completed to free up capital. This way, it would be able to secure profit in a shorter time span compared to if it operates the toll roads over the concession period on its own, as the company would be able to reap gains from both the civil work (during construction phase) and the asset divestment. Its subsidiary Waskita Toll Road is the majority stakeholder for nine toll road concessions in Java and one in Sumatra with a total investment value of Rp65tr. It also owns minority stakes in eight other toll road concessions. All eyes on toll road divestment. The change in business model makes toll road divestments crucial for WSKT given the high capital requirements to build the toll roads. Assuming a capital structure of 70% debt and 30% equity for its toll roads, we estimate that WSKT would need to raise Rp7.2tr cash over the next three years to fund its equity stakes. With the current shareholding structure of Waskita Toll Roads, we estimate WSKT would have to raise debt by c.Rp25tr. This would further exacerbate its weak operating cash flow position. Given the potential surge in interest expense, its earnings outlook could be at risk. We believe toll road divestments will remain a key focus from 2017 onwards. New wins from government or external parties. The award of new contracts had been a key positive driver of WSKT’s share price. This was evident where the strong growth in new contracts in 2015-2016 drove the shares’ outperformance in the same period. However, we think the concern over the sustainability of its new contract wins has outweighed the excitement over its recent new contract wins, especially since most of the growth in its order book has been driven by its internal toll road projects instead of the government or external projects. Note that internal toll road projects are riskier in nature as the profit would only fully translate into cash upon the divestment of the concessions – a process that would likely take additional time. This has caused WSKT’s share price to underperform the market despite the company’s relatively strong new contract and earnings growth (refer to Appendix 1) in the past few months.

ASIAN INSIGHTS Page 18

Carry Over Contract (Rp bn)

Construction Gross Margin (%)

Source: Company, AllianceDBS, DBSVI

VICKERS SECURITIES

Company Guide Waskita Karya

Appendix 1: A look at the company's listed history – what drives its share price? WSKT share price vs. peers* WSKT share price (LHS)

3,000

Dec 18, 2012 = 1.0

WSKT share price vs. peers* (RHS)

2.5

E

2,500

C

2,000

2.0

B

1,500

1.5

D

A

1.0 1,000 0.5

500 0 Dec-12

Jun-13

Dec-13

Jun-14

Dec-14

Jun-15

Dec-15

Jun-16

-

Dec-16

*Based on the average return of the listed state-owned contractors Source: Company, AllianceDBS, DBSVI

A: Rupiah fluctuation WSKT’s share price was hit by concerns over profitability after the sharp depreciation of Rupiah in mid-2013. Investors saw infra project’s cost overrun as a key risk, which could lead to a decline in contractors’ profitability. The risk was deemed higher on WSKT as it was more reliant on government contracts compared to peers.

WSKT’s share price vs. growth in new contracts 3,000

200%

2,500

150%

2,000

100%

1,500

50%

1,000

0%

500 -

13,000 12,000 11,000 10,000 9,000 8,000

Dec-16

Mar-17

Jun-16

Sep-16

Dec-15

Mar-16

Jun-15

Sep-15

Dec-14

Mar-15

Jun-14

Sep-14

Dec-13

Jun-13

WSKT share price (LHS)

15,000 14,000

Mar-14

16,000

Sep-13

Dec-12

900 800 700 600 500 400 300 200 100 0

Mar-13

WSKT’s share price vs. Rupiah

WSKT share price (LHS)

-50%

T12M new contract growth y-o-y (RHS)

Source: Company, AllianceDBS, DBSVI, Bloomberg Finance L.P.

C: Earnings momentum The company delivered strong earnings in 1H16, fueled by enlarged capital post rights issue. In addition, strong earnings momentum (with consensus upgrading earnings forecasts by 43% in the same period) led to a rally in its share price.

USDIDR (RHS)

Source: Bloomberg Finance L.P.

B: Share price moved in line with new contract growth WSKT’s new contracts grew strongly by 70% y-o-y in FY16, outperforming its peers, PT PP (PTPP) and Wijaya Karya (WIKA), whose new contracts were flat y-o-y.

WSKT’s share price vs. consensus’ earnings forecasts 3,000 2,800 2,600 2,400 2,200 2,000 1,800 1,600 1,400 1,200 1,000

190 170 150 130 110 90 70 50

WSKT share price (LHS)

Consensus EPS 16F (RHS)

Consensus EPS 17F (RHS)

Source: Bloomberg Finance L.P.

ASIAN INSIGHTS

VICKERS SECURITIES Page 19

Company Guide Waskita Karya

D: Fiscal revenue and state budget. The government’s plan to cut spending in 2016 following weak revenue collection caused state-owned contractors’ share price, including WSKT, to de-rate. WSKT and construction sector return vs. JCI Dec 18, 2012 = 1.0

7.0 6.5 6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Sector performance relative to JCI

WSKT's share price return relative to JCI

Source: Company, AllianceDBS, DBSVI

E: Concern over cash flow and balance sheet capacity appears to be the reasons that halted WSKT’s share price rally in the past one year. WSKT’s share price return relative to JCI vs. free cash flow Rp bn 7.0

10,000

6.0

5,000

5.0

0

4.0

(5,000)

3.0

(10,000)

2.0

(15,000)

1.0 Dec-12

(20,000) Dec-13

Dec-14

Dec-15

WSKT's share price return relative to JCI

Dec-16 FCFE (RHS)

Source: Company, AllianceDBS, DBSVI

ASIAN INSIGHTS Page 20

VICKERS SECURITIES

Company Guide Waskita Karya

Leverage & Asset Turnover (x)

Balance Sheet: Further fund raising needed. As at end-March 2017, WSKT had a net debt of Rp6.7tr, translating to gross and net gearing of 1.28x and 0.83x respectively. We expect its debt to rise as the company extends its business model to include the capitalintensive toll road operating business and expansion of its precast business. Management has budgeted Rp32tr capex this year, most of which is for toll road expansion. Share Price Drivers: Award of large-sized infrastructure contracts. The award of large-sized, multi-year projects will improve WSKT’s revenue and earnings visibility, and ultimately lead to an upward rerating of its share price.

Rpbn

Capital Expenditure

Toll road divestment. After divesting a 29% stake in Waskita Toll Road to SMI and Taspen, WSKT is planning to raise more funds by further divesting its stakes in WTR and conducting rights issue. Both corporate actions are targeted to take place this year and are crucial for WSKT given its high capex needs. Key Risks: Persistently weak operating cash flow. We have yet to see positive operating cash flows at WSKT despite strong contract wins last year. Its venture into the toll road operating business could also deteriorate WSKT’s operating cash flow during the early years of operations. As such, its balance sheet could remain stretched, forcing it to make another rights or bond issue in the future. Delay in toll road divestment. A delay in toll road divestment would be negative for WSKT. As it continues to acquire new greenfield toll road concessions to grow its order book, a timely fund raising is needed to make sure that the projects do not stall due to cash flow constraints.

ROE (%)

Forward PE Band (x)

Company Background PT Waskita Karya Tbk (WSKT) is a state-owned contractor engaged in a wide variety of construction activities including toll roads, bridges, ports and buildings. It is the most leveraged proxy to the Indonesian construction sector, deriving c. 95% of its revenues from construction. PB Band (x)

Source: Company, AllianceDBS, DBSVI

ASIAN INSIGHTS

VICKERS SECURITIES Page 21

Company Guide Waskita Karya

Key Assumptions FY Dec New Contract (Rp bn) Carry Over Contr. (Rp bn) Construction GPM (%) Precast Gross Margin (%) Toll road start-up losses Segmental Breakdown FY Dec Revenues (Rpbn) Construction Building rentals/Property Precast Energy Others Total Gross Profit (Rpbn) Construction Building rentals/Property Precast Energy Others Total Gross Profit Margins (%) Construction Building rentals/Property Precast Energy Others Total Income Statement (Rpbn) FY Dec Revenue Cost of Goods Sold Gross Profit Other Opng (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net Profit before Except. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x)

2014A

2015A

2016A

2017F

2018F

22,625 10,516 10.1 18.2

32,084 19,746 13.0 15.9

69,974 34,049 16.1 22.2

78,000 77,514 15.0 20.0 (287)

67,940 116,849 14.0 19.0 (1,282)

2014A

2015A

2016A

2017F

2018F

9,484 0.30 803 0.0 0.0 10,287

12,052 0.60 2,069 0.0 31.8 14,153

22,373 46.8 1,149 1.80 218 23,788

30,120 46.8 7,219 0.0 280 37,666

40,340 46.8 8,862 0.0 748 49,997

963 0.30 146 0.0 0.0 1,109

1,561 0.60 328 0.0 0.0 1,889

3,591 17.7 255 1.70 102 3,968

4,518 17.7 1,444 0.0 131 6,111

5,648 17.7 1,684 0.0 350 7,699

10.1 99.7 18.2 N/A N/A 10.8

13.0 100.0 15.9 N/A 0.0 13.4

16.1 37.9 22.2 94.9 46.8 16.7

15.0 37.9 20.0 N/A 46.8 16.2

14.0 37.9 19.0 N/A 46.8 15.4

2014A

2015A

2016A

2017F

2018F

10,287 (9,178) 1,109 (431) 678 20.5 197 (140) 0.0 756 (254) 0.30 0.0 502 502 934

14,153 (12,232) 1,921 (518) 1,403 159 10.1 (267) 92.8 1,398 (350) 0.10 0.0 1,048 955 2,041

23,788 (19,821) 3,968 (788) 3,180 103 (7.4) (795) 0.0 2,481 (667) (99.8) 0.0 1,713 1,713 3,527

37,666 (31,555) 6,111 (1,179) 4,932 0.0 0.0 (1,245) 0.0 3,688 (1,019) (500) 0.0 2,168 2,168 5,332

49,997 (42,298) 7,699 (1,558) 6,141 0.0 0.0 (2,029) 0.0 4,113 (888) (1,016) 0.0 2,209 2,209 6,674

6.2 27.3 18.9 36.3

37.6 118.5 106.9 90.4

68.1 72.9 126.6 79.4

58.3 51.2 55.1 26.6

32.7 25.2 24.5 1.9

10.8 6.6 4.9 19.7 4.7 8.2 20.0 4.8

13.6 9.9 7.4 17.0 4.9 7.8 20.0 5.3

16.7 13.4 7.2 16.6 3.7 7.1 20.0 4.0

16.2 13.1 5.8 18.1 3.0 6.9 20.0 4.0

15.4 12.3 4.4 16.0 2.4 7.5 20.0 3.0

Revenue contribution from toll road operation business.

Source: Company, AllianceDBS, DBSVI

ASIAN INSIGHTS Page 22

VICKERS SECURITIES

Company Guide Waskita Karya

Quarterly / Interim Income Statement (Rpbn) FY Dec 1Q2016 2Q2016 Revenue Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. EBITDA

3Q2016

4Q2016

1Q2017

3,072 (2,552) 520 58.2 578 (151) (35.2) (132) 0.0 260 (136) 3.20 127 127 447

5,013 (4,043) 970 (143) 827 (1.5) 27.4 (190) 0.0 663 (205) 0.80 459 459 900

5,923 (4,986) 937 (114) 823 26.1 (14.3) (225) 0.0 610 (105) (157) 348 348 906

9,780 (8,239) 1,541 (430) 1,111 70.2 14.7 (249) 0.0 947 (222) 53.4 779 779 1,273

7,142 (6,107) 1,034 (45.4) 989 (90.9) 6.90 (287) 0.0 618 (168) (43.1) 407 407 1,004

(54.4) (65.0) (26.1) (78.0)

63.2 101.3 43.1 260.5

18.2 0.7 (0.4) (24.1)

65.1 40.5 35.0 123.6

(27.0) (21.1) (11.0) (47.8)

16.9 18.8 4.1

19.3 16.5 9.2

15.8 13.9 5.9

15.8 11.4 8.0

14.5 13.8 5.7

Balance Sheet (Rpbn) FY Dec

2014A

2015A

2016A

2017F

2018F

Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets

622 735 1,080 1,700 327 6,842 1,237 12,542

1,923 1,572 11,009 5,522 442 7,824 2,018 30,309

3,275 2,071 19,197 10,664 1,819 19,795 4,605 61,425

16,859 2,071 19,197 3,122 1,800 31,748 7,021 81,817

26,988 2,071 19,197 942 2,412 42,142 9,260 103,011

ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap. & Liab.

1,917 5,272 539 1,246 803 2,759 5.90 12,542

3,483 8,773 1,409 4,547 2,394 9,547 157 30,309

15,344 14,653 1,464 9,890 3,300 11,070 5,704 61,425

15,344 22,735 1,464 19,875 3,300 12,895 6,204 81,817

15,344 30,478 1,464 30,536 3,300 14,670 7,219 103,011

Non-Cash Wkg. Capital Net Cash/(Debt) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%)

2,594 (1,463) 220.2 186.9 12.1 1.0 1.3 1.1 0.5 0.5 10.4

102 (2,508) 189.1 217.9 11.9 0.7 1.2 1.0 0.3 0.3 11.7

10,101 (14,570) 211.9 218.5 21.1 0.5 1.2 1.0 0.9 1.3 2.4

16,370 (32,097) 249.7 219.0 21.2 0.5 1.1 0.9 1.7 2.5 39.7

21,873 (44,939) 269.7 232.5 18.4 0.5 1.2 0.9 2.1 3.1 23.2

Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%)

Net gearing to increase from capex at its toll road subsidiary.

Source: Company, AllianceDBS, DBSVI

ASIAN INSIGHTS

VICKERS SECURITIES Page 23

Company Guide Waskita Karya

Cash Flow Statement (Rpbn) FY Dec

2014A

2015A

2016A

2017F

2018F

Pre-Tax Profit Dep. & Amort. Tax Paid Assoc. & JV Inc/(loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Capital Exp.(net) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Opg CFPS (Rp) Free CFPS (Rp)

756 38.0 (254) 0.0 (417) (211) (88.7) (329) 0.0 (755) 1.10 0.0 (1,083) (110) 1,782 59.2 (3.1) 1,728 (1.2) 556 34.0 (43.2)

1,398 468 (350) 0.0 2,417 (3,275) 658 (938) 0.0 (498) 0.0 (5,491) (6,927) (100) (729) 5,348 5,580 10,099 5.90 3,836 (130) (20.7)

2,480 251 (667) 0.0 (10,099) 272 (7,762) (611) 0.0 (172) 0.0 (8,772) (9,555) (210) 17,227 0.0 5,442 22,459 0.60 5,143 172 (617)

3,687 400 (1,019) 0.0 (6,269) 0.0 (3,201) (13,983) 0.0 0.0 0.0 0.0 (13,983) (343) 9,985 0.0 0.0 9,642 0.0 (7,542) 226 (1,266)

4,112 532 (888) 0.0 (5,503) 0.0 (1,747) (10,661) 0.0 0.0 0.0 0.0 (10,661) (434) 10,661 0.0 0.0 10,228 0.0 (2,181) 277 (914)

We expect operating cash flow to remain negative due to the high contribution of turnkey projects.

Source: Company, AllianceDBS, DBSVI Target Price & Ratings History

Source: AllianceDBS, DBSVI Analyst: Chong Tjen-San Tiesha PUTRI

ASIAN INSIGHTS Page 24

VICKERS SECURITIES

Indonesia Company Guide

Pembangunan Perumahan Refer to important disclosures at the end of this report

Version 6 | Bloomberg: PTPP IJ | Reuters: PTPP.JK

DBS Group Research . Equity

5 Jul 2017

BUY

All eyes on project execution

Last Traded Price ( 5 Jul 2017): Rp3,330 (JCI : 5,825.10) Price Target 12-mth: Rp4,100 (23% upside) (Prev Rp4,950) Analyst Chong Tjen-San +60 3 26043972 [email protected] Tiesha PUTRI +6221 30034931 [email protected]

What’s New 

New contract flow in line with 5M17 new contract wins representing 33% of our full-year forecast



Maintain BUY with lower TP of Rp4,100

Price Relative

Forecasts and Valuation FY Dec (Rp m) Revenue EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) Net Pft Gth (Pre-ex) (%) EPS (Rp) EPS Pre Ex. (Rp) EPS Gth Pre Ex (%) Diluted EPS (Rp) Net DPS (Rp) BV Per Share (Rp) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%)

2015A 14,217 1,678 1,288 740 740 38.8 153 153 39 153 36.5 911 21.8 21.8 625.1 10.2 1.1 3.7 0.0 22.0

Earnings Rev (%): Consensus EPS (Rp): Other Broker Recs:

2016A 16,459 2,071 1,704 1,023 1,023 38.2 211 211 38 165 39.5 1,580 15.8 15.8 16.3 7.0 1.2 2.1 CASH 14.4

2017F 21,911 3,019 2,207 1,341 1,341 31.1 216 216 2 216 51.7 1,757 15.4 15.4 42.0 8.6 1.6 1.9 0.3 13.0

2018F 26,878 3,879 2,747 1,644 1,644 22.5 265 265 23 265 63.4 1,970 12.6 12.6 22.4 7.4 1.9 1.7 0.5 14.2

0 N/A B: 29

1 220 S: 0

0 280 H: 0

Source of all data on this page: Company, AllianceDBS, DBSVI, Bloomberg Finance L.P

Maintain BUY. Pembangunan Perumahan (PTPP)’s share price has underperformed the JCI by 23% YTD on the back of choppy execution in the past two quarters due to delays in land acquisitions and rollout of contracts. Revenue ex-property grew by only 15% y-o-y in 1Q17 despite value of new contracts growing by 68% y-o-y during the same period as land acquisition issues had hindered construction works. During the recent analyst meeting, management reaffirmed that revenue should catch up in 2Q17 as progress on land acquisitions has picked up pace. Orderbook provides revenue visibility for 2.7 years. We estimate that PTPP’s order backlog stood at Rp58tr as at the end of May 2017. In May 2017, the company won new contracts worth Rp12.6tr, representing 33%/31% of our/management’s new contract forecast. The management has guided for 25% growth in new contracts in FY17 (vs. our forecast of 19%), the highest growth among our coverage. We are confident that PTPP will be able to record an increase in new contracts awarded over the next two years supported by its enlarged equity base post IPO. Where we differ. Our Buy call is in line with consensus. Potential catalysts. A better progress of toll road land acquisitions should help to boost earnings and restore investor confidence after two quarters of posting weaker-than-expected earnings. In addition, having a long standing experience in port construction, we think PTPP stands a chance to win the mega project at Patimban Port. The tender of the project is underway. Positive newsflow on the financing and execution of the project should lead to a re-rating of its share price. Potential M&A as a precursor to the listing of PTPP’s subsidiaries represent another catalyst. Valuation: We cut our TP to Rp4,100 (from Rp4,950) as we lower our target PE multiple to 19x PE (20% premium to the sector’s historical mean PE). PTPP is trading at 15.4x/12.6x 17F/18F PE, on par with peers despite its stronger balance sheet to fuel new contract growth in the coming years. Key Risks to Our View: Prolonged slowdown in property sector. PTPP has both direct and indirect exposure to the property sector. A prolonged slowdown in the economy and demand for property can negatively impact earnings and cash flows. At A Glance Issued Capital (m shrs) Mkt. Cap (Rpbn/US$m) Major Shareholders (%) Republic of Indonesia (%) Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Industrials / Construction & Materials

6,200 20,646 / 1,545 51.0 49.0 6.3

CRITICAL DATA POINTS TO WATCH

ASIAN INSIGHTS ed: JS / sa:MA, PY

VICKERS SECURITIES

Company Guide Pembangunan Perumahan New Contract Win (Rp bn)

Critical Factors Maintaining positive new contract growth momentum post rights issue. PTPP successfully raised Rp4.4tr cash through a rights issue in December 2016. It intends to use 76% of the proceeds to fund equity investments in infrastructure projects, among which are Kuala Tanjung Multi-Purpose Terminal and Industrial Estate, five toll roads (such as Balikpapan-Samarinda toll road, Manado-Bitung toll road, Pandaan-Malang toll road), a 2x200MW power plant in Sumatra, and low-cost apartments, while the remaining 24% will be used for working capital. With ample cash post rights issue, the company should be able to take on more projects in FY17. This year, the company is eyeing new contracts worth Rp40.6tr, representing 25% increase y-o-y. Beneficiary of Indonesia’s port build-out. PTPP has over the years developed a niche in port construction in Indonesia. According to Bapennas, Indonesia would need as much as Rp59tr to develop and expand 24 ports from 2015-2019. Among the larger projects is the multi-year expansion projects at Kuala Tanjung port (Rp18.4tr). The port was initially built by PTPP, hence this would raise the company's competitive edge to secure work contracts once the projects are out for tender. This year, Pelindo I-IV, state-run port operators that will carry out a significant part of the government’s port development plan, have allocated capex of more than Rp13tr for port expansion. Progress on the mega project at Patimban Port is also important to watch as the company eyes the construction contract. More clarity on the funding of the project is expected to come this year, while construction is scheduled to start in 2018.

Carry Over Contract (Rp bn)

New Contract 14,000

12,600

12,000

31%

10,000 8,000

7,000

6,000 4,000

4,300 11%

Subsidiaries’ IPOs. Management is still pursuing inorganic growth ahead of the planned IPO of its subsidiaries. Recently, it acquired three companies through its precast and power business. The IPOs will likely be in 2H17 at the soonest, awaiting green light from the parliament and government.

ASIAN INSIGHTS

25%

22%

20% 15% 10%

11%

2,000

5%

-

1M17

Redirecting focus to government-related infrastructure projects. We estimate that 15%-20% of PTPP’s backlog is from private property developers. The pace of project execution may be slower amid the still subdued property market, and may potentially negatively affect the company’s contract burn rate and earnings. Since 2016, management has redirected its focus to government-related infrastructure projects, including the higher margin EPC projects. Currently, PTPP has three power plant projects in its order book with total capacity of 420 MW. The company plans to bid for more small-scale power plant projects in the future. With this strategy, the company expects to clinch 30% higher new EPC contracts in FY17 from FY16’s Rp6tr.

30%

9,000

17%

4,300

35%

2M17

3M17

PTPP's new contracts (Rp bn)

4M17

5M17

as % of FY17 target

Contractors’ revenue visibility Rp tr

(x)

100.0 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 -

4.0

3.3

3.5 2.7

3.0 2.5

76.2

37.7

58.1 22.8

2.5 2.0

92.9

21.9

1.5 1.0 0.5 -

WIKA

PTPP

WSKT

Outstanding order book* (LHS) Revenue FY17F (LHS) Outst. order book/revenue FY17F (RHS)

Source: Company, AllianceDBS, DBSVI

VICKERS SECURITIES Page 27

Company Guide Pembangunan Perumahan

Appendix 1: A look at the company's listed history – what drives its share price? PTPP’s share price vs. peers* PTPP share price (LHS) 5,000

Dec 18, 2012 = 1.0

PTPP share price vs. peers (RHS)

1.6

A

4,500

1.4

4,000

1.2

3,500 3,000

1.0

C

2,500

0.8

B

2,000

D

1,500

0.6 0.4

1,000

0.2

500 0 Dec-12

Jun-13

Dec-13

Jun-14

Dec-14

Jun-15

Dec-15

Jun-16

Dec-16

-

*Based on the average return of the listed state-owned contractors Source: Company, AllianceDBS, DBS Vickers

A: Rupiah depreciation PTPP’s share price along with the other state-owned contractors were under pressure due to concerns over cost overruns, particularly related to government’s infrastructure projects. A portion of raw materials are imported, hence Rupiah depreciation may impact margins and earnings negatively. However, PTPP has been least affected compared to other state-owned contractors due to its lower exposure to government infrastructure projects in the past.

C: Higher exposure to power plant projects and awards of big ticket infrastructure projects Earnings recovery in 2Q16 was strong with core profit surging by 260% y-o-y, mainly driven by EPC business (power plant construction). Furthermore, the management shared its plan to expand its higher margin EPC business. PTPP’s share price rerated upwards following the award of two mega toll road projects in June 2016. PTPP’s share price vs. new contract

16,000 15,000 14,000 13,000 12,000 11,000 10,000 9,000 8,000

5,000 4,000 3,000 2,000 1,000

PTPP share price (LHS)

Jun-16

Dec-15

Mar-16

Jun-15

Sep-15

Dec-14

Mar-15

Jun-14

Sep-14

Dec-13

Mar-14

Jun-13

Sep-13

Dec-12

Mar-13

-

USDIDR (RHS)

5,000

40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0

4,000 3,000 2,000 1,000 -

Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17

PTPP’s share price vs. USDIDR

PTPP share price (LHS)

T12M new contract, Rp bn (RHS)

Source: Company, AllianceDBS, DBS Vickers

Source: Bloomberg Finance L.P.

B: Fiscal revenue collection and state budget The government’s plan to cut spending in 2016 following weak revenue collection caused state-owned contractors’ share prices, including PTPP, to de-rate.

ASIAN INSIGHTS Page 28

D: Slow project execution and concern over investment in property sector PTPP’s order book replenishment has picked up pace since mid2016 after winning a number of infrastructure projects. However, construction progress had been slow due to land acquisition issues, causing earnings to fell short of market expectations. In addition, PTPP’s equity injection into its property arm PP Properti (PPRO) through a rights issue created some concerns among investors, given the still weak property market.

VICKERS SECURITIES

Company Guide Pembangunan Perumahan

Balance Sheet: Strong balance sheet enables PTPP to take on more projects. PTPP is in a net cash position after receiving rights issue proceeds of Rp4.4tr in December 2016. We forecast PTPP’s debt to rise with gross gearing of 0.12x in FY17 as the company starts to fund its equity investments in a number of infrastructure projects. Subsidiaries’ IPOs. Management is still pursuing inorganic growth ahead of the planned IPO of its subsidiaries - PP Perlatan (construction equipment rental), PP Urban (low cost housing and precast concrete) and PP Energi (power plant). Recently, it acquired three companies through its precast and power business. The IPOs will likely be in 2H17 at the soonest, awaiting green light from the parliament and government. Management seeks to raise Rp7tr from these IPOs. Share Price Drivers: Award of a large-sized, multi-year infrastructure contracts. The award of large-sized, multi-year contracts will further improve PTPP’s revenue and earnings visibility, and ultimately lead to rerating of its share price.

Leverage & Asset Turnover (x)

Capital Expenditure

ROE (%)

Key Risks: Slowdown in property sector. PTPP’s exposure to the property sector has increased notably with net profit contribution from the property arm at 23% in FY16. We estimate that 15%-20% of PTPP’s outstanding order book are contracts from private developers. A prolonged slowdown in the property market may pose risks to PTPP’s earnings and cash flows. Slow execution of infrastructure project. Delay in project execution due to land acquisition and technical issues or funding constraints such as government’s budget cut may cause revenue and earnings to fall short of our projections.

Forward PE Band (x)

Company Background PTPP is Indonesia's leading construction company with a portfolio ranging from building engineering to infrastructure construction projects. It has established a solid reputation in the construction of high-rise buildings and ports.

PB Band (x)

Source: Company, AllianceDBS, DBSVI

ASIAN INSIGHTS

VICKERS SECURITIES Page 29

Company Guide Pembangunan Perumahan

Key Assumptions FY Dec New Contract Win (Rp bn) Carry Over Contract (Rp Segmental Breakdown FY Dec Revenues (Rpbn) Construction Real Estate and Property EPC Others Total Gross Profit (Rpbn) Construction Real Estate and Property EPC Others Total Gross Profit Margins (%) Construction Real Estate and Property EPC Others Total Income Statement (Rpbn) FY Dec Revenue Cost of Goods Sold Gross Profit Other Opng (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net Profit before Except. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x)

2014A

2015A

2016A

2017F

2018F

20,240 22,278

27,074 29,867

32,600 39,600

38,760 48,400

44,244 48,861

2014A

2015A

2016A

2017F

2018F

10,662 645 1,091 29.3 12,427

11,611 1,573 928 106 14,217

11,815 2,180 2,366 97.9 16,459

11,174 2,258 5,264 3,215 21,911

11,275 2,845 8,644 4,114 26,878

1,414 267 143 (91.8) 1,732

1,244 680 206 (124) 2,007

1,422 1,175 377 (518) 2,456

1,229 1,135 684 355 3,404

1,240 1,431 1,124 480 4,275

13.3 41.3 13.1 (313.1) 13.9

10.7 43.3 22.2 (117.1) 14.1

12.0 53.9 15.9 (529.0) 14.9

11.0 50.3 13.0 11.0 15.5

11.0 50.3 13.0 11.7 15.9

2014A

2015A

2016A

2017F

2018F

12,427 (10,878) 1,550 (281) 1,268 (94.2) 72.4 (326) 0.0 921 (387) (0.1) 0.0 533 533 1,326

14,217 (12,210) 2,007 (410) 1,597 (50.5) 67.0 (326) 0.0 1,288 (442) (105) 0.0 740 740 1,678

16,459 (14,003) 2,456 (487) 1,968 (69.4) 155 (350) 0.0 1,704 (552) (128) 0.0 1,023 1,023 2,071

21,911 (18,507) 3,404 (714) 2,690 0.0 0.0 (483) 0.0 2,207 (760) (106) 0.0 1,341 1,341 3,019

26,878 (22,604) 4,275 (799) 3,476 0.0 0.0 (729) 0.0 2,747 (970) (133) 0.0 1,644 1,644 3,879

6.6 22.1 18.2 26.8

14.4 26.6 25.9 38.8

15.8 23.4 23.2 38.2

33.1 45.8 36.7 31.1

22.7 28.5 29.2 22.5

12.5 10.2 4.3 25.0 4.0 13.0 25.3 3.9

14.1 11.2 5.2 22.0 4.4 12.8 33.2 4.9

14.9 12.0 6.2 14.4 4.1 9.1 33.0 5.6

15.5 12.3 6.1 13.0 4.0 9.0 31.3 5.6

15.9 12.9 6.1 14.2 4.2 10.3 29.3 4.8

Source: Company, AllianceDBS, DBSVI

ASIAN INSIGHTS Page 30

VICKERS SECURITIES

Company Guide Pembangunan Perumahan

Quarterly / Interim Income Statement (Rpbn) FY Dec 1Q2016 2Q2016 Revenue Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. EBITDA

3Q2016

4Q2016

1Q2017

2,588 (2,228) 360 (105) 255 (19.4) 5.80 (21.4) 0.0 220 (90.4) (31.7) 98.2 98.2 261

3,885 (3,338) 547 (119) 428 30.6 26.9 (66.5) 0.0 419 (138) (23.3) 257 257 507

4,374 (3,765) 608 (124) 484 (42.8) 21.3 (69.4) 0.0 393 (145) (36.2) 212 212 486

5,613 (4,672) 941 (139) 802 (37.8) 101 (193) 0.0 672 (179) (36.8) 457 457 903

2,917 (2,526) 391 (155) 236 (14.4) 15.3 26.5 0.0 263 (102) (31.4) 130 130 313

(52.5) (67.9) (63.8) (72.9)

50.1 93.8 67.5 162.0

12.6 (4.0) 13.1 (17.8)

28.3 85.7 65.7 115.9

(48.0) (65.3) (70.6) (71.5)

13.9 9.9 3.8

14.1 11.0 6.6

13.9 11.1 4.8

16.8 14.3 8.1

13.4 8.1 4.5

Balance Sheet (Rpbn) FY Dec

2014A

2015A

2016A

2017F

2018F

Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets

710 147 245 2,611 2,675 7,244 947 14,579

2,989 272 467 3,302 2,499 8,829 800 19,159

4,178 486 2,225 9,424 2,656 10,920 1,345 31,233

10,849 486 2,225 2,671 3,473 14,537 1,345 35,585

13,946 486 2,225 1,272 4,241 18,737 1,345 42,252

ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap. & Liab.

1,577 7,022 1,263 1,455 928 2,334 1.00 14,579

1,722 7,372 1,677 1,827 1,414 4,410 737 19,159

3,698 10,237 1,943 3,048 1,510 9,796 1,000 31,233

3,698 13,387 1,943 3,048 1,510 10,893 1,106 35,585

3,698 17,097 1,943 4,548 1,510 12,216 1,240 42,252

2,583 (421) 200.2 224.7 75.1 0.9 1.4 1.0 0.2 0.2 5.3 2.3

3,080 (247) 206.3 216.6 77.8 0.8 1.4 1.1 0.0 0.1 11.8 2.1

2,739 2,678 219.0 231.2 67.7 0.7 1.5 1.3 CASH CASH 19.3 1.7

4,023 (4,074) 212.0 237.2 61.5 0.7 1.2 0.9 0.3 0.4 103.8 1.6

5,283 (6,974) 225.9 250.6 63.4 0.7 1.1 0.9 0.5 0.6 42.4 1.5

Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%)

Non-Cash Wkg. Capital Net Cash/(Debt) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X)

Source: Company, AllianceDBS, DBSVI

ASIAN INSIGHTS

VICKERS SECURITIES Page 31

Company Guide Pembangunan Perumahan

Cash Flow Statement (Rpbn) FY Dec Pre-Tax Profit Dep. & Amort. Tax Paid Assoc. & JV Inc/(loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Capital Exp.(net) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Opg CFPS (Rp) Free CFPS (Rp)

2014A

2015A

2016A

2017F

2018F

921 57.1 (387) 0.0 (719) 410 282 (160) (192) (78.2) 0.0 (95.1) (525) (126) 369 0.0 0.0 243 11.3 11.3 207 25.3

1,288 80.6 (442) 0.0 (497) (403) 25.8 (420) (83.3) (125) 0.0 (33.7) (662) (106) 405 0.0 884 1,182 71.1 617 108 (81.5)

1,704 103 (552) 0.0 341 (608) 987 (1,305) (124) (440) 0.0 42.8 (1,826) (177) 2,663 4,412 1.50 6,899 39.9 6,100 133 (65.8)

2,207 329 (760) 0.0 (1,284) 0.0 492 (7,000) 0.0 0.0 0.0 0.0 (7,000) (245) 0.0 0.0 0.0 (245) 0.0 (6,753) 286 (1,050)

2,747 403 (970) 0.0 (1,259) 0.0 921 (3,500) 0.0 0.0 0.0 0.0 (3,500) (321) 1,500 0.0 0.0 1,179 0.0 (1,400) 352 (416)

Source: Company, AllianceDBS, DBSVI Target Price & Ratings History

Source: AllianceDBS, DBSVI Analyst: Chong Tjen-San Tiesha PUTRI

ASIAN INSIGHTS Page 32

VICKERS SECURITIES

Indonesia Company Guide

Wijaya Karya Refer to important disclosures at the end of this report

Version 6 | Bloomberg: WIKA IJ | Reuters: WIKA.JK

DBS Group Research . Equity

5 Jul 2017

HOLD

Positives priced in

Last Traded Price ( 5 Jul 2017): Rp2,220 (JCI : 5,825.10) Price Target 12-mth: Rp2,050 (-8% downside) (Prev Rp2,780) Analyst Chong Tjen-San +60 3 26043972 [email protected] Tiesha PUTRI +6221 30034931 [email protected]

What’s New 

Strong 5M17 new contracts signed, representing 53%/46% of our/management’s FY17F target



Revise down TP to Rp2,050; maintain HOLD

Price Relative

Forecasts and Valuation FY Dec (Rp m) Revenue EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) Net Pft Gth (Pre-ex) (%) EPS (Rp) EPS Pre Ex. (Rp) EPS Gth Pre Ex (%) Diluted EPS (Rp) Net DPS (Rp) BV Per Share (Rp) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%)

Sizeable backlog provides revenue visibility. WIKA clinched new contracts worth Rp20tr in 5M17 (+164% y-o-y). This represents 53%/46% of our/management’s new contract forecasts for FY17F. We estimate that WIKA had Rp76.2tr backlog as at end of May 2017, providing revenue visibility of 3.3 years.

2015A 13,620 1,681 1,098 625 625 2.8 102 102 3 102 20.9 711 21.8 21.8 57.3 9.3 0.9 3.1 0.2 15.1

Earnings Rev (%): Consensus EPS (Rp): Other Broker Recs:

2016A 15,669 2,231 1,596 1,012 1,012 61.9 158 158 56 113 14.1 1,266 14.0 14.0 nm 5.7 0.6 1.8 CASH 12.9

2017F 22,844 2,718 2,055 1,140 1,140 12.6 127 127 (20) 127 22.8 1,370 17.5 17.5 nm 9.1 1.0 1.6 0.3 9.6

2018F 37,126 4,388 3,014 1,595 1,595 39.9 178 178 40 178 25.7 1,522 12.5 12.5 nm 7.4 1.2 1.5 0.7 12.3

49 N/A B: 26

3 143 S: 0

4 173 H: 6

Source of all data on this page: Company, AllianceDBS, DBSVI, Bloomberg Finance L.P.

ASIAN INSIGHTS ed: CK / sa:MA, PY

Maintain HOLD with a lower TP. We maintain our HOLD call on WIKA with a lower TP of Rp2,050. We are encouraged by the steady progress of WIKA’s infrastructure projects, which we believe is one of the key reasons for its YTD share price outperformance relative to peers. However, we think WIKA’s earnings outlook largely hinges on its signature Jakarta-Bandung high-speed railway (HSR) project whose progress has remained slow. Despite financial close having been reached in May 2017, the disbursement of the loan from China Development Bank is still being delayed, pending the audit of land acquisition progress. We would like to see better progress on the HSR project along with the planned transit-oriented development (TOD) before turning more positive on the stock.

Where we differ. Our FY17F net profit forecast is 9% lower than consensus as we expect higher capex and debt levels. Due to fiscal constraints faced by the government and selected infrastructure companies, we believe contractors have to raise their capex budgets and debt levels in order to grow their order books going forward. Potential catalyst. The disbursement of loan from China Development Bank would accelerate the progress of the JakartaBandung HSR project and improve WIKA’s earnings outlook. In addition, more clarity on the TOD concept and funding, which is expected to compensate for the low IRR for the HSR project, would be a positive catalyst for WIKA. Valuation: We revise down our TP to Rp2,050, now pegged to 16x FY17F EPS (equal to the sector’s mean PE). Key Risks to Our View: Delay in project rollout. Any delay in project rollout, especially the mega project Jakarta-Bandung HSR, should lead to lowerthan-expected revenue and earnings. At A Glance Issued Capital (m shrs) Mkt. Cap (Rpbn/US$m) Major Shareholders (%) Republic of Indonesia (%) Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Industrials / Construction & Materials

8,970 19,913 / 1,491 65.2 33.8 2.8

VICKERS SECURITIES

Company Guide Wijaya Karya

WHAT’S NEW Revise up FY17F new contract and earnings Earnings revision. WIKA won new contract worth Rp20tr in 5M17 vs. our initial FY17 new contract forecasts of Rp37.6tr. Among the largest wins were Serang-Panimbang toll road (Rp3.5tr) and Cengkareng-Batu Ceper-Kunciran toll road (Rp2.2tr). Taking into account stronger than expected new contract achievement in 5M17, we revise up our FY17F new contract forecasts by 15% to Rp43tr. Our new contract forecast for FY17 implies a 21% y-o-y decline, in line with management’s expectation. We raise our FY17F/FY18F net profit forecast by 3%/4%. Our revised new profit forecast implies 13%/40% net profit growth in FY17F/FY18F. Summary of earnings revision 2017F

( in Rp bn) Revenue Gross profit EBIT Net Profit GP margin (%) EBIT margin (%) Net margin (%) New Contract Win Carry Over Contract Total Orderbook (cumulative) Capex Net interest income (exp.)

Old 22,703 2,746 2,041 1,111

Ne w 22,844 2,860 2,154 1,140

12.1 9.0 4.9

12.5 9.4 5.0

37,564 56,970 92,512

43,027 59,996 102,356

2,000 (299)

3,850 (390)

2018F

Cha nge 1% 4% 6% 3%

Old 33,019 3,951 3,043 1,530

Ne w 37,125 4,461 3,538 1,595

Cha nge 12% 13% 16% 4%

12.0 9.2 4.6

12.0 9.5 4.3

15% 5% 11%

37,652 62,372 98,002

37,771 74,484 111,588

0% 19% 14%

93% 30%

3,000 (607)

3,850 (819)

28% 35%

Source: AllianceDBS, DBSVI

ASIAN INSIGHTS

VICKERS SECURITIES Page 33

Company Guide Wijaya Karya New Contract Win (Rp bn)

CRITICAL DATA POINTS TO WATCH Critical Factors New contracts had peaked; eyes on project execution. After the award of the Jakarta-Bandung high-speed railway contract in 2016, we expect WIKA’s new contracts to decline by 21% y-o-y in FY17F. Nonetheless, we acknowledge that the company’s revenue visibility has improved strongly with a contract backlog of Rp84.8tr, providing revenue visibility of 3.3 years. As new contract growth has peaked, we believe project execution and earnings delivery would be the key focus going forward. This hinges a great deal on the HSR contract which forms 21% of its total orderbook and has only achieved less than 5% progress thus far.

Contract Backlog (Rp bn)

Progress of Jakarta-Bandung high-speed project. In 2016, WIKA was awarded the civil work contract of the Jakarta-Bandung highspeed railway (HSR) worth Rp15.8tr. We estimate that this project contributed c.21% of WIKA’s total backlog (as at end of May 2017). The mega project is now running behind schedule after breaking ground in Jan 2016 due to land acquisition issues. The project is scheduled to be delivered in mid-2019. The resumption of Jakarta-Bandung HSR construction, expected in July 2017, is important for WIKA in boosting its earnings growth. Transit oriented development to compensate for HSR’s low IRR. The HSR consortium plans to develop a transit-oriented development (TOD) in the vicinity of HSR’s four stations i.e. Halim Perdanakusuma (East Jakarta), Karawang (West Java), Walini (West Java) and Tegalluar (Bandung, West Java). Walini would become the largest township project with a total area of 2,900ha, followed by Tegalluar (450ha). The consortium has appointed three worldclass property and urban development consultants (Aedas, Atkins and Surbana Jurong) back in Jan 2016, and more details on the TOD plan will be revealed this year. This should shed more light on how the consortium plans to compensate for HSR’s low IRR (estimated FIRR is in the range of 6.5%-10.8%). The HSR consortium plans to team up with private developers given the high capital requirement to develop new townships. Nonetheless, we believe WIKA Realty, WIKA’s property arm, would play an important role in the development. Government’s tax collection. 20%-40% of WIKA’s annual new contracts for the period 2012-2016 were infrastructure projects funded by the government. Slow tax collection may lead to fiscal budget shortfalls and some delay in government’s projects. This may results in lower-than-expected contract wins and earnings for WIKA.

Blended Gross Margin (%)

New Contract 46%

25.0 42%

45%

38%

20.0

50% 40% 35%

27%

15.0

30% 25%

10.0

20%

13%

15%

5.0 -

10% 5.6

11.8

16.6

18.2

20.0

1M17

2M17

3M17

4M17

5M17

New contract, Rp tr (LHS)

5% -

as % of FY17F (RHS)

New Contract Based on Project Owner Rp tr 60.0 50.0 40.0 43.4

30.0

Gov't

20.0 10.0 -

Ex-Gov't

14.5 14.5

14.9

3.3

2.7

2013

2014

10.8

11.4

2015

2016

Source: Company, AllianceDBS, DBSVI

ASIAN INSIGHTS Page 34

VICKERS SECURITIES

Company Guide Wijaya Karya

Appendix 1: A look at Company's listed history – what drives its share price? WIKA’s share price vs. peers* WIKA share price (LHS)

Dec 18, 2012 = 1.0

WIKA share price vs. peers* (RHS)

4,000

1.2

3,500

1.0

B

3,000

0.8

2,500 2,000

0.6

1,500

A2

1,000

0.4

A1

500 0 Dec-12

Jun-13

0.2

Dec-13

Jun-14

Dec-14

Jun-15

Dec-15

Jun-16

Dec-16

-

*Based on the average return of the listed state-owned contractors Source: Company, AllianceDBS, DBSVI

A: New contract achievement WIKA’s share price underperformed its peers in 2013-2014 as the company booked lower-than-expected new contracts during the period. In 2013, WIKA’s new contracts fell short of management’s target by 11% or c.Rp2tr. In 2014, WIKA only managed to secure Rp17.6tr worth of new contracts in FY14 (1% y–o-y) vs. management’s guidance of Rp25.8tr.

WIKA’s share price Rp 4,000 3,500

WIKA was selected as one of the contractors to build phase 1 of MRT project in Jakarta

Gov't of Indonesia assigned WIKA to lead consortium of SOE in Jakarta-Bandung HSR project

3,000 2,500 2,000 1,500

WIKA’s share price vs. new contract

PLN called off plan to develop mega power plant Java 5

1,000

Jakarta-Bandung HSR project stalled after ground breaking ceremony in January 2015.

500

80,000 0 70,000 Dec-12 Jun-13 Dec-13 Jun-14 60,000 Source: Company, AllianceDBS, DBSVI 50,000 40,000 30,000 20,000 10,000 0

Dec-14

Jun-15

Dec-15

Jun-16

Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17

4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0

WIKA share price (LHS)

T12M new contract, Rp bn (RHS)

Source: Company, AllianceDBS, DBSVI

B: Progress of mega projects WIKA’s share price movement has been largely influenced by the state of mega project that it bid for or won, i.e. Jakarta MRT phase 1, Jakarta-Bandung high-speed railway and Mega Power Plant Java 5.

ASIAN INSIGHTS

VICKERS SECURITIES Page 35

Company Guide Wijaya Karya

Leverage & Asset Turnover (x)

Balance Sheet: Stronger capital post rights issue. WIKA had Rp6.9tr debt at the end of Mar 2017. However, the company is in a net cash position of Rp1.1tr. We expect WIKA’s net gearing to rise to 0.3x by the end of 2017 from -0.1x as at the end of March 2017. Listing of WIKA Gedung and WIKA Realty. The company is currently in the process of spinning off its building construction business and merging it into WIKA Gedung, one of WIKA’s subsidiaries. Following the spinoff, WIKA plans to divest a 30% stake in WIKA Gedung through an IPO, which is expected to raise Rp1tr. WIKA also plans to list its property business, WIKA Realty, in 2017.

Rpbn

Capital Expenditure

Share Price Drivers: Progress on HSR project. Improved clarity on the HSR project could act as a positive catalyst for WIKA. Among the key events to watch for are: i) land acquisition progress, and ii) disbursement of loan from China Development Bank. Faster land acquisition progress. Further reform on land acquisition which can accelerate the construction progress of infrastructure projects would be positive for WIKA’s earnings and share price.

ROE (%)

Key Risks: Delay in infrastructure project execution. Any delay in project execution could lead to lower order book and earnings. Such newsflow could also create negative sentiment towards Indonesia's construction sector and lead to valuation de-rating. Lower free cashflow generation in the medium term. Aside from being the contractor, WIKA typically owns some stakes in the assets being built. This exposes WIKA to the risk of deteriorating cashflow generation, as such a business model requires high capital investments and normally generates negative cashflows in the early years of operations.

Forward PE Band (x)

Company Background Wijaya Karya is a construction company with interests in EPC, civil, building works, precast and realty. PB Band (x)

Source: Company, AllianceDBS, DBSVI

ASIAN INSIGHTS Page 36

VICKERS SECURITIES

Company Guide Wijaya Karya

Key Assumptions FY Dec New Contract Win (Rp bn) Contract Backlog (Rp bn) Segmental Breakdown FY Dec Revenues (Rpbn) Construction EPC Industrial (Precast) Property Total Gross Profit (Rpbn) Construction EPC Industrial (Precast) Property Total Gross Profit Margins (%) Construction EPC Industrial (Precast) Property Total Income Statement (Rpbn) FY Dec Revenue Cost of Goods Sold Gross Profit Other Opng (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net Profit before Except. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x)

2014A

2015A

2016A

2017F

2018F

17,632 23,784

25,222 23,302

54,764 28,526

43,027 59,329

37,771 73,817

2014A

2015A

2016A

2017F

2018F

4,731 3,179 3,271 1,283 12,463

5,984 3,370 2,830 1,436 13,620

7,476 2,875 3,292 2,026 15,669

15,014 2,058 4,743 1,029 22,844

26,492 3,440 5,551 1,643 37,126

371 273 544 237 1,425

593 424 400 238 1,655

878 341 532 476 2,227

1,763 247 686 165 2,860

2,995 413 790 263 4,461

7.8 8.6 16.6 18.4 11.4

9.9 12.6 14.1 16.6 12.1

11.7 11.9 16.2 23.5 14.2

11.7 12.0 14.5 16.0 12.5

11.3 12.0 14.2 16.0 12.0

2014A

2015A

2016A

2017F

2018F

12,463 (11,039) 1,425 (393) 1,032 (131) 363 (124) 0.0 1,139 (395) (136) 0.0 608 608 1,393

13,620 (11,965) 1,655 (429) 1,226 (38.6) 283 (372) 0.0 1,098 (395) (78.0) 0.0 625 625 1,681

15,669 (13,442) 2,227 (527) 1,700 (61.0) 341 (384) 0.0 1,596 (448) (135) 0.0 1,012 1,012 2,231

22,844 (19,984) 2,860 (707) 2,154 (61.0) 352 (390) 0.0 2,055 (718) (198) 0.0 1,140 1,140 2,718

37,126 (32,665) 4,461 (923) 3,538 (61.0) 356 (819) 0.0 3,014 (1,199) (220) 0.0 1,595 1,595 4,388

4.9 21.1 8.0 6.7

9.3 20.7 18.8 2.8

15.0 32.7 38.7 61.9

45.8 21.8 26.7 12.6

62.5 61.5 64.3 39.9

11.4 8.3 4.9 18.0 4.3 9.1 28.1 8.3

12.1 9.0 4.6 15.1 3.5 7.9 20.6 3.3

14.2 10.9 6.5 12.9 4.0 7.5 12.5 4.4

12.5 9.4 5.0 9.6 3.3 6.2 18.0 5.5

12.0 9.5 4.3 12.3 3.5 8.0 14.5 4.3

We assume HSR construction would contribute 32% and 33% to WIKA’s FY17F and FY18F revenue respectively.

Source: Company, AllianceDBS, DBSVI

ASIAN INSIGHTS

VICKERS SECURITIES Page 37

Company Guide Wijaya Karya

Quarterly / Interim Income Statement (Rpbn) FY Dec 1Q2016 2Q2016 Revenue Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. EBITDA

3Q2016

4Q2016

1Q2017

2,727 (2,435) 292 (87.0) 205 (0.7) 28.4 (60.4) 0.0 172 (77.9) (22.5) 71.7 71.7 370

3,307 (2,869) 439 (141) 298 11.8 77.7 (87.6) 0.0 300 (88.7) (26.5) 185 185 462

3,306 (2,919) 387 (107) 280 1.80 62.1 (86.6) 0.0 258 (92.3) (20.3) 145 145 416

6,330 (5,220) 1,110 (193) 917 (73.8) 172 (150) 0.0 866 (190) (66.0) 610 610 1,016

3,813 (3,401) 413 (118) 295 12.7 129 (57.1) 0.0 379 (114) (20.1) 245 245 553

(50.7) (46.7) (61.7) (69.4)

21.3 24.8 45.5 157.9

0.0 (10.0) (6.0) (21.6)

91.5 144.4 227.1 320.9

(39.8) (45.5) (67.9) (59.8)

10.7 7.5 2.6

13.3 9.0 5.6

11.7 8.5 4.4

17.5 14.5 9.6

10.8 7.7 6.4

Balance Sheet (Rpbn) FY Dec

2014A

2015A

2016A

2017F

2018F

Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets

2,676 1,897 1,855 2,301 817 4,416 1,948 15,909

3,184 1,898 1,960 2,560 1,031 6,278 2,691 19,602

3,466 2,608 3,470 9,270 1,248 7,533 3,501 31,097

7,043 2,960 3,470 3,177 1,890 15,406 3,677 37,622

10,338 3,316 3,470 1,119 3,079 27,640 3,860 52,823

ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap. & Liab.

1,691 3,903 2,882 1,275 1,281 3,888 989 15,909

1,796 4,323 4,479 1,646 1,921 4,375 1,063 19,602

5,388 4,680 4,538 1,289 2,703 11,352 1,147 31,097

5,388 9,856 4,755 1,289 2,703 12,287 1,345 37,622

5,388 17,744 4,983 6,789 2,703 13,651 1,565 52,823

395 (665) 116.0 117.0 32.4 0.9 1.1 0.8 0.1 0.2 34.9

1,198 (882) 143.3 127.7 28.7 0.8 1.2 0.8 0.2 0.2 20.4

3,065 2,593 160.9 124.6 31.5 0.6 1.5 1.2 CASH CASH 4.3

6,362 (3,501) 183.3 134.6 29.1 0.7 1.2 0.9 0.3 0.3 57.7

11,852 (11,058) 211.6 156.9 28.2 0.8 1.3 1.0 0.7 0.8 31.6

Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%)

Non-Cash Wkg. Capital Net Cash/(Debt) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%)

We expect the company to return to net debt position on the back of rising capex and working capital requirement.

Source: Company, AllianceDBS, DBSVI

ASIAN INSIGHTS Page 38

VICKERS SECURITIES

Company Guide Wijaya Karya

Cash Flow Statement (Rpbn) FY Dec

2014A

2015A

2016A

2017F

2018F

Pre-Tax Profit Dep. & Amort. Tax Paid Assoc. & JV Inc/(loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Capital Exp.(net) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Opg CFPS (Rp) Free CFPS (Rp)

1,139 129 (370) (363) (665) (49.2) (178) (1,036) (316) (48.6) 0.0 132 (1,268) (171) 638 448 1,446 2,360 0.0 914 79.2 (197)

1,098 211 (479) (283) (811) 503 238 (701) (12.0) 282 0.0 106 (325) (129) 479 0.0 (4.0) 346 0.0 259 171 (75.2)

1,596 251 (448) (341) (1,878) (299) (1,120) (285) (67.9) (366) 0.0 (92.6) (811) (125) 2,654 6,108 0.0 8,638 3.00 6,710 119 (220)

2,055 273 (718) (352) (3,297) 0.0 (2,039) (3,850) 0.0 0.0 0.0 0.0 (3,850) (205) 0.0 0.0 0.0 (205) 0.0 (6,094) 140 (657)

3,014 555 (1,199) (356) (5,490) 0.0 (3,477) (3,850) 0.0 0.0 0.0 0.0 (3,850) (231) 5,500 0.0 0.0 5,269 0.0 (2,058) 224 (817)

Our capex assumption is 50% lower than management’s guidance but 56% higher than consensus forecasts.

Source: Company, AllianceDBS, DBSVI Target Price & Ratings History

Source: AllianceDBS, DBSVI Analyst: Chong Tjen-San Tiesha PUTRI

ASIAN INSIGHTS

VICKERS SECURITIES Page 39

Indonesia Company Guide

Wijaya Karya Beton Refer to important disclosures at the end of this report

Version 6 | Bloomberg: WTON IJ | Reuters: WTON.JK

DBS Group Research . Equity

5 Jul 2017

BUY

Excellent proxy for construction growth

Last Traded Price ( 5 Jul 2017): Rp605 (JCI : 5,825.10) Price Target 12-mth: Rp760 (26% upside) (Prev Rp1,050) Analyst Chong Tjen-San +60 3 26043972 [email protected] Tiesha PUTRI +6221 30034931 [email protected]

What’s New 

Maintain BUY with a new TP of Rp760



Improving revenue visibility with contract backlog already reaching 1.1x of our FY17 revenue forecast



Building competitive edge by offering one-stop service

Maintain BUY. As infrastructure projects move to execution phase, we believe Wijaya Karya Beton (WTON) is in a sweet spot as it starts to receive precast orders from contractors or project owners. Faster execution of infrastructure projects, and improving revenue visibility with contract backlog already reaching 1.1x of our FY17 revenue forecast should support an upward re-rating of WTON’s share price. The company currently trades at attractive PE valuations of 14x/13x on FY17F/18F earnings, at the lower end of its trading range. We maintain our BUY call with a lower TP of Rp760, providing 26% potential upside. Banking on WIKA’s large order book. In 5M17, WTON clinched Rp2.3tr worth of new contracts (+48% y-o-y), representing 33% of management’s target. We are confident that WTON will be able to achieve its target of Rp7tr in FY17 supported by contracts from its parent company Wijaya Karya (WIKA). With stronger balance sheet post rights issue in 4Q16, WIKA has more capacity to take on larger-scale projects, which should further boost WTON’s earnings outlook.

Price Relative

Where we differ. Our Buy call and earnings is in line with consensus. Forecasts and Valuation FY Dec (Rp m) Revenue EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) Net Pft Gth (Pre-ex) (%) EPS (Rp) EPS Pre Ex. (Rp) EPS Gth Pre Ex (%) Diluted EPS (Rp) Net DPS (Rp) BV Per Share (Rp) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%)

2015A 2,653 322 206 174 174 (47.1) 20.0 20.0 (47) 20.0 5.99 253 30.3 30.3 11.5 15.7 1.0 2.4 CASH 8.0

Earnings Rev (%): Consensus EPS (Rp): Other Broker Recs:

2016A 3,482 529 353 272 272 56.7 31.3 31.3 57 31.3 9.38 278 19.4 19.4 nm 10.7 1.5 2.2 0.1 11.8

2017F 4,743 729 490 367 367 34.5 42.0 42.0 35 42.0 12.6 311 14.4 14.4 15.5 8.4 2.1 1.9 0.3 14.3

2018F 5,551 835 559 418 418 14.1 48.0 48.0 14 48.0 14.4 346 12.6 12.6 10.2 7.4 2.4 1.7 0.3 14.6

0 N/A B: 14

0 42.9 S: 1

0 51.6 H: 1

Source of all data on this page: Company, AllianceDBS, DBSVI, Bloomberg Finance L.P

ASIAN INSIGHTS ed: JS/ sa:MA, PY

Potential catalyst. The disbursement of loans from China Development Bank would accelerate the construction progress of Jakarta-Bandung HSR project and boost WTON’s earnings and order flows. On a macro level, a steady rollout of infrastructure projects will eventually filter down to precast players like WTON. We also expect 2Q17 revenue to be stronger as projects that were delayed in 1Q17 have picked up pace. Valuation: We revise down our TP to Rp760. We pegged our TP to 18x FY17F, a 10% premium to our revised target multiple for WIKA (on par with its historical mean). Key Risks to Our View: Delays in project rollout, particularly for the Jakarta-Bandung HSR, would result in lower-than-expected earnings for WTON. At A Glance Issued Capital (m shrs) Mkt. Cap (Rpbn/US$m) Major Shareholders (%) PT Wijaya Karya (Persero) Tbk KKMS Treasury Stock Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Industrials / Construction & Materials

8,715 5,273 / 395 60.0 8.8 4.3 26.9 0.46

VICKERS SECURITIES

Company Guide Wijaya Karya Beton

WHAT’S NEW Building competitive edge Building competitive edge by offering one-stop service. WTON targets to increase revenue contribution from precast concrete installation service from 4% in FY16 to 25% over the next five years. The company plans to offer a one stop service to customers, from precast production to installation, to strengthen its competitive position in the market. Our checks with management suggests that this one-stop package typically commands higher margins compared to regular sales. However, this may delay the revenue recognition and hence stretch WTON’s inventory days. We note that for regular sales, revenue is typically recorded once the precast concrete is shipped, whereas for one-stop package, revenue is recorded only when the precast concrete is installed at the project owner’s site. A case in point was the Medan-Kuala Namu railway project. The project faced some technical issues in

ASIAN INSIGHTS

1Q17, leading to a delay in precast concrete installment and revenue recognition for WTON in the same period. South Lampung factory. WTON recently commissioned its new factory in South Lampung. The factory location enables the company to transport precast concrete via sea freight, which is generally cheaper compared to land transport. Based on our discussions with management, ASPs for precast sourced from the South Lampung factory to Balikpapan (East Kalimantan) is 3-6% lower compared to those sourced from the West Java factory. With this strategically located factory, we believe WTON will be able to benefit from the government’s push to decentralise infrastructure development to areas outside Java.

VICKERS SECURITIES Page 41

Company Guide Wijaya Karya Beton

CRITICAL DATA POINTS TO WATCH Critical Factors Clear beneficiary of Jakarta-Bandung HSR. The Jakarta-Bandung high-speed railway (HSR) project is estimated to require 3-3.5m tons of precast concrete in 2017-2019 with a contract value of Rp6tr – Rp9tr. WTON expects to win at least Rp2tr – Rp3tr of the total contract size. The company plans to set up several temporary production facilities near HSR’s construction site to cater to this large order. In addition, the HSR consortium also plans to build a Transit Oriented Development (TOD) in the vicinity of HSR’s four stations. We expect the HSR project to contribute 13%/22% to our FY17/FY18 revenue and EBIT forecasts. First-mover advantage in ex Java market. WTON has continued to expand its coverage to markets outside Java where there are fewer competitors. In these areas, the company often serves as the only large-scale precast producer, allowing it to maintain higher pricing and margins compared to those in Java. Based on our channel checks, WTON’s state-run competitors will still be focusing on expanding in the Java market in the near future. Therefore, we are confident that WTON’s position outside Java markets will remain firm. The rollout of toll roads and port projects outside Java should benefit WTON as it will be able to meet the precast requirements. In FY16, net margin of ex Java market was 500bps higher than Java’s. Best proxy to domestic construction boom. We believe WTON is in a sweet spot to benefit from the government’s ambitious infrastructure buildout plan given that it has the most extensive product offerings and geographical reach. It is worth noting that 24% of WTON’s total installed capacity (610,000 ton p.a.) is located outside Java, the largest among peers. As the government plans to place more focus on infrastructure development outside Java, we believe WTON would be the biggest beneficiary of this shift. Based on our analysis, supply and demand dynamics for the domestic precast market would still be favourable in the next three years if the government manages to execute priority infra projects in a timely manner. We forecast a total precast supply of 4.75m tons p.a. from the four largest precast-arms of listed state-owned contractors by the end of 2017. To estimate the demand, we selected power plants and transportation-based projects listed in the government’s priority project list and Jakarta-Bandung HSR. Based on our estimates, these infra projects would require 15.3m tons of precast within three years or 5.1m tons p.a. Hence, we believe that the demand and supply dynamics of the industry is still in favour of players like WTON.

ASIAN INSIGHTS Page 42

Gross margin (%)

Production capacity ('000 tons)

Sales volume ('000 tons)

Utilisation rate (%)

Source: Company, AllianceDBS, DBSVI

VICKERS SECURITIES

Company Guide Wijaya Karya Beton

Appendix 1: A look at the company's listed history – what drives its share price? WTON’s share price vs. peers* 1,600 1,400 1,200 1,000 800 600 400 200 -

B

C1

A

2.00

C2

1.80

D 1.60 1.40 1.20 1.00 0.80 0.60

WTON share price (LHS)

WTON vs. construction (RHS)

*Based on the average return of the listed state-owned contractors Source: Company, AllianceDBS, DBSVI

A: Strong pricing power WTON’s share price rally post IPO in April 2014 was driven by its strong earnings growth. WTON had a strong competitive position with market share of 38.6% in 2013, while the second largest player only commanded 15.9% market share. This allows the company to enjoy strong pricing power and margin expansion. B: Intensifying competition Slower than expected rollout of government’s infrastructure projects along with intensifying competition, especially among state-owned precast producers, caused WTON’s share price to de-rate in 2015. In FY15, WTON saw its revenue declining by 19% on the combination of declining ASP and revenue contribution from state-owned contractors. State-owned contractors such as Waskita Karya, Hutama Karya and PTPP started to expand precast production capacity and opted to source their precast requirements internally. This caused revenue contribution from state-owned contractors to decline by 43% y-o-y in FY15 with contribution to WTON’s consolidated sales shrinking from 13% to 9%. Meanwhile, we reckon intense competition resulted in WTON lowering its selling price to maintain market share. The following chart shows the correlation between WTON’s share price and revenue contribution from state-owned contractors.

ASIAN INSIGHTS

WTON share price vs. revenue from state-owned contractors 1,600 1,400 1,200 1,000 800 600 400 200 Apr-14

500 450 400 350 300 250 200 150 100 Oct-14

Apr-15

WTON share price (LHS)

Oct-15

Apr-16

Oct-16

Revenue from SOE contractors, Rp bn (RHS)

Source: Company, AllianceDBS, DBSVI

C: Jakarta-Bandung high-speed railway (HSR) Despite the declining order book from state-owned contractors, the appointment of its parent company, WIKA, as one of the main contractors for the mega project Jakarta-Bandung HSR is positive for WTON. Initially, the management indicated a potential contract worth Rp6tr – Rp9tr from the mega project. This positive news caused WTON’s share price to rally following the ground breaking of the project in early 2016 (C1). However, after a prolonged series of negotiations with China, the management guided that it would likely get a significantly lower contract target of Rp2tr – Rp3tr as it was unable to meet some of the product specifications. This along with the delay in HSR construction caused the share price to de-rate (C2). D: Delay in project execution Delay in execution of infrastructure project caused WTON’s revenue to fall short of market expectations. In 1Q17, WTON’s revenue was flat y-o-y while net profit grew a marginal 2% despite its large contract backlog.

VICKERS SECURITIES Page 43

Company Guide Wijaya Karya Beton

Leverage & Asset Turnover (x)

Balance Sheet: Robust balance sheet to fund expansion plan. As at end of Mar 2017, WTON had Rp782bn of interest-bearing debt, bringing its gross and net gearing to 0.3x. The company has allocated a capex budget of Rp680bn for FY17 which will be funded by the combination of internal cash and debt. The company also plans to sell treasury stocks to the public starting this year. Assuming the treasury stocks are sold at Rp665 /share, proceeds raised would be Rp236bn. Share Price Drivers: Award of large-sized, multi-year contracts. Among the potential contracts are the Jakarta-Bandung HSR and Giant Sea Wall. There is also a clear pipeline of multi-year contracts from its parent WIKA which could amount to Rp1.5tr. Better progress of Jakarta-Bandung HSR construction. The construction progress of the Jakarta-Bandung HSR project is running behind schedule after breaking ground in January 2016. Construction work has finally resumed after months of delay but the consortium has to wait for loan disbursement from China Development Bank before it is able to accelerate the construction progress. Better progress for the project would be a re-rating catalyst for WTON’s earnings and share price.

Rpbn

Capital Expenditure

ROE (%)

Key Risks: Delay in government’s infrastructure project rollout, particularly for the Jakarta-Bandung HSR, would result in lower-than-expected order book and profit for WTON. Delays in infrastructure project execution will cause WTON’s revenue to fall short of expectations, and also lower WTON’s profitability given its high operating leverage. Forward PE Band (x)

Increasing competition in the Java market. Major SOE contractors are looking to increase their precast production capacities, particularly in the Java market. Intensifying competition may weaken WTON’s pricing power in Java and erode its margins. In FY16, Java contributed 56% and 38% of WTON’s consolidated revenue and earnings respectively. The bulk of WTON’s cost of goods sold (COGS) is in USD. Steel and cement make up 30% and 20% of WTON’s COGS respectively. Additionally, some overhead costs for its production facilities are also in USD, which exposes WTON’s profitability to currency fluctuations. Nevertheless, the company has mitigated this risk by signing umbrella contracts for its key raw materials, enabling it to lock in prices for three months.

PB Band (x)

Company Background WTON is the dominant market leader in precast concrete with over 30% market share. Source: Company, AllianceDBS, DBSVI

ASIAN INSIGHTS Page 44

VICKERS SECURITIES

Company Guide Wijaya Karya Beton

Key Assumptions FY Dec Gross margin (%) Production capacity ('000 Sales volume ('000 tons) Utilisation rate (%) Segmental Breakdown FY Dec Revenues (Rpbn) Concrete Service Total Operating Profit (Rpbn) Concrete Service Total Operating Profit Margins Concrete Service Total Income Statement (Rpbn) FY Dec Revenue Cost of Goods Sold Gross Profit Other Opng (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net Profit before Except. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x)

2014A

2015A

2016A

2017F

2018F

14.9 2,200 1,464 66.5

12.4 2,300 1,413 61.4

14.5 2,500 1,520 60.8

14.5 3,000 2,074 69.1

14.2 3,300 2,427 73.6

2014A

2015A

2016A

2017F

2018F

3,228 49.7 3,277

2,591 61.7 2,653

3,349 133 3,482

4,569 174 4,743

5,348 203 5,551

396 12.7 409

231 7.40 238

392 15.9 408

534 20.8 555

613 24.4 637

12.3 25.5 12.5

8.9 12.0 9.0

11.7 12.0 11.7

11.7 12.0 11.7

11.5 12.0 11.5

2014A

2015A

2016A

2017F

2018F

3,277 (2,790) 487 (76.9) 410 (3.4) 0.0 6.00 0.0 413 (89.1) 6.10 0.0 329 329 492

2,653 (2,324) 329 (90.2) 238 (6.4) 0.0 (25.9) 0.0 206 (34.3) 2.10 0.0 174 174 322

3,482 (2,977) 504 (96.2) 408 (16.0) 0.0 (40.2) 0.0 353 (70.5) (9.1) 0.0 272 272 529

4,743 (4,057) 686 (131) 555 0.0 0.0 (66.0) 0.0 490 (122) 0.0 0.0 367 367 729

5,551 (4,761) 790 (153) 637 0.0 0.0 (79.3) 0.0 559 (139) 0.0 0.0 418 418 835

24.0 25.1 22.0 35.3

(19.1) (34.5) (41.9) (47.1)

31.3 64.2 71.2 56.7

36.2 37.9 35.8 34.5

17.0 14.4 14.8 14.1

14.9 12.5 10.0 23.4 9.8 15.5 30.0 NM

12.4 9.0 6.6 8.0 4.2 6.9 30.0 9.2

14.5 11.7 7.8 11.8 6.0 10.6 30.0 10.2

14.5 11.7 7.7 14.3 7.2 11.9 30.0 8.4

14.2 11.5 7.5 14.6 7.2 12.2 30.0 8.0

Source: Company, AllianceDBS, DBSVI

ASIAN INSIGHTS

VICKERS SECURITIES Page 45

Company Guide Wijaya Karya Beton

Quarterly / Interim Income Statement (Rpbn) FY Dec 4Q2015 1Q2016 Revenue Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. EBITDA

2Q2016

3Q2016

4Q2016

1,104 (964) 140 (29.7) 110 (1.4) 0.0 (9.4) 0.0 99.2 (12.6) (0.5) 86.1 86.1 109

733 (642) 91.0 (17.8) 73.2 0.60 0.0 (4.2) 0.0 69.7 (16.3) (3.1) 50.2 50.2 73.8

786 (676) 110 (23.4) 86.2 0.20 0.0 (9.1) 0.0 77.3 (15.3) (2.9) 59.1 59.1 86.4

723 (618) 105 (22.5) 82.7 1.40 0.0 (11.4) 0.0 72.7 (16.1) (1.6) 55.1 55.1 84.1

1,240 (1,041) 199 (32.5) 166 (18.3) 0.0 (15.5) 0.0 132 (22.9) (1.5) 108 108 148

67.9 101.9 105.2 151.7

(33.6) (32.0) (33.5) (41.7)

7.3 17.0 17.8 17.7

(8.0) (2.6) (4.1) (6.9)

71.5 75.9 101.0 96.2

12.7 10.0 7.8

12.4 10.0 6.9

13.9 11.0 7.5

14.5 11.4 7.6

16.0 13.4 8.7

Balance Sheet (Rpbn) FY Dec

2014A

2015A

2016A

2017F

2018F

Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets

1,671 0.0 4.10 1,039 458 476 155 3,802

1,998 0.0 3.70 824 623 570 439 4,456

2,219 0.0 3.20 343 695 654 750 4,662

2,726 0.0 3.20 121 900 935 846 5,529

2,989 0.0 3.20 69.4 1,058 1,094 908 6,121

ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap. & Liab.

565 420 525 1.20 88.5 2,143 59.5 3,802

212 558 1,025 320 79.2 2,205 58.2 4,456

470 664 730 200 108 2,422 68.5 4,662

670 835 941 200 108 2,707 68.5 5,529

670 981 1,078 200 108 3,015 68.5 6,121

Non-Cash Wkg. Capital Net Cash/(Debt) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X)

144 472 50.0 50.3 87.9 1.0 1.4 1.0 CASH CASH 139.6 3.8

49.3 292 72.0 79.9 88.2 0.6 1.4 0.8 CASH CASH 88.8 2.8

704 (327) 64.1 78.5 84.6 0.8 1.3 0.5 0.1 0.1 72.0 3.1

905 (749) 61.1 70.4 74.9 0.9 1.1 0.4 0.3 0.3 78.2 2.9

1,001 (800) 66.7 72.6 78.3 1.0 1.1 0.4 0.3 0.3 52.9 2.8

Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%)

Source: Company, AllianceDBS, DBSVI

ASIAN INSIGHTS Page 46

VICKERS SECURITIES

Company Guide Wijaya Karya Beton

Cash Flow Statement (Rpbn) FY Dec Pre-Tax Profit Dep. & Amort. Tax Paid Assoc. & JV Inc/(loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Capital Exp.(net) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Opg CFPS (Rp) Free CFPS (Rp)

2014A

2015A

2016A

2017F

2018F

412 84.8 (125) 0.0 (283) 103 192 (790) 0.0 0.0 0.0 0.0 (790) (20.0) 13.0 1,193 37.4 1,224 0.0 625 54.4 (68.6)

206 89.9 (34.3) 0.0 94.4 102 458 (472) 0.0 0.0 0.0 0.0 (472) (98.6) (103) 0.0 0.80 (201) 0.0 (215) 41.8 (1.6)

352 135 (70.5) 0.0 (654) 158 (79.2) (482) 0.0 0.0 0.0 0.0 (482) (52.2) 138 0.0 (5.8) 80.2 0.0 (481) 66.0 (64.4)

489 174 (122) 0.0 (201) 0.0 339 (680) 0.0 0.0 0.0 0.0 (680) (81.7) 200 0.0 0.0 118 0.0 (223) 62.0 (39.1)

558 197 (139) 0.0 (96.1) 0.0 519 (460) 0.0 0.0 0.0 0.0 (460) (110) 0.0 0.0 0.0 (110) 0.0 (51.2) 70.5 6.74

Source: Company, AllianceDBS, DBSVI Target Price & Ratings History

Source: AllianceDBS, DBSVI Analyst: Chong Tjen-San Tiesha PUTRI

ASIAN INSIGHTS

VICKERS SECURITIES Page 47

Industry Focus

AllianceDBS, DBSVI recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends Completed Date: 5 Jul 2017 18:52:21 (SGT) Dissemination Date: 6 Jul 2017 09:01:12 (SGT) Sources for all charts and tables are AllianceDBS, DBSVI unless otherwise specified. GENERAL DISCLOSURE/DISCLAIMER This report is prepared by AllianceDBS Research Sdn Bhd (''AllianceDBS''), PT DBS Vickers Sekuritas Indonesia (''DBSVI''). This report is solely intended for the clients of DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of AllianceDBS Research Sdn Bhd (''AllianceDBS''), PT DBS Vickers Sekuritas Indonesia (''DBSVI''). The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to update the information in this report. This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned schedule or frequency for updating research publication relating to any issuer. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that: (a)

such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and

(b)

there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein.

Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets. Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report.

Page 48

Industry Focus

DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making. ANALYST CERTIFICATION The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the DBS Group. COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1.

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2.

Neither DBS Bank Ltd, DBS HK nor DBSV HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.

Compensation for investment banking services: 3.

DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

Disclosure of previous investment recommendation produced: 4.

DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.

1

An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst. 2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.  

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RESTRICTIONS ON DISTRIBUTION General

This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

Australia

This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), both of which are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

Hong Kong

This report is being distributed in Hong Kong by or on behalf of, and is attributable to DBS Vickers (Hong Kong) Limited which is licensed and regulated by the Hong Kong Securities and Futures Commission and/or by DBS Bank (Hong Kong) Limited which is regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission. Where this publication relates to a research report, unless otherwise stated in the research report(s), DBS Bank (Hong Kong) Limited is not the issuer of the research report(s). This publication including any research report(s) is/are distributed on the express understanding that, whilst the information contained within is believed to be reliable, the information has not been independently verified by DBS Bank (Hong Kong) Limited. This report is intended for distribution in Hong Kong only to professional investors (as defined in the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) and any rules promulgated thereunder.) For any query regarding the materials herein, please contact Paul Yong (CE. No. ASE988) at [email protected].

Indonesia

This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia.

Malaysia

This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.

Wong Ming Tek, Executive Director, ADBSR Singapore

This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report.

Thailand

This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are only intended for institutional clients only and no other person may act upon it.

United Kingdom

This report is produced by AllianceDBS Research Sdn Bhd (''AllianceDBS''), PT DBS Vickers Sekuritas Indonesia (''DBSVI'') which is regulated by the Securities Commission Malaysia. This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd, ("DBSVUK"). DBSVUK is authorised and regulated by the Financial Conduct Authority in the United Kingdom. In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVUK. This communication is directed at persons having professional experience in matters relating to investments. Any investment activity following from this communication will only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments should not rely on this communication.

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Dubai

This research report is being distributed in The Dubai International Financial Centre (“DIFC”) by DBS Bank Ltd., (DIFC Branch) rd having its office at PO Box 506538, 3 Floor, Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it.

United States

This report was prepared by AllianceDBS Research Sdn Bhd (''AllianceDBS''), PT DBS Vickers Sekuritas Indonesia (''DBSVI''). DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.

Other jurisdictions

In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions. AllianceDBS Research Sdn Bhd (128540 U) 19th Floor, Menara Multi-Purpose, Capital Square, 8 Jalan Munshi Abdullah 50100 Kuala Lumpur, Malaysia. Tel.: +603 2604 3333 Fax: +603 2604 3921 email : [email protected]

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