Spotlight - Wijaya Karya - Expanding mode (WIKA-BUY-IDR670-TP:830) - Bahana

IDR4.5t new contracts till June, inline to achieve 2011 targets
Wijaya Karya (WIKA) reported strong 4M11 new book orders of IDR3.16t (excluding JO), nearly triple from the same period a year ago, with power plant/ME and Toll/road/bridges as the major contributors (exhibit 9). In April, WIKA obtained additional IDR317b new book orders from power plants in Timor Leste and Ambon, IDR268b from buildings construction, IDR82b from Port/Irrigation and combined IDR138b from Realty, Metal/Trading and other business group, bringing total additional new book orders of IDR805b. Our recent conversation with management reveals that WIKA has reached IDR4.5t new book orders till June 2011, accounting for 48% of our 2011 new order book estimates, which is inline in our view.

3 investments projects to support recurring incomes
WIKA’s first investment project, Diesel Engine Power Plants (3x18MW), in Bali commenced in March 2011, expecting to contribute annual recurring incomes of IDR165b. Its 3 new other projects are expected to continue supporting its recurring income going forward. Scheduled for completion in 2013, WIKA will start building 6 Asphalt plants under the joint operation with Timah in Buton Island with annual capacity of 300kton. This new products would cover the partial supply shortage for asphalt. The current domestic consumption stands at 1.5mtons per annum and only 20% are locally sourced (Pertanina) while the remaining is still imported. WIKA’s other projects include Geothermal Power Plant in Sumedang – West Java and Surabaya-Mojokerto Toll road. However, progress of these last two projects will be depended on the success of geothermal exploitation (2011-13) and land acquisition respectively.

More expansions ahead, BUY with TP IDR830
We see more opportunities for WIKA’s expansion ahead, to cover the recent launch of the Master Plan for Acceleration and Expansion of Indonesia’s Economic Development (MP3EI). Amongst others, infrastructure related projects are on the top priority list (exhibit 12). Thus, we believe that WIKA would be the main beneficiary from this development. Wika recently commenced the additional capacity on its concrete facilities under its subsidiary company, with total annual capacity of 1.5mton (vis-à-vis IDR1.3mton previously). On property front, WIKA realty, the property arm of the company, will launch mix use of property in Cawang, East Jakarta this year. We see continues expansion in WIKA Realty under JO with other SOE companies which own sizeable and idle land banks. We expect WIKA ro book 2011 strong revenue growth of around 30% y-y to IDR7.8t coming from IDR19.7t total book order this year. As the company focus on product mix and efficiency to improve margins, we estimate 2011-12 operating margin improvements to 8.2% and 8.3% respectively. 2011-12 bottom lines are likely to grow 16% and 30% y-y respectively, with net margins of 4.3% and 4.5%. We reiterate our BUY rating on WIKA with TP IDR830, trading at 2011 implied P/E of 15x, or 20% discount to regional average of 18.8x.