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Transcript of Infra 2.0: on firmer foundation - brokingrfs.cimb.com · Jabodetabek LRT investment toll roads,...
November 22, 2018
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CGS-CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.
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Construction Infra 2.0: on firmer foundation
■ We expect the next infra push (infra 2.0), likely to kick-off in 2019F, to have a better structure, risk management, and working capital.
■ Formation of infra and property holding companies is a positive, which could enable more orderly funding, improve efficiency, and economies of scale.
■ New contract growth and backlog support earnings outlook. Maintain Overweight given appealing valuations. Key picks: WSKT and ADHI.
Analyst(s)
Aurelia BARUS
T (62) 21 3006 1721 E [email protected]
Namira LAHUDDIN T (62) 21 3006 1728 E [email protected]
NA
VIG
AT
IN
G IN
DO
NE
SIA
Navigating Indonesia
Construction and Materials │ Construction │ November 22, 2018
2
TABLE OF CONTENTS
INFRA 2.0: BETTER STRUCTURE AND RISK MANAGEMENT ................................................. 4
EARNINGS OUTLOOK ............................................................................................................... 16
PROJECT PROGRESS AND OUTLOOK ................................................................................... 23
CLEARER FUNDING VISIBILITY AND STATE SUPPORT REMAINS STRONG ..................... 31
PROJECT PAYMENTS ............................................................................................................... 31
VALUATION AND RECOMMENDATION ................................................................................... 38
Sector Note Navigating Indonesia │ Construction │ November 22, 2018
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CGS-CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH. EFACustomEntityStatement
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Construction Infra 2.0: on firmer foundation
■ We expect the next infra push (infra 2.0), likely to kick-off in 2019F, to have a better structure, risk management, and working capital.
■ Formation of infra and property holding companies is a positive, which could enable more orderly funding, improve efficiency, and economies of scale.
■ New contract growth and backlog support earnings outlook. Maintain Overweight given appealing valuations. Key picks: WSKT and ADHI.
Infra 2.0: better funding structure and risk management The last great infra push that began in 2014 lacked adequate planning and a funding
structure, and dented investor sentiment. As such, we view the government’s latest plan
to form two state-owned holding companies for infrastructure (under Hutama Karya) and
property (under Perumnas) by end-2018 as positive, as this could improve development
planning, bridge government and minority shareholders’ interests, improve efficiency, and
boost economies of scale, leading to lower procurement and funding costs. We see a
brighter outlook for the next infra push (Infra 2.0), which we reckon will kick-off in 2019F.
Earnings and projects outlook remain positive After the sector delivered 55% aggregate core NP CAGR in 2014-17, we expect the
sector’s earnings delivery to remain on track in 4Q18F and FY19F (aggregate core NP
estimate of +21% yoy). This is underpinned by: 1) sufficient orders on hand even in the
worst-case scenario of weak new contracts booking; 2) rich projects to be awarded in
2019F (some Rp1,190tr of potential strategic national projects); and 3) strong burn rate
for carried-over contracts.
Clearer funding visibility with strong state support; improving OCF The infra budget in the approved 2019 state budget is sizeable at Rp415tr (+1% yoy), or
c.2.6% of GDP. Both Hutama Karya and PLN, which account for 13% and 5% of the
sector's total outstanding receivables, respectively, should have sufficient capital going
into 2019. More alternative funding resources for infra are expected. The materialisation
of a capital recycling plan is positive for the sector. We have yet to price in these into our
valuations. The sector expects to improve its working capital by switching to milestone
payment terms from full turnkey payments for future major size projects. This could help
improve the sector's account receivables (A/R) days substantially - 71-83% lower than
under full turnkey payment terms, based on our sensitivity analysis. This should reduce
negative OCF risk in the future.
Deserving lower risk premium; maintain Overweight The sector has been subject to investors’ risk aversion since 2016. In YTD-18, the
sector’s implied average risk premium gap over the JCI is at c.26% pts higher. We
believe an improvement in the risk management outlook would drive down such a huge
risk premium gap. Our TP for the four state-owned contractors imply weighted average
risk premium gap of 14% to the JCI index’s, or similar to the sector’s implied risk premium
over the JCI in 2010 when several issues plagued the sector. On a P/E basis, our target
TPs are undemanding, at 8.7-12.5x CY19F P/E. We maintain our Overweight rating on
the sector. Key picks: WSKT and ADHI.
Figure 1: SOE contractors' sector risk premium gap over the JCI index’s
SOURCES: CGS-CIMB RESEARCH
Indonesia
Overweight (no change)
Highlighted Companies
Adhi Karya ADD, TP Rp2,000, Rp1,375 close
ADHI is a state-owned contractor in Indonesia. It offers civil construction and engineering, procurement and construction (EPC) services. Through its subsidiaries, it develops real estate and produces precast concrete.
Waskita Karya ADD, TP Rp3,000, Rp1,590 close
WSKT is the largest state-owned contractor in Indonesia in terms of market cap. Its contracting business offers civil construction and EPC services. Through its subsidiaries, it offers precast concrete and has multiple investments in toll roads.
Wijaya Karya ADD, TP Rp2,000, Rp1,290 close
WIKA is the second-largest state-owned contractor in Indonesia in terms of market cap. Its contracting business offers civil construction and EPC services. Through its subsidiaries, it sells precast concrete and develops real estate.
Summary Valuation Metrics
Insert
Analyst(s)
Aurelia BARUS
T (62) 21 3006 1721 E [email protected]
Namira LAHUDDIN T (62) 21 3006 1728 E [email protected]
P/E (x) Dec-18F Dec-19F Dec-20F
Adhi Karya 6.72 5.97 4.92
Waskita Karya 5.50 6.61 8.63
Wijaya Karya 7.67 6.57 5.57
P/BV (x) Dec-18F Dec-19F Dec-20F
Adhi Karya 0.73 0.64 0.56
Waskita Karya 1.29 1.12 1.04
Wijaya Karya 0.83 0.75 0.67
Dividend Yield Dec-18F Dec-19F Dec-20F
Adhi Karya 2.11% 2.98% 3.35%
Waskita Karya 5.40% 3.68% 4.54%
Wijaya Karya 1.80% 2.25% 2.63%
Title:
Source:
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-30%
-20%
-10%
0%
10%
20%
30%
40%
2009-mean
2010-mean
2011-mean
2012-mean
2013-mean
2014-mean
2015-mean
2016-mean
2017-mean
YTD-18-mean
Targetpx-
mean
Higher/(lower) - in percentage pt
mean
Navigating Indonesia
Construction │ November 22, 2018
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Infra 2.0: on firmer foundation
INFRA 2.0: BETTER STRUCTURE AND RISK MANAGEMENT
The first great infra push that began in 2014 lacked coordination and a structure
for planning and funding for infra development. This arguably dented minority
investor sentiment, despite its largesse (14% of cumulative GDP spent over
2014-2019F). The government’s latest plan to form two state-owned holding
companies for infrastructure and property by end-2018 is therefore much more
positive, in our view, as it could help improve development planning, bridge
government and minority shareholders’ interests, improve efficiency, and boost
economies of scale, leading to lower procurement and funding costs. We see a
brighter outlook for the next infra push (infra 2.0), which we reckon could kick-off
in 2019F.
A less organised infra 1.0
During the first great infra push that started in 2014 (which we will call infra 1.0),
the government injected a total of Rp11.2tr capital to the four SOE contractors
through rights issues in 2015-2016. Together with government capital injections,
the four SOE contractors also received rights issue proceeds from public
investors through the same exercises in 2015-2016, totaling Rp7.5tr (see Figure
2).
Figure 2: The four SOE contractors conducted rights issues in 2015-2016 - proceeds
and allocations
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
The rationale behind the capital injections and rights issues in 2015-2016 were
to strengthen the capital structures of the four SOE contractors for them to
participate in various infra investments. This was actually in line with the
government’s funding plan for infra development through the national medium
term development plan (RPJMN or rencana pembangunan jangka menengah) in
2015-2019. In the funding plan, the government’s budget was expected to be
only sufficient to cover 41% of the total infra funding needs in 2015-2019 of
Rp4,979tr (assuming a US$/Rp rate of 13,500). The rest of the funding was to
have been provided by SOE and private entities at 22% and 37% of total needs,
respectively.
ADHI (2015) WSKT (2015) WIKA (2016) PTPP (2016)
Total proceeds (Rp bn) 2,745 5,298 6,149 4,410
from Government of Indonesia 1,400 3,500 4,000 2,250
from public investors 1,345 1,798 2,149 2,160
Allocations
from Government of IndonesiaJabodetabek LRT
investment
toll roads, power
plants, and
industrial estate
investments
toll roads, ports,
low cost high rise
residentials
investments
from public investorsTrainst oriented
development (TOD)
investment,
refinancing, &
working capital
industrial estate,
low cost high rise,
and power plant
investments
toll roads
investments in Java
and Sumatera;
working capital for
electricity
transmission
development in
Sumatera
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Construction │ November 22, 2018
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Figure 3: National medium-term development infra funding requirement plan in 2015-
2019 (total of Rp4,979tr, assuming Rp13,500/US$)
SOURCES: CGS-CIMB RESEARCH, KPPIP
However, the lack of coordination and structure caused delays and consequently,
investment realisation had been slow. Additionally, there were some changes to
the investment plans and project investors from the initial plans. So far, only the
investment realisations for toll road projects are on track. Hence, WSKT had the
highest capex realisation for toll road projects. The other contractors have yet to
realise their investment plans.
The Jakarta-Bandung HSR project was the major delay, by about two and half
years, since it broke ground in early-2016, which aptly illustrates the chaos in
infra 1.0. We further highlight some of the events that deviated from the initial
plans below.
1. Change of Jabodebek LRT investor and uncertainties over funding
sources
In 2015, ADHI received Rp1.4tr in capital injection from the government,
which was initially to be allocated for the Jabodebek LRT investment.
The appointment of ADHI as the project investor for Jabodebek LRT
raised concerns from its minority shareholders. This was on the back of
the project’s total low project IRR of c.7% (unfeasible). Due to this
concern, ADHI proposed a change in the project investor to the
government.
In 2015, ADHI broke ground for the project construction. However, it
was not until early-2017 that it received the official construction contract
for the project. Additionally, over the 2015-2017 period, there were no
certainties on who the project investor for the project would be.
After about two years of long negotiations and two Presidential Decree
revisions as the legal basis for project development, at the end of 2017,
the government finally affirmed Kereta Api Indonesia (KAI) as the project
investor for Jabodebek LRT. The government also finally confirmed the
sources of funding for the project investment. ADHI's share price
performance had been volatile during the process of change in the
Jabodebek LRT investor and determination of sources of funding for the
project (see Figure 4).
Now, ADHI has yet to decide on the Rp1.4tr capital injection utilisation
from government, which was initially to be invested for the whole
Jabodebek LRT development. Based on our latest discussions with
ADHI, it may allocate the capital injection money as working capital for
the Jabodebek LRT depot. It expects the government to repay the
company under the availability payment terms. Under the availability
Title:
Source:
Please fill in the values above to have them entered in your reportState/regional budget
41%
SOEs22%
Private37%
Navigating Indonesia
Construction │ November 22, 2018
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payment terms, the government will pay ADHI in instalments for the LRT
depot, of which the first payment will only take place after 100% project
delivery. The instalment period will be as long as the concession period.
Figure 4: ADHI's share price performances were volatile in 2015-2017 during the process of Jabodebek LRT investor change
SOURCES: CGS-CIMB RESEARCH, BLOOMBERG
2. Large-size power plant investments yet to be realised
WIKA and PTPP have yet to allocate the bulk of their rights issue
proceeds for power plant investments (see Figures 5-6). However, now,
the government plans to delay the 35GW electricity projects due to
Indonesia’s widening current account deficits (CAD).
The delay in the 35GW electricity projects are expected for power plant
projects that have not yet reached financial close. Based on our
understanding, all the power plant projects to be invested by WIKA and
PTPP have not reached financial close yet. Hence, we think these
projects could be delayed further.
Figure 5: PTPP's progress in utilising funds from state capital injection and its rights issue, as of 9M18
SOURCE: CGS-CIMB RESEARCH, COMPANY
Title:
Source:
Please fill in the values above to have them entered in your report
-
500
1,000
1,500
2,000
2,500
3,000
3,500
2-Jan-15 2-Jul-15 2-Jan-16 2-Jul-16 2-Jan-17 2-Jul-17 2-Jan-18
Rp 3-Sep-2015:
ADHI was appointed as the developer of Jabodebek LRT through issuance of
Presidential Decree No. 98/Year 2015
10-Feb-2017:
ADHI signed Jabodebek LRT contract worth
Rp23.4tr
19-May-2017:
Government issued second revision of Presidential Decree for Jabodebek LRT (Presidential Decree No.49/ Year 2017), which stated about the sources of
funding options for KAI. However, there was still no affirmation about when and
how KAI would make payment for construction progress delivered by ADHI.
28-Nov-2017:
Local news reported Ministry of SOE had asked Indonesia Railways Company (KAI) to be a project operator rather
than project investor for Jabodebek LRT. ADHI's CEO Mr.
Budi Harto was quoted by Detik.com saying that ADHI
would invest in Jabodebek LRT
8-Dec-2017:
Government reconfirmed KAI as the project investor for Jabodebek LRT.
Government as well affirmed about the
sources of funding for the Jabodebek LRT
payment, which would be through
government capital injections and bank
loan consortiums.
3-Aug-2016:
ADHI was officially only appointed as the project contractor, while KAI was appointed as the project investor for
Jabodebek LRT through issuance of first Presidential Decree
revision (Presidential Decree No.65/ Year 2016). However,
uncertainties remained about the funding sources for the
project investment.
Stake
Est.
value
(Rp bn)
Equity
(30%)
Debt
(70%)
Proceeds from state capital injection (PMN)
Port
Multipurpose Terminal Kuala Tanjung 3,177 166 25% 794 238 556 323 Operating
Toll roads
Medan-Kualanamu-Tebing Tinggi 4,072 174 15% 611 183 428 185 Under construction
Depok-Antasari 3,472 62 13% 451 135 316 83 Section I was completed
Balikpapan-Samarinda 9,973 449 15% 1,496 449 1,047 33 Under construction
Pandaan-Malang 5,970 627 35% 2,090 627 1,463 439 Under construction
Manado-Bitung 5,123 231 15% 768 231 538 66 Under construction
Housing
High-rise low-cost residential units 3,277 541 55% 1,802 541 1,262 92 Under construction
Total 35,064 2,250 8,013 2,404 5,609 1,222
Proceeds from rights issues
Industrial Estate
Kuala Tanjung Industrial Estate 8,000 1,260 35% 2,800 840 1,960 -
Housings
High-rise low-cost residentials 2,805 463 55% 1,543 463 1,080 -
Power plant
Coal fired power plant-Meulaboh 400MW 7,330 439 34% 2,483 745 1,738 9
As end-9M18 the total account receivable
balance from the project construction is
Rp271.7bn; the project is yet to finalise the
financial close of the project and currently
under review
Total 18,135 2,162 6,826 2,048 4,778 9
PTPP's equity
(end-9M18)Projects status as of 9M18
PTPP's investmentCapital
injection
(Rp bn)
Total
value
(Rp bn)
Project allocations
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Construction │ November 22, 2018
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Figure 6: WIKA's utilisation of funds from the state capital injection as of 9M18
SOURCE: CGS-CIMB RESEARCH, COMPANY
Two newly-formed state-owned holding companies should improve coordination
The government plans to set up two infra and property holding companies by
end-2018. Hutama Karya (HK), a 100% government-owned state-owned
enterprise (SOE) contractor, will be the holding company for its infrastructure-
related ventures. Perumnas, a 100% government-owned SOE developer, will be
the holding company for its property-related ventures (housing and industrial
area). Besides the property sector, we believe Perumnas will likely also focus on
the engineering, procurement, and construction (EPC) sector, e.g. power plants
and oil and gas related businesses. The government aims to convert HK and
Perumnas into holding companies by end-2018F. Following this, the full
immersion is projected by FY2020F.
Some changes have been made to the composition of the holding companies
from the initial plan announced. The new list puts WIKA under Perumnas (vs.
HK previously) and ADHI under HK (vs. Perumnas previously).
We think the changes in WIKA and ADHI's grouping would better align their
competencies with the holding companies’ respective focus. WIKA has a strong
presence in EPC, and recently expanded into housing. ADHI is the appointed
contractor for the whole Jabodebek LRT development.
Based on the respective holding companies’ focus, we think WIKA and PTPP
would be focusing more on property (e.g. real estate and industrial estates) and
EPC projects (e.g. power plant, oil, and gas related projects), respectively. ADHI
and WSKT would focus more on non-EPC infra projects (e.g. toll roads and
water treatment); and JSMR would remain a toll road developer and operator.
Figure 7: Structure of the SOE holding companies for the government's infrastructure and property ventures, respectively (latest)
SOURCES: CGS-CIMB RESEARCH, MINISTRY OF SOE
StakeEst. value
(Rp bn)
Equity
(30%)
Debt
(70%)
Toll roads
Soreang-Pasirkoja 1,500 113 25% 375 113 263 227 Under construction
Manado-Bitung 5,123 307 20% 1,025 307 717 88 Under construction
Balikpapan-Samarinda 9,972 449 15% 1,496 449 1,047 36 Under construction
Power plants
Steamed engine power plant Banten 2
X 1,000 MW37,500 1,688 15% 5,627 1,688 3,939 -
Likely to be replaced with steam
engine power plant Jambi 1 & 2 (2 X 2
X 300 MW); but still no progress up to
now
Steamed engine power plant Aceh 2 X
200 MW10,000 893 30% 3,000 900 2,100 -
Likely to be replaced with Butu Batu
water engine power plant (2 X 100
MW); but still no progress up to now
Clean water treatments
WTP Jatiluhur 50,000L/sec 2,000 84 14% 280 84 196 0 No progress
Industrial estate
Kuala Tanjung Industrial Estate 8,000 467 19% 1,520 456 1,064 - Not started yet, might be changed to
another project located in Java area
Total 74,095 4,000 13,322 3,997 9,325 351
Project status as of 9M18
WIKA's investment
ProjectsTotal value
(Rp bn)
Capital
injection
allocations
WIKA's equity
(end-9M18)
70% 51% 66% 100% 100% 51% 65% 100% 100% 100% 100%
Infrastructure holding company Property (housing and industrial area) holding company
Navigating Indonesia
Construction │ November 22, 2018
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Figure 8: Strategy, plan, and focus of infra and property holding companies
SOURCES: CGS-CIMB RESEARCH, MINISTRY OF SOE
Figure 9: Benefits of forming infra- and property-focused holding companies
SOURCES: CGS-CIMB RESEARCH, MINISTRY OF SOE
Infrastructure holding company (Hutama Karya) Property holding company (Perumnas)
Integrated regional infrastructure development strategy Urban and suburban development strategy
Increasing national infrastructure quality through integrated development Ensuring that the national housing needs are met across all geographical areas
Increasing capabilities, scale, and innovation as infrastructure development integrator Describing company's long-term plan for national's needs
Encouraging regional economic growth Prioritising targetted projects and funding for development plan
Infra development plan with focus of accelerating national economy
developmentProperty development plan with a focus on increasing quality of life
Creating end-to-end value chainCreating a masterplan for new development and rejuvenation, while focusing on
populations needs (ie. housing, jobs, and transportation)
Supporting government plan to accelerate strategic national development to attain
acceleration of economic growth
Providing high quality goods and services through collection of business methods and
knowledge
Optimisation and effectiveness Optimisation and effectiveness
Creating a balanced integration (of both backward and forward integration) strategy
among SOEs in the infrastructure sector
Ensuring for affordable housing price by controlling secondary housing price in the
market
Strengthening capital and increasing financing capacity to manifest infrastructure
developmentPositioning as funding provider for home buyers
Managing high quality standard through direct management in commercial segment
and infrastructure
Results Results
Creating synergy to strengthen financing and investments → more (+) Building more houses to cope with low-cost housing
deficits → more (+)
Strengthening and widening expertise through implementation
of best practices → better (+)Guarantee of sustainable low-cost housing
development → more affordable (+)
Integration of regional infrastructure to become more appealing
as a whole → well-intergrated (+)Utilisation of comprehensive competence in
infrastructure and commercial sectors → well-integrated (+)
Taking over end-to-end ownerships of BOOT (build, operate,
own, transfer) projects → more sustainable (+)Providing quality services and consistency among
business units → better quality (+)
= Opening opportunities for synergy =
acceleration of
national economic
development
increasing
Indonesia's quality of
life
Infrastructure holding company (Hutama Karya) Property holding company (Perumnas)
Navigating Indonesia
Construction │ November 22, 2018
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Expect government and minority shareholders’ interests to be better aligned
In the next cycle of Indonesia's infrastructure development, the development of
ex-Java areas would likely be the focus as Java is already well developed, in our
view. However, projects outside of Java could offer unappealing project
feasibility (lower IRR) given that the majority of Indonesia’s population (57%) is
concentrated in Java, followed by Sumatera (22%), with the remaining spread
across the rest of Indonesia.
We think that if the next cycle of infra development (infra 2.0) focus would be in
ex-Java areas, this could raise concerns among minority shareholders (equity
stock investors) on whether the listed SOE contractors and JSMR could possibly
be asked or be assigned to invest in projects in ex-Java area with less appealing
feasibility (low project IRR). This is on the back of state budget limitations for
infra funding.
From our discussion with Hutama Karya, we understand that following the
formation of the holding companies, the government could assign projects with
less appealing feasibility to the holding companies. As an example, the
government has assigned the Trans-Sumatera toll road development to Hutama
Karya; though the project is guaranteed by the government. Hence, Hutama
Karya could receive lower financing cost from a higher AAA bond rating for the
project from PEFINDO (Indonesia’s Credit Rating Agency). This is higher than
the company’s rating of A- from PEFINDO.
Figure 10: Hutama Karya's financing cost for projects guaranteed by the government
guarantee is much lower compared to what it would get on its own
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
We think that if the government were to possibly only assign less appealing
projects to the holding companies following the holding companies’ formation,
this would be a win-win solution for the government and minority shareholders
and a positive for the sector in infra 2.0.
By assigning the less appealing project investments to the holding companies,
the government should be able to meet its development target (no need to wait
for willing investors to invest in these projects), keeping the infra budget
unchanged. The holding companies could possibly leverage lower financing cost
on the back of the government’s guarantee. The SOE contractors in our
coverage and JSMR would hardly be receiving any government guarantees as
they are not 100% government-owned, which would result in higher financing
costs, in our view.
Yet, the SOE contractors in our coverage would still be able to receive project
construction contracts invested by the holding companies as we believe the
holding companies would not be able to take on the construction of the entire
projects on their own.
Title:
Source:
Please fill in the values above to have them entered in your report
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
-
500
1,000
1,500
2,000
2,500
Bond I-Series B2013
Bond I-Series C2013
Bond PUB IPhase I-2016
Bond PUB IPhase II-2017
Bond PUB IPhase III-Series
A-2017
Bond PUB IPhase III-Series
B-2017
Value (Rp bn) Coupon rate- RHS
with government guarantee
PEFINDO rating: A-; tenure: 7 years
PEFINDO rating: A-; tenure: 5 years
PEFINDO rating: AAA; tenure: 10 years
PEFINDO rating: AAA; tenure: 10 years
PEFINDO rating: AAA; tenure: 10 years
PEFINDO rating: AAA;tenure: 10 years
Navigating Indonesia
Construction │ November 22, 2018
10
Hope for efficiency improvements, lower funding costs and increasing scale
According to the roadmap revealed by the government, the first step in the
formation of state-owned infrastructure and property holding companies is the
transfer of the government’s current direct ownership in the respective SOEs to
the two assigned holding companies, Hutama Karya (HK) and Perumnas.
The next step, dubbed "initiation of cooperation", involves the creation of sub-
holding companies under HK and Perumnas (Figure 11).
We think the aim of forming sub-holding companies is to improve efficiency and
boost economies of scale, leading to lower procurement and funding costs.
Currently, all the four SOE contractors have a wide range of investments and
subsidiaries in their portfolios, and they do not necessarily have the expertise to
manage their highly-diversified investment portfolios (Figures 12-13).
Based on the roadmap, Hutama Karya is to have four sub-holding companies -
precast and construction materials, construction, concessions, and property
(leaning towards commercial property, e.g. transit oriented developments (TOD)
property). Perumnas would have six sub-holding companies - sub-holding
management, developer, design and technic, industry and material, construction
and EPC, and operational and maintenance (O&M).
Although we are positive on the idea of sub-holding companies, we think the
most important things to watch out for are fair values and investment structures
in the event of possible asset transfers or restructuring from the SOE contractors
and JSMR to the sub-holding companies.
Figure 11: Roadmap on the formation of Hutama Karya (HK, infrastructure) and Perumnas (property) holding companies
1. Sub-holding management 2. Developer 3. Design & technic 4. Industrial & material 5. Construction & EPC 6. O&M
SOURCES: CGS-CIMB RESEARCH, MINISTRY OF SOE
11
Construction and Materials│Indonesia
Construction│ October 22, 2018
Figure 12: SOE contractors' investments portfolio
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
Stake (%)Equity-
Rp bnStake (%)
Equity-
Rp bnStake (%)
Equity-
Rp bnStake (%)
Equity-
Rp bn
Toll road (length in KM) 1,352 177,780 7 861 1,199 15,043
Balikpapan-Samarinda toll road 99 9,970 15% 33 15% 36 Under construction
Bekasi-Cawang-Kp. Melayu toll road 22 9,500 76% 1,513 Partially operating
Cengkareng-Kunciran toll road 14 4,980 2% 8 Under construction
Ciawi-Sukabumi toll road 54 9,200 77% 1,277 Under construction
Cibitung-Cilincing toll road 34 4,220 42% 423 Under construction
Cileunyi-Sumedang-Dawuan toll road 62 8,400 14% 1 12% 15 Under construction
Cimanggis-Cibitung toll road 25 8,200 69% 952 Under construction
Cinere-Serpong toll road 10 2,800 27% 89 Under construction
Depok-Antasari toll road 22 3,400 13% 83 10% 255 Section I development was completed
Kanci-Pejagan toll road 35 2,900 18% 193 Operating
Kayu Agung-Palembang-Betung toll road 112 14,400 46% 1,063 Under construction
Krian-Legundi-Bunder-Manyar toll road 38 12,200 42% 966 Under construction
Kuala Tanjung-Tb. Tinggi-Parapat toll road 143 13,450 23% 11 Under construction
Manado-Bitung toll road 40 5,120 15% 66 20% 88 Under construction
Medan-Kualanamu-Tebing Tinggi toll road 62 4,710 15% 185 12% 358 Partially operating
Ngawi-Kertosono toll road 87 7,800 31% 354 Partially operating
Nusa Dua-Ngurah Rai-Benoa toll road 10 2,010 1% 7 0% 3 Operating
Pandaan - Malang toll road 38 5,970 35% 439 Under construction
Pasuruan-Probolinggo toll road 31 3,800 23% 227 Under construction
Pejagan-Pemalang toll road 58 6,840 23% 5,878 Operating
Pemalang-Batang toll road 39 5,200 46% 857 Under construction
Semarang-Batang toll road 75 11,050 31% 79 Under construction
Serang-Panimbang toll road 84 5,330 15% 53 80% 642 Under construction
Solo-Ngawi toll road 90 10,800 31% 535 Operating
Soreang-Pasirkoja 32 1,500 25% 227 Under construction
Surabaya-Mojokerto toll road 36 4,030 20% 194 Operating
Investments Length or capacities Total est. inv. cost (Rp bn)
Investment participations (end-9M18)
Status (9M18)ADHI IJ PTPP IJ WIKA IJ WSKT IJ
12
Construction and Materials│Indonesia
Construction│ October 22, 2018
Figure 13: SOE contractors' investments portfolio
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
Stake (%)Equity-
Rp bnStake (%)
Equity-
Rp bnStake (%)
Equity-
Rp bnStake (%)
Equity-
Rp bn
Power plant (capacities in MW) 660 9,553 - 270 92 115
Coal fired power plant -Meulaboh, Aceh 400 7,330 34% 9 Construction started in 2018
Mini hydro power plant-Lau Gunung, No. Sum. 15 288 38% 33 Construction progress: 60.3%
Gas engine power plant- Talang Duku, Palembang 56 - 99% 137 Operating since 2011
Waste to energy power plant-Surakarta, Central Java 10 400 40% 25
Coal fired power plant-Central Lampung 14 - 75% 67 Operating since 2014
Micro gas power plant-Rengat 20 160 100% 46 Operating
Gas engined power plant-Borang 60 806 100% 26 Operating
Micro gas power plant-Rawa Minyak 25 204 70% 20 Operating
Mini hydro power plant-Sangir, W. Sumatera 10 266 95% 113 Operating
Hydroelectric power plant-Wado, W. Java 50 100 100% 2 Under construction
Oil, gas, and asphalt - 4,900 - - - -
Bantaeng storage - 4,900 30% 18
Asphalt mining - - 99% 41 Operating
Upstream and downstream oil and gas - - 70% 15 Operating
Water infrastructure 2,000 - 20 0 -
Water treamemt plant-Jatiluhur 50,000L/sec 2,000 14% 0
Perusahaan Air Indonesia Amerika 25% 20
Port 3,177 - 323 96 273
Multipurpose Terminal Kuala Tanjung 25% 323 20% 273 Operating
Belawan International Container Port 15% 96 Operating
Railway or city train 79,330 - - (187) -
Jakarta-Bandung HSR 78,000 38% (187) Under construction
Metro Kapsul 1,330 51% -
Total 276,740 7 1,474 1,199 15,430
Investments Length or capacities Total est. inv. cost (Rp bn)
Investment participations (end-9M18)
Status (9M18)ADHI IJ PTPP IJ WIKA IJ WSKT IJ
Navigating Indonesia
Construction │ November 22, 2018
13
How operational cost efficiency could be created
Currently, the Trans-Java Toll Road is owned by three majority shareholders -
JSMR, Waskita Toll Road (WTR, a subsidiary of WSKT), and Astra Infra (a
subsidiary of Astra International, ASII, ADD, TP Rp8,500).
Figure 14: Trans-Java Toll Road concessions
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
WTR started investing in the toll road business in 2015, while JSMR has been in
this business since 1978 (it was initially a toll road regulator, from 1978, and
turned into a toll road developer and operator in 2004). Given JSMR's very long
track record in the toll road business, we believe it has the most expertise in
operating toll roads vs. other SOE contractors in our coverage.
Hence, we think that if the whole stretch of Trans-Java Toll Road is managed
under a sub-holding company and operated by JSMR, its operational cost
should be much more efficient due to economies of scale. A single operator
would significantly reduce the number of employees needed to operate the
whole stretch.
JSMR WTR Astra Infra
Jakarta-Cikampek 83.0 Jasa Marga 100% - -
Cikampek-Palimanan 114.0 Lintas Marga Sedaya - - 45%
Palimanan-Kanci 26.3 Jasa Marga 100% - -
Kanci-Pejagan 35.0 Semesta Marga Raya - 78% -
Pejagan-Pemalang 57.5 Pejagan Pemalang Toll Road - 100% -
Pemalang-Batang 39.00 Pemalang Batang Toll Road - 60% -
Batang-Semarang 75.0 Jasamarga Semarang Batang 60% 40% -
Semarang 24.8 Jasa Marga 100% -
Semarang-Solo 72.6 Trans Marga Jateng 59% - -
Solo-Ngawi 90.1 Solo Ngawi Jaya 60% 40% -
Ngawi-Kertosono-Kediri 114.9 Ngawi Kertosono Jaya 60% 40% -
Kertosono-Mojokerto 41.0 Marga Harjaya Infrastruktur - - 100%
Mojokerto-Surabaya 36.3 Jasamarga Surabaya Mojokerto 55% - -
Surabaya-Gempol 49.0 Jasa Marga 100% - -
Gempol-Pandaan 13.6 Jasamarga Pandaan Tol 92% -
Gempol-Pasuruan 34.2 Transmarga Jatim Pasuruan 99% - -
Pasuruan-Probolinggo 31.3 Trans Jawa Paspro Jalan-Tol - 80% -
Probolinggo-Banyuwangi 172.0 Jasamarga Probolinggo Banyuwangi 55% - -
Total 1,110
Length (km) Concession holderStake ownerships
Toll roads
Navigating Indonesia
Construction │ November 22, 2018
14
How enlarged scale could translate into lower cost
Hutama Karya’s GPM improved to 10.2% in 9M18 vs. 8.6% in 9M17. From our
discussion with its management, we understand that this was due to the
implementation of an integrated procuring system at the beginning of 2018.
Figure 15: Improvement of Hutama Karya's GPM
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
We think if Hutama Karya’s case could be a benchmark, in the future, the
formation of a precast and construction material sub-holding company under the
infrastructure holding could have a positive impact on the procurement cost of all
the members of the sub-holding company. This should not only result in higher
operational cost efficiency (e.g. fewer number of employees needed), but also in
larger orders (economies of scale). Economies of scale could perhaps give
additional bargaining power to the group of companies under the sub-holding
company when dealing with suppliers.
Potentially lower funding cost
We believe lower cost of funding can be attained through sub-holding
companies formation.
As an example, the Trans-Java Toll Road includes the Jakarta-Cikampek toll
road, which is already a mature toll road with stable cash flow. If the Jakarta-
Cikampek toll road is combined with new toll road assets of the highway to raise
funds for the whole highway stretch, we believe the cost of funding should be
lower vs. separately raising funds for each new toll road asset.
Enlarging room for leverage
We think the total room of leverage for the holding companies and holding
members should remain the same after the formation of the holding companies.
Our channel checks indicate that this can be achieved through using an equity
method of accounting at the holding company level. This is despite the fact that
holding companies need to have a majority stake in its subsidiaries. Normally,
the parent company needs to apply a full-consolidation accounting method if it
has a majority stake in its subsidiaries.
This is possible, in our view. Based on ED PSAK 4 (Indonesia’s Financial
Accounting Standards), a subsidiary cannot be consolidated if it is subject to the
control of the government, court, administrator, or regulator.
We estimate that a full-consolidation accounting method for both holding
companies could increase total debt of Hutama Karya to Rp111tr (11x from the
level as at end-FY17 and Perumnas to Rp27.5tr (10x from the level as at end-
FY17, post-holding companies’ formation. We estimate Hutama Karya’s and
Title:
Source:
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8.61%
10.15%
9M17-construction GPM 9M18-construction GPM
Hutama Karya
Navigating Indonesia
Construction │ November 22, 2018
15
Perumnas’ gearing (DER) could shoot up to 7.0x (or fall to 4.2x if we factor in
additional equity injection from the FY19F state budget) and 4.5x, respectively.
Figure 16: HK’s total DER under full-consolidation accounting
method, post-holding company formation (CGS-CIMBe)
Figure 17: Perumnas’ DER under a full-consolidation accounting
method, post-holding company formation (CGS-CIMBe)
*Total debt post-holding = total debts of ADHI, JSMR, and WSKT in FY18F + HK’s total debt at end-FY17; Total equity post-holding = HK’s total equity at end-FY17+NP of ADHI, JSMR, and WSKT in FY18F
**Total debt post-holding + injections = total debts of ADHI, JSMR, and WSKT in FY18F + total debt Hutama Karya in FY17; *Total equity post-holding + injections= HK’s total equity at end-FY17+NP of ADHI, JSMR, and WSKT in FY18F+government equity injections in FY19F
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
*Total debt post-holding = total debts of WIKA and PTPP in FY18F + total debt Perumnas in FY17; Total equity post-holding = Perumnas’ total equity in end-FY17+ NP of WIKA and PTPP in FY18F
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
On the other hand, under an equity accounting method, post-holding companies’
formation, we estimate Hutama Karya’s gearing to decrease slightly to 0.8x (vs.
1.2x prior to the holding company), and further to 0.4x after accounting for the
government’s equity injection in FY19F. We estimate Perumnas’ gearing could
decrease to 0.54x (vs. 0.84x prior to the holding company).
Decreasing gearing of both holding companies, post-holding companies’
formation, could be contributed by a higher total equity balance of both Hutama
Karya and Perumnas by 0.6x. Our estimates assume that both holding
companies will receive additional proportionated net profit from the subsidiaries.
Meanwhile, both holding companies could maintain unchanged total debt
balances as they do not need to consolidate their subsidiaries’ debts.
Figure 18: HK’s DER under equity accounting method, post-
holding company formation (CGS-CIMBe)
Figure 19: Perumnas’ DER under equity accounting method,
post-holding company formation (CGS-CIMBe)
* Total equity post-holding = HK’s total equity at end-FY17 + proportionated NP of ADHI, JSMR, and WSKT in FY18F
** Total equity for DER calculation = HK’s total equity at end-FY17 + proportionated NP of ADHI, JSMR, and WSKT in FY18F
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
* Total equity for DER calculation = Perumnas’ total equity at end-FY17 + proportionated NP of WIKA and PTPP in FY18F
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
Title:
Source:
Please fill in the values above to have them entered in your report
-
20,000
40,000
60,000
80,000
100,000
120,000
Hutama Karya's total debt-pre-holding (based on 2017
equity balance)
Hutama Karya's total debt-post-holding*
Hutama Karya's total debt-post-holding+injections**
Hutama Karya (holding company) Trans Sumatera Operating Co.
Adhi Karya (ADHI) Jasa Marga (JSMR)
Waskita Karya (WSKT) Indra Karya
Yodya Karya
DER: 7.0x
DER: 1.2x
Rp bnDER: 4.2x
Title:
Source:
Please fill in the values above to have them entered in your report
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
Perumnas' total debt- pre-holding (basedon 2017 equity balance)
Perumnas' total debt- post-holding*
Perum Perumnas (holding company) Pembangunan Perumahan (PTPP)
Wijaya Karya (WIKA) Amarta Karya
Indah Karya Virama Karya
Bina Karya
DER: 4.5x
DER: 0.8x
Rp bn
Title:
Source:
Please fill in the values above to have them entered in your report
-
0.20
0.40
0.60
0.80
1.00
1.20
1.40
-
2,000
4,000
6,000
8,000
10,000
12,000
Hutama Karya's totaldebt- pre-holding (based
on 2017 equity balance)
Hutama Karya's totaldebt- post-holding*
Hutama Karya's totaldebt- post-
holding+injections**
Hutama Karya (holding company) DER (x) -RHS
Rp bn
DER: 1.2x DER: 0.8x DER: 0.4x
Title:
Source:
Please fill in the values above to have them entered in your report
-
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
0
500
1,000
1,500
2,000
2,500
3,000
Perumnas' total debt- pre-holding(based on 2017 equity balance)
Perumnas' total debt- post-holding*
Perum Perumnas (holding company) DER (x) -RHS
Rp bn
DER: 0.84x DER: 0.54x
Navigating Indonesia
Construction │ November 22, 2018
16
EARNINGS OUTLOOK
Robust outlook in 4Q18F
SOE contractors in our coverage reported decent 9M18 results despite lower-
than-expected new contracts booking. This was on the back of 9M18 order book
delivery coming in line, boosted by strong delivery of contracts carried over. We
have a positive outlook on 4Q18F earnings as many projects are in the
completion stage. During the completion stage, project delivery should be faster
than in the early stages of development as there should be fewer non-technical
hurdles (e.g. land acquisition).
Brief review of 9M18 financials
In 9M18, SOE contractors in our coverage reported operational and bottomline
results in line with and above our expectations. This was despite some lower-
than-expected non-joint operations (JO) revenue for PTPP and WIKA, which
was compensated by an improvement in margins and/or higher-than-expected
JO income.
Figure 20: 3Q18 results recap
SOURCES:CGS-CIMB RESEARCH, COMPANY REPORTS
9M18 new contracts booking
The sector’s new contracts booking in 9M18 was below our/companies’
expectations. However, only WSKT has lowered its new contracts target for
FY18F, while the other three SOE contractors in our coverage (ADHI, PTPP,
and WIKA) remain confident they can achieve their targets.
The companies suggested that the weak new contracts booking in 9M18 was
mostly due to delays in the bidding process. Hence, if some contracts are not
received by end-FY18F, this is expected to be delayed until FY19F.
Additionally, we think changes in the management of SOE contractors in Apr 18
were another reason for the weak new contracts booking. We think the new
management needed some time to transition and review the projects to be
tendered.
For example, WSKT’s new management decided to pull out from its investment
in the Pasuruan-Probolinggo toll road. Hence, it no longer expects to receive
construction contracts for the project, and estimates lower new contracts
achievement.
Details are as follows:
ADHI - below expectations. It booked Rp11.4tr new contracts (+10.7%
yoy vs. 9M17’s ex-LRT contracts) in 9M18. This accounted for 56%/49%
of our/company’s new contracts estimates for FY18F, or below its three-
year average 9M achievement of 66%.
PTPPs - in line. It booked Rp32.4tr (+1.6% yoy) new contracts in 9M18.
This accounted for 77%/66% of our/company’s new contracts estimates
for FY18F. This was ahead of our expectation, but remained behind
PTPP’s target for FY18F (three-year average achievement in 9M: 73%).
WIKA – below expectations. It booked Rp25.3tr new contracts (-19.5%
yoy) in 9M18. This accounted for 44%/44% of our/company’s new
contracts estimates for FY18F, or below its three-year average 9M
achievement of 58%.
ADHI PTPP WIKA WSKT
Revenue In line Behind Behind Ahead
GPM (vs. previous year's) Improved Improved Improved Lower
JO income Ahead Ahead Behind Ahead
EBIT Ahead In line In line Ahead
Core NP Ahead In line In line Ahead
Navigating Indonesia
Construction │ November 22, 2018
17
WSKT – below expectations. It booked Rp11.7tr new contracts (-74%
yoy) in 9M18. This accounted for 25%/23% of our estimate/company’s
revised guidance for FY18F, or below its three-year average 9M
achievement of 73%.
After revising its targets in Sep 18, it now expects to only achieve 60-
70% of its revised Rp50tr-55tr target. This implies Rp30tr-38.5tr new
contracts booking in FY18F.
Figure 21: ADHI's new contracts achievement trend; 9M18
booking was below our/company's targets
Figure 22: PTPP's new contracts achievement trend; 9M18
booking was ahead of our estimate but behind company's target
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
Figure 23: WIKA's new contracts achievement trend; 9M18
booking was below our/company's targets
Figure 24: WSKT's new contracts achievement trend; 9M18
booking was below our/company's targets
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
Title:
Source:
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2015 2016 2017 2018F (CGS-CIMBe)
2018F (ADHI's)
1Q-achievement 2Q-achievement
3Q-achievement 4Q-achievement
Remaining to FY18F (CGS-CIMBe) Remaining to FY18F (ADHI's)
3-year mean in 6M
3-year mean in 9M
3-year mean in 3M
Title:
Source:
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2015 2016 2017 2018F (CGS-CIMBe)
2018F (PTPP's)
1Q-achievement 2Q-achievement
3Q-achievement 4Q-achievement
Remaining to FY18F (CGS-CIMBe) Remaining to FY18F (PTPP's)
3-year mean in 6M
3-year mean in 9M
3-year mean in 3M
Title:
Source:
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2015 2016 2017 2018F (CGS-CIMBe)
2018F (WIKA's)
1Q-achievement 2Q-achievement
3Q-achievement 4Q-achievement
Remaining to FY18F (CGS-CIMBe) Remaining to FY18F (WIKA's)
3-year mean in 6M
3-year mean in 9M
3-year mean in 3M
Title:
Source:
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2015 2016 2017 2018F (CGS-CIMBe)
2018F (WSKT's)
1Q-achievement 2Q-achievement
3Q-achievement 4Q-achievement
Remaining to FY18F (CGS-CIMBe) Remaining to FY18F (WSKT's)
3-year mean in 6M
3-year mean in 9M
3-year mean in 3M
Navigating Indonesia
Construction │ November 22, 2018
18
9M18 order book delivery
Order book (OB) burn rate to revenue (JO and non-JO revenues) ratio for SOE
contractors in our coverage in 9M18 was in line with the three-year mean.
Figure 25: The SOE contractor sector's weighted average order book burn rate to
revenue ratio in 9M18 vs. 3-year average achievement: in line
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
Details are as follows:
ADHI: order book burn rate ratio was in line (LRT revenue delay in
2H18 is priced in).
ADHI’s burn rate ratio trend in 3Q18 slowed down, but 9M18 overall
order book burn rate to revenue ratio was in line with its three-year
mean (Figure 26). We think this was due to the expected delay of
Jabodebek LRT revenue delivery in 2H18. In Sep 18, the company
revised down its LRT revenue target for FY18F to Rp7tr-8tr vs. Rp10tr at
the beginning of the year. We factor this into our forecasts by lowering
our LRT revenue forecast to Rp7.5tr (the median of ADHI’s revised LRT
revenue target range in FY18F). We previously discussed this in our
note “Strong EPS growth intact despite LRT delay” dated 2 Oct 2018.
Figure 26: ADHI's order book to revenue burn rate ratio in 9M18 vs. 3-year mean: in
line
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
Title:
Source:
Please fill in the values above to have them entered in your report
7%
15%
23%
7%
14%
22%
3M 6M 9M
2018 (weighted average sector) 3-year average
Title:
Source:
Please fill in the values above to have them entered in your report
9%
16%
25%
7%
16%
26%
3M 6M 9M
2018 (ADHI) 3-year average
Navigating Indonesia
Construction │ November 22, 2018
19
PTPP: 9M18 order book burn rate ratio was in line with its three-
year mean despite concerns over a slowdown in EPC projects.
Despite booking lower-than-expected non-JO revenue, its overall order
book to revenue burn rate ratio was on track in 9M18. This was due to
faster-than-expected JO revenue realisation resulting in higher-than-
expected JO income and in-line EBIT in 9M18.
There were market concerns over a significant miss in PTPP’s earnings
in FY18F due to government initiatives to slow down EPC project
development in Sep 18 (on the back of Indonesia’s widening current
account deficit). Despite this, our discussions with the company suggest
that its EPC project delivery remains on track. This was further
evidenced by its order book to revenue burn rate ratio remaining in line
with its three-year mean in 9M18.
Figure 27: PTPPs order book to revenue burn rate ratio in 9M18 vs. 3-year mean: in
line
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
WIKA: 9M18’s order book burn rate ratio was in-line (excluding
Jakarta-Bandung HSR contract).
WIKA’s order book burn rate to revenue ratio in 9M18 was 3% below
(including HSR) its three-year mean (Figure 28). We think this was due
to the slow progress of the Jakarta-Bandung HSR in 9M18.
In 9M18, revenue realisation from the project was minimal. However, we
expect to see faster revenue realisation for the project in FY19F. The
land acquisition for the trackway reached 80% as at end-Oct 18; hence
there should be no further issues in loan disbursements from China
Development Bank (CDB).
If we exclude the HSR contract (Rp15.6tr) in our order book burn rate
calculation, WIKA’s order book to revenue burn rate ratio was in line
with its three-year mean in 9M18 (Figure 29).
Title:
Source:
Please fill in the values above to have them entered in your report
4%
10%
17%
4%
11%
18%
3M 6M 9M
2018 (PTPP) 3-year average
Navigating Indonesia
Construction │ November 22, 2018
20
Figure 28: WIKA’s order book burn rate to revenue ratio in 9M18
(incl. HSR) vs. 3-year mean (incl. HSR): below expectations
Figure 29: WIKA’s order book burn rate to revenue ratio in 9M18
(ex-HSR contract) vs. 3-year average achievement (ex-HSR
contract): in line
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
WSKT: 9M18’s order book burn rate ratio above expectations. Its
order book burn rate to revenue ratio was much higher in 9M18 vs. its
three-year mean. We think this was because many of its carryover
contracts were already in the completion stage. As we mentioned earlier,
it should achieve a faster burn rate during the completion stage.
Figure 30: WSKT’s order book burn rate to revenue ratio in 9M18 vs. 3-year average
achievement: above expectations
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
Title:
Source:
Please fill in the values above to have them entered in your report
6%
13%
22%
7%
16%
25%
3M 6M 9M
2018 (WIKA) 3-year average
Title:
Source:
Please fill in the values above to have them entered in your report
7%
15%
26%
7%
17%
27%
3M 6M 9M
2018 (WIKA) ex-HSR 3-year average
Title:
Source:
Please fill in the values above to have them entered in your report
9%
16%
25%
7%
13%
20%
3M 6M 9M
2018 (WSKT) 3-year average
Navigating Indonesia
Construction │ November 22, 2018
21
Stabilising earnings outlook in FY19F
In FY19F, we estimate the sector will deliver +21% yoy aggregate core NP
growth due to a low base in FY18F; we estimate -9% yoy core NP in FY18F.
Negative core NP growth for the sector in FY18F is likely to be dragged by
negative core NP growth estimates for WSKT (-32% yoy). We expect WSKT’s
core NP growth to be negative in FY18F as we exclude gains from its first RDPT
issuance, while WSKT’s headline NP in FY18F is expected to show positive
growth of +1% yoy.
We think our core NP growth estimates for the sector can be achieved as: 1) the
sector should have enough orders on hand at the beginning of FY19F, even in
the worst-case scenario; 2) enough projects should be awarded in FY19F and 3)
order book burn rate should remain strong as more projects are expected to be
completed in FY19F.
Figure 31: SOE contractors' core NP growth (yoy) - historical and estimates
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
Enough orders on hand even in the worst-case scenario
Based on our sensitivity analysis, in the worst-case scenario, we estimate the
sector’s aggregate outstanding order book at the end of FY18F (through the
beginning of FY19F) to be Rp362tr. The implied order book (at end-FY18F
through the beginning of FY19F) to revenue (average in FY19-20F) ratio for
SOE contractors is still at 1.1x-1.4x (Figure 32).
In the worst-case scenario, we estimate the sector’s aggregate outstanding
order book at the end of FY18F (through the beginning of FY19F) includes no
additional new contracts booking in 4Q18F and our estimate of Rp63.8tr
revenue in 4Q18F.
Based on our sensitivity analysis, in the best-case scenario, we estimate the
sector’s aggregate outstanding order book at the end of FY18F (through the
beginning of FY19F) to be Rp449tr. The implied order book (at end-FY18F
through the beginning of FY19F) to revenue (average in FY19-20F) ratio for
SOE contractors is 1.2x-2.5x (Figure 33).
In the best-case scenario, our assumption for the sector’s outstanding order
book at the end of FY18F through the beginning of FY19F includes achieving
100% of our FY18F new contracts estimate and our estimate of Rp63.8tr
revenue in 4Q18F.
Title:
Source:
Please fill in the values above to have them entered in your report
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
140%
2015 2016 2017 2018F 2019F
ADHI PTPP WIKA WSKT Sector
Navigating Indonesia
Construction │ November 22, 2018
22
Figure 32: OB at the end of FY18F (our estimate: worst-case
scenario) vs. average annual revenue estimates in FY19-20F
Figure 33: OB at the end of FY18F (our estimate: best-case
scenario) vs. average annual revenue estimates in FY19-20F
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
New contracts outlook in FY19F
We estimate FY19F new contracts growth of between -20% yoy and +20% yoy
for the four SOE contractors in our coverage. We expect negative new contracts
growth for WSKT on a high base, while the remaining three contractors are
expected to achieve 14-20% yoy new contracts booking in FY19F. Project
outlook is discussed in the following section.
Figure 34: SOE contractors’ new contracts booking - historical
and estimates
Figure 35: SOE contractors new contracts growth (yoy) -
historical and estimates
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
Title:
Source:
Please fill in the values above to have them entered in your report
-
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
ADHI PTPP WIKA WSKT
OB at the end of FY18F (CGS-CIMBe)- worst case: no contracts booking in 4Q18F
Avg. annual revenue FY19-20F
Rp bnTitle:
Source:
Please fill in the values above to have them entered in your report
-
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
ADHI PTPP WIKA WSKT
OB at the end of FY18F (CGS-CIMBe)-best case: 100% estimate
Avg. annual revenue FY19-20F
Rp bn
Title:
Source:
Please fill in the values above to have them entered in your report
13,965 16,500 17,100 20,459 24,083
27,07332,600 38,800
42,25050,700
25,222
37,08042,402
57,515
65,456
32,160
69,97455,834
47,459
37,967
2015 2016 2017 2018F 2019F
ADHI PTPP WIKA WSKT
Rp bnTitle:
Source:
Please fill in the values above to have them entered in your report
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
140%
2015 2016 2017 2018F 2019F
ADHI PTPP WIKA WSKT Sector
Navigating Indonesia
Construction │ November 22, 2018
23
PROJECT PROGRESS AND OUTLOOK
Project progress
Strategic national projects progress well
Between 2016 and Sep 18, a total of 33 strategic national projects were
completed, with total investment cost of Rp96.9tr (implying 13% of strategic
national projects are completed), out of 253 total strategic national projects.
In Jan-Sep 2018, three strategic national projects were completed (i.e. two DAM
projects and one railway project with total value of Rp2.1tr). The government
expects an additional 18 projects to be completed between Sep and Dec 18,
bringing the total to 48 completed projects (implying 19% of strategic national
projects completed).
At the end of Sep 19, the government targets another 31 projects to be
completed, bringing total completed strategic national projects to 79 (implying
31% of strategic national projects completed). This is higher than the
government’s target at the beginning of the year of 68 completed projects by the
end of 2019 (implying 27% of strategic national projects completed). This implies
that progress delivery on some projects may be accelerated.
Figure 36: Progress and government’s target of strategic national projects until the
end of Sep 19
SOURCES: CGS-CIMB RESEARCH, KPPIP
35GW electricity projects progress
As at end Sep-18, the operating capacity of the 35GW electricity programme
reached 7%, or c.2.6GW. There were c.14GW of projects that have not yet
reached the financial close stage.
In Sep 18, the Minister of Energy and Mineral Resources, Ignasius Jonan,
announced that the government plans to delay the project delivery for power
plants that have not yet reached financial close. This was on the back of
Indonesia’s widening current account deficit (CAD).
The delivery could be delayed another one or two years. We do not expect this
to affect the progress of power plants that are already in SOE contractors’ books
as projects under construction should have completed the financial close stage.
Title:
Source:
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9% 11% 13%19%
31%
0%
14%20%
23%
33%
43%
45%
44%
43%
35%
6%
2%
2%
2%
0%
36%
28%20%
12%0%
7% 0% 0% 0% 0%
2016 2017 At the end of Sep-18 Target at the end of 2018 Target at the end of Sep-19
Completed (cummulative from end of 2016) Construction and partially operating
Construction stage Transaction stage
Preparation stage Review stage
Navigating Indonesia
Construction │ November 22, 2018
24
Figure 37: Progress of 35GW power plant development
SOURCES: CGS-CIMB RESEARCH, KPPIP
Major progress on infra projects
Figure 38: Progress of major rail projects in Indonesia
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS, VARIOUS NEWS
Title:
Source:
Please fill in the values above to have them entered in your report
2% 3% 7%
41%46%
52%
24%
36%
31%13%
9%6%
19%
6% 3%
End Aug-17 2017 End Sep-18
Operating Construction Signed power purchase agreement, not yet financial close Procurement Planning
(Rp)per km
(Rp)
Soekarno-Hatta International
Airport Railink 37.6 5.0 5.0
70,000-
100,000
1,861-
2,660Operating
Actual: Dec-
17Listed: WSKT
Kereta Api Indonesia,
Angkasa Pura II
Soekarno-Hatta Automated People
Mover System (APMS) 1.7 3.0 1.0 n.a n.a Operating Actual: Nov-17
Listed: WIKA
Non-listed:
Indulexco
Kereta Api Indonesia,
Angkasa Pura II
South Sumatera (Palembang) LRT 23.4 13.0 10.9 7,000 304 Operating Actual: Oct-18 Listed: WSKT Kereta Api Indonesia
Jakarta MRT North-South phase I:
Lebak Bulus-Bundaran HI 16.0 13.0 16.0
8,000 -
,9000
(proposed)
500-563
(proposed)
End Sep-18:
97%Target: Mar-19
Listed: WIKA and
JKON
Non-listed: Hutama
Karya, Obayashi,
Shimizu, Sumitomo,
Mitsui, Tokyu
MRT Jakarta (owned by
Regional government of DKI
Jakarta)
Jakarta LRT phase I: Kelapa
Gading-Velodrome 5.8 6.0 6.8
10, 800
(proposed)
1,862
(proposed)
End Sep-18:
91%
Target: Dec -
18Listed: WIKA
Jakarta Propertindo (owned by
Regional government of DKI
Jakarta)
Jabodebek LRT phase I:
Cawang-Cibubur, Cawang-Dukuh
Atas, Cawang-East Bekasi
44.5 18.0 29.9 12,000
(propose)
667
(proposed)
End Oct 18:
48.6%
Cawang-
Cibubur:
70.5%
Cawang-
Dukuh Atas:
36.7%
Cawang-E.
Bekasi:
41.4%
Target: end-
2019 or beg.-
2020
Listed: ADHI Kereta Api Indonesia
Jakarta-Bandung HSR 142.0 5.0 82.0
200,000-
250,000
(proposed)
1,408-
1,761
(proposed)
End Sep-18:
5%Target: 2021 Listed: WIKA
Kereta Cepat Indonesia China
(Indonesia's consortium: 60%;
China's consortium: 40%)
Total 208.3 42.0 134.7
Contractors Investor/operator
Ticket price Track
length
(km)
Stations
Investment
cost (Rp tr)
ProgressCommercial
operating
Navigating Indonesia
Construction │ November 22, 2018
25
Figure 39: Progress of Trans-Java toll roads
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
Figure 40: Progress of Trans-Sumatera toll roads
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
JSMR WTR Astra Infra
Jakarta-Cikampek 83 Jasa Marga 100% - - Operating since 1988
Cikampek-Palimanan 114 Lintas Marga Sedaya - - 45% Operating since 2015
Palimanan-Kanci 26 Jasa Marga 100% - - Operating since 1998
Kanci-Pejagan 35 Semesta Marga Raya - 78% - Operating since 2010
Pejagan-Pemalang 58 Pejagan Pemalang Toll Road - 100% - Partially operating in 1H16 (20km); the rest to be operating in
2018
Pemalang-Batang 39 Pemalang Batang Toll Road - 60% - Targeted to be operating in 2018
Batang-Semarang 75 Jasamarga Semarang Batang 60% 40% - Targeted to be operating in 2018
Semarang 25 Jasa Marga 100% - - Operating since 1983
Semarang-Solo 73 Trans Marga Jateng 59% - - Partially operating in 2011 (20km); section III operating in 2017;
section IV-V targeted to be operating in 2019
Solo-Ngawi 90 Solo Ngawi Jaya 60% 40% - Targeted to be operating in 2018
Ngawi-Kertosono-Kediri
115
Ngawi Kertosono Jaya 60% 40% -
Section I-III operating since 1Q18; section IV targeted to be
operating in 2019; section V targeted to be operating in 2020 or
above
Kertosono-Mojokerto 41 Marga Harjaya Infrastruktur - - 100% Operating in three stages in 2014, 2016, and 2017
Mojokerto-Surabaya 36 Jasamarga Surabaya Mojokerto 55% - - Operating in three stages in 2011, 2016, and 2017
Surabaya-Gempol 49 Jasa Marga 100% - - Operating since 2006
Gempol-Pandaan 14 Jasamarga Pandaan Tol 92% - - Operating since 2015
Gempol-Pasuruan34
Transmarga Jatim Pasuruan 99% - -
Partially operating in 2017 (14 km); section II operating in 2Q18;
section III targeted to be operating in 2019
Pasuruan-Probolinggo 31 Trans Jawa Paspro Jalan-Tol - 80% - Targeted to be operating in 2018
Probolinggo-Banyuwangi 172 Jasamarga Probolinggo Banyuwangi 55% - - Targeted to be operating in 2020 or above
Total 1,110
Length (km) Concession holder StatusToll roadsStake ownerships
Sections Length (km)
Priority
sections- length
(km)
Operating status
Medan-Binjai 17 17 Under construction; targeted to be operating in 2019
Palembang-Simpang Indralaya 22 22 Under construction; targeted to be operating in 2019
Bakauheni-Terbanggi Besar 140 140 Under construction; targeted to be operating in 2019
Pekanbaru-Dumai 131 131 Under construction; targeted to be operating in 2019
Palembang-Tanjung Api Api 90 70 Under construction; targeted to be operating in 2024
Kisaran-Tebing Tinggi 60 Under design and planning
Terbanggi Besar-Pematang Panggang 100 100 Under construction; targeted to be operating in 2019
Pematang Panggang-Kayu Agung 85 85 Under construction; targeted to be operating in 2019
Dumai-Simpang Sigambal-Rantau Prapat 175 Under design and planning
Rantau Prapat-Kisaran 100 Under design and planning
Bukit Tinggi-Padang 55 Under design and planning
Batu Ampar-Bandara Hang Nadim 25 Under design and planning
Jambi-Rengat 190 Under design and planning
Rangat-Pekanbaru 175 Under design and planning
Betung (Sp Sekayu)-Tempino-Jambi 191 Under design and planning
Pekanbaru-Bukit Tinggi 185 Under design and planning
Simpang Indralaya-Muara Enim 88 88 Under design and planning
Tebing Tinggi-Sibolga 200 Under design and planning
Sigli-Banda Aceh 75 Under design and planning
Lubuk Linggau-Curup Bengkulu 95 Under design and planning
Muaran Enim-Lahat-Lubuk Linggau 125 Under design and planning
Binjai-Langsa 110 Under design and planning
Langsa-Lhoksumawe 135 Under design and planning
Lhoksumawe-Sigli 135 Under design and planning
Kisaran-Indrapura 47 Under construction; targeted to be operating in 2020
Medan-Banda Aceh 470 Under construction; targeted to be operating in 2025
Padang-Pekanbaru 255 Under construction; targeted to be operating in 2025
Kuala Tanjung-Tebing Tinggi-Parapat 143 Under construction; targeted to be operating in 2021
Total 2,704 1,568
Navigating Indonesia
Construction │ November 22, 2018
26
Progress on One Million Houses programme
The One Million Houses programme is part of the government’s efforts to reduce
the current housing backlog in Indonesia, and in anticipation of additional annual
housing backlog of c.800,000 units. In FY15, total housing backlog in Indonesia
was 11.5m units, of which 7.6m units (66%) were low-cost housing. The
government targets to lower the low-cost housing backlog to 5.4m units in
FY19F.
Since 2015, the government’s progress on the One Million Houses programme
has gradually increased. We expect this to continue to improve, supported by
implementation of the TAPERA savings programme (tabungan perumahan
rakyat, or public housing savings) in 2019.
Figure 41: Achievement of One Million Houses development programme
SOURCES: CGS-CIMB RESEARCH, MINISTRY OF PUBLIC WORKS AND HOUSING
Title:
Source:
Please fill in the values above to have them entered in your report
-
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
1,000,000
2015 2016 2017 2018F
Target Achievement
Achievement as of Oct-18
unit of house
Navigating Indonesia
Construction │ November 22, 2018
27
FY19F project outlook
The government expects all strategic national projects that are still in the
preparation and transaction stages to reach the construction stage by end-Sep
19. According to the Committee for Acceleration of Priority Infrastructure
Delivery’s (KPPIP or Komite Percepatan Pembangunan Infrastruktur Prioritas)
latest target, a total of 36 strategic national projects (ex-35GW electricity projects)
with total value of Rp1,190tr are expected to reach the preparation and
transaction stages by the end of 2018. Hence, we think these projects are highly
likely to be awarded in FY19F (Figure 42).
On top of the national strategic projects, SOE contractors in our coverage still
expect more unsolicited project investments in FY19F. Investing in these
projects could result in construction project contracts.
Figure 42: Strategic national projects to be potentially awarded in FY19F
SOURCES: CGS-CIMB RESEARCH, KPPIP
Infra is still key to boost growth
Despite an acceleration in infra development over the past four years,
Indonesia’s total infra spending still lags behind other countries in the region. We
estimate Indonesia’s infra spending realisation, including the state budget and
non-state budget (which represents capex of 16 SOE companies that have
major exposure to infra development), was only in the range of 2.9-4.3% in
2015-2017. This remains below the regional average infra spending as a
percentage of GDP of 5%.
Figure 43: Infra spending (state and non-state budgets) to GDP
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
Estimated investment cost
(Rp tr)
Toll road projects 174.72
Railway projects 189.57
Airport and seaport projects 8.57
Oil and gas projects 686.79
Water infrastrucure projects 88.24
Satelite project 6.92
Industrial area projects 35.90
Total 1,190.71
Title:
Source:
Please fill in the values above to have them entered in your report
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
-
100
200
300
400
500
600
700
2015 2016 2017
Non-state budget capex (Rp tr) Realised infra budget (Rp tr) Infra spending to GDP
Navigating Indonesia
Construction │ November 22, 2018
28
Based on data analytics provided by the Global Infrastructure Hub, in order for
Indonesia to achieve sustainable 4.7% annual GDP growth until 2040F,
Indonesia’s infra spending as a percentage of GDP needs to be maintained
above 4% until 2028F (Figure 44).
Figure 44: Sensitivity analysis of infra spending requirements and realisation (based on current trend) in 2019-2040F, as % of GDP
SOURCES: CGS-CIMB RESEARCH, GLOBAL INFRASTRUCTURE HUB
Figure 45: Sensitivity analysis of infra spending requirements and realisation (based on current trend) in 2019-2040F
SOURCES: CGS-CIMB RESEARCH, GLOBAL INFRASTRUCTURE HUB
Our sensitivity analysis from the data set suggests that Indonesia needs to
increase/decrease its infra spending by c.0.2% pt to GDP p.a. on average in
order to attain 10% higher/lower annual GDP growth from the base case GDP
growth assumption of 4.7% (Figure 45).
For example:
1) In FY19F, in our base-case scenario, in order to attain 4.7% GDP growth,
Indonesia needs to achieve 5% infra spending as a percentage of GDP.
2) In FY19F, in order for Indonesia to attain 5.2% annual GDP growth (10%
above our base-case GDP growth assumption of 4.7%), it needs to achieve
5.2% infra spending as a percentage of GDP.
3) In FY19F, if Indonesia only achieves 4.8% infra spending as a percentage of
GDP, its annual GDP growth could decline to 4.2% (10% below our base-case
GDP assumption growth of 4.7%).
Title:
Source:
Please fill in the values above to have them entered in your report
-
1.0
2.0
3.0
4.0
5.0
6.0
7.0
2019F 2020F 2021F 2022F 2023F 2024F 2025F 2026F 2027F 2028F 2029F 2030F 2031F 2032F 2033F 2034F 2035F 2036F 2037F 2038F 2039F 2040F
Infra spending realisation trend (GDP growth higher by +20% yoy: 5.6%) Infra spending need (GDP growth higher by +20% yoy: 5.6%)
Infra spending realisation trend (GDP growth higher by +10% yoy: 5.2%) Infra spending need (GDP growth higher by +10% yoy: 5.2%)
Infra spending realisation trend (base case growth: 4.7% GDP) Infra spending need (base case growth: 4.7% GDP)
Infra spending realisation trend (GDP growth lower by 10% yoy: 4.2%) Infra spending need (GDP growth lower by 10% yoy: 4.2%)
Infra spending realisation trend (GDP growth lower by 10% yoy: 3.8%) Infra spending need (GDP growth lower by 10% yoy: 3.8%)
as % to GDP
Title:
Source:
Please fill in the values above to have them entered in your report
-
20
40
60
80
100
120
2019F 2020F 2021F 2022F 2023F 2024F 2025F 2026F 2027F 2028F 2029F 2030F 2031F 2032F 2033F 2034F 2035F 2036F 2037F 2038F 2039F 2040F
Infra spending realisation trend (growth higher by 20% yoy: +5.6% yoy GDP) Infra spending need (growth higher by 20% yoy: +5.6% yoy GDP)
Infra spending realisation trend (growth higher by 10% yoy: +5.2% yoy GDP) Infra spending need (growth higher by 10% yoy: +5.2% yoy GDP)
Infra spending realisation trend (base case growth: +4.7% GDP) Infra spending need (base case growth: +4.7% GDP)
Infra spending realisation trend (growth lower by 10% yoy: +4.2% yoy GDP) Infra spending need (growth lower by 10% yoy: +4.2% yoy GDP)
Infra spending realisation trend (growth lower by 20% yoy: +3.8% yoy GDP) Infra spending need (growth lower by 20% yoy: +3.8% yoy GDP)
US$ bn
Navigating Indonesia
Construction │ November 22, 2018
29
Figure 46: Sensitivity analysis of additional infra spending requirements (as a % of
GDP) to attain higher/lower annual GDP growth in 2019-2040
SOURCES: CGS-CIMB RESEARCH
Project outlook beyond FY19F
More toll road developments
If Jokowi is elected for a second term after the Presidential election, slated for
Apr 19, our channel checks suggest that the government may aim to develop the
Trans-Sulawesi and Trans-Kalimantan toll roads.
More rail projects
We think the potential rail projects that could be awarded beyond FY19F include
Jakarta MRT phase II (East-West), the next phase of the Jakarta LRT
development and the next phase of the Jabodebek LRT (38.5 km).
Continuation of One Million Houses programme progress
We expect the One Million Houses programme to continue beyond FY19F as
the low-cost housing backlog is likely to remain at 5.4m by the end of FY19F
(according to the government’s estimate).
The BP TAPERA (TAPERA governing body) and implementation of the
TAPERA savings programme (tabungan perumahan rakyat or public housing
savings) starting in FY19 could speed up the implementation of the One Million
Houses programme.
The role of BP TAPERA includes the collection of TAPERA savings from
employees in Indonesia, managing the TAPERA fund, and disbursing the funds
to banking or financial institutions to purchase, renovate and build low-cost
housing. The investment management (reinvestment) of TAPERA fund could be
done with the help of investment managers and asset securitisation (or collective
investment contracts) (see Figure 47).
The government has proposed that 3% from each employee’s monthly salary
will be automatically deducted and put towards the TAPERA savings programme,
2.5% of which would be contributed by the employee and the remaining 0.5% by
the employer.
Initially, the government plans to only deduct savings from civil servants and
employees of government agencies. The government has proposed deducting
savings from employees in the private sector within the first seven years once
the programme is implemented.
Additional/(re
duction) infra
spending
(% to GDP)
Average LT-
infra
spending in
2019-40F
(% to GDP)
Infra spending realisation trend (growth higher by 20% yoy: +5.6% yoy GDP) 0.21 0.41
Infra spending need (growth higher by 20% yoy: +5.6% yoy GDP) 0.21 0.41
Infra spending realisation trend (growth higher by 10% yoy: +5.2% yoy GDP) 0.20 0.20
Infra spending need (growth higher by 10% yoy: +5.2% yoy GDP) 0.20 0.20
Infra spending realisation trend (base case growth: +4.7% GDP) - -
Infra spending need (base case growth: +4.7% GDP) - -
Infra spending realisation trend (growth lower by 10% yoy: +4.2% yoy GDP) (0.19) (0.19)
Infra spending need (growth lower by 10% yoy: +4.2% yoy GDP) (0.19) (0.19)
Infra spending realisation trend (growth lower by 20% yoy: +3.8% yoy GDP) (0.18) (0.37)
Infra spending need (growth lower by 20% yoy: +3.8% yoy GDP) (0.18) (0.38)
Navigating Indonesia
Construction │ November 22, 2018
30
Figure 47: TAPERA programme
SOURCES: CGS-CIMB RESEARCH
To optimise TAPERA programme implementation, the government has
proposed two principles, namely:
The value capture principle
There are two concepts proposed under the value capture principle:
mixed-use and cross subsidy development. Based on our understanding,
these concepts are to provide incentives for private developers to
participate in the development of low-cost houses.
Local news media reported that the government might offer tax
incentives to participating developers of 1% sales tax (vs. 2.5% sales
tax typically).
The capex scheduling principle
There are two concepts proposed under the capex scheduling principle:
availability payment scheme and mortgage backed security.
We think the availability payment scheme is not sufficiently attractive to
entice developers to join the TAPERA housing development. Under the
scheme, the government will pay developers in instalments, for which
the first payment will only take place after 100% project delivery. The
instalment period will be as long as the concession period.
The mortgage-backed security option could be more effective, in our
view. Under this scheme, the government proposes to securitise running
TAPERA mortgage through Sarana Multigriya Finansial or SMF. In other
words, they will put the running TAPERA mortgage payments as
underlying assets to issue a mortgage-backed security. The proceeds of
the mortgage-backed security issuance could be utilised to finance the
next property development’s capex needs.
Sarana Mutligriya Finansial (SMF) is a 100% government owned SOE,
which was established in 2005. It is a secondary housing financial
institution. Going forward, Ministry of Finance expects SMF’s business
directions include: 1) to support for housing programs in tourist
destination area; 2) to intensively cooperating in the TAPERA
programme to support for public housing projects; 3) repair housing,
facilities, and infrastructure in the slums.
Navigating Indonesia
Construction │ November 22, 2018
31
Figure 48: Government principles to optimise TAPERA
SOURCES: CGS-CIMB RESEARCH,
CLEARER FUNDING VISIBILITY AND STATE SUPPORT REMAINS STRONG
2019 approved infra budget remains sizeable
The government slightly lowered its infra budget in the 2019 approved state
budget to Rp415tr (up 1% yoy from 2018 infra budget in the 2018 approved
budget) vs. Rp420.5tr in the state budget draft 2019. This remains sizeable,
accounting for 2.6% of estimated GDP in 2019.
Figure 49: Infra spending/budget vs. energy subsidy
SOURCES: CGS-CIMB RESEARCH, MINISTRY OF FINANCE
The key difference between the 2019 approved infra budget and the draft was
3% lower transfers to regional and village funds. We do not expect the lower
transfers to regional and village budgets to have any impact on the outlook for
SOE contractors winning new projects in 2019 as SOE contractors in our
coverage do not usually participate in small projects, i.e. those funded by village
budgets.
Title:
Source:
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0%
1%
2%
3%
4%
5%
6%
-
50
100
150
200
250
300
350
400
450
2005A 2006A 2007A 2008A 2009A 2010A 2011A 2012A 2013A 2014A 2015A 2016A 2017A 2018F 2019F
Energy subsidy in Rp tr-LHS Realised infra spending in Rp tr-LHS
Infra budget in Rp tr-LHS Energy subsidy (% to GDP)-RHS
Infra spending (A)/budget (F) as % to GDP-RHS
Navigating Indonesia
Construction │ November 22, 2018
32
Figure 50: Changes in infra budget 2019 (state budget vs. draft)
SOURCES: CGS-CIMB RESEARCH, MINISTRY OF FINANCE
State budget (2018)State budget draft
(2019F)
State budget
(2019F)
In Rp tr
Transfer to region and village fund 179.3 201.7 196.2
Village fund for infrastructure 24 29.2 28
Transfer to region for infrastructure 122.1 129 130.4
Special funding allocation 33.9 39.1 33.5
Ministries/institutions 183 173.8 173.8
Ministry of Public Works and Housing 104.7 108.2 108.2
Ministry of Transportations 44.2 38.1 38.1
Financing 48.1 45 45
State capital injections 6.1 17.8 17.8
LMAN (National Assets Manager) 35.4 22 22
Total infra budget 410.4 420.5 415
Annual growth (vs. 2018 state budget)
Transfer to region and village fund 12% 9%
Village fund for infrastructure 22% 17%
Transfer to region for infrastructure 6% 7%
Special funding allocation 15% -1%
Ministries/institutions -5% -5%
Ministry of Public Works and Housing 3% 3%
Ministry of Transportations -14% -14%
Financing -6% -6%
State capital injections 192% 192%
LMAN (National Assets Manager) -38% -38%
Total infra budget 2% 1%
Changes (2019 state budget vs. 2019 state budget draft)
Transfer to region and village fund -3%
Village fund for infrastructure -4%
Transfer to region for infrastructure 1%
Special funding allocation -14%
Ministries/institutions 0%
Ministry of Public Works and Housing 0%
Ministry of Transportations 0%
Financing 0%
State capital injections 0%
LMAN (National Assets Manager) 0%
Total infra budget -1%
Navigating Indonesia
Construction │ November 22, 2018
33
Well capitalised Hutama Karya and PLN
The SOE contractors in our coverage have substantial outstanding receivables
from Hutama Karya and PLN (National Electricity Company). As at end-9M18,
total outstanding receivables of both Hutama Karya and PLN in the SOE
contractors’ books were Rp15.2tr and Rp6tr, or contributing 13% and 5% of the
sector’s total outstanding receivables, respectively. Investors were concerned
about whether both entities would have sufficient capital to cover their payables
obligations to SOE contractors.
Figure 51: Hutama Karya and PLN's total outstanding receivables in SOE
contractors’ books as at 9M18
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
We think concerns over receivables payments from both companies to SOE
contractors should ease as we estimate that going into 2019, both Hutama
Karya and PLN (National Electricity Company) should have total additional
capital of Rp45tr and Rp29.3tr, respectively. This should be sufficient to meet
both companies’ payables obligations to SOE contractors.
The details are as follows:
1) Government allocates capital injections to both companies in 2019.
In the 2019 approved state budget, the government allocated total state
capital injection of Rp17.8tr (+192% yoy). Of this, Rp10.5tr will be
allocated to Hutama Karya (an unlisted SOE contractor, which will be
the holding company for infrastructure and ground transportation) and
Rp6.5tr to PLN (National Electricity Company).
2) Hutama Karya secured a US$2.3bn loan agreement, while PLN
issued US$1.5bn global bonds. During the IMF World Bank 2018
event, Hutama Karya secured a loan agreement totaling US$2.3bn
(equivalent to Rp34.5tr, assuming US$1 = Rp15,000) from both local
SOE and non-SOE banks. Meanwhile, PLN issued US$1.5bn global
bonds (equivalent to Rp22.8tr) in Oct 18.
Title:
Source:
Please fill in the values above to have them entered in your report
0
20
40
60
80
100
120
140
0%
5%
10%
15%
20%
25%
ADHI PTPP WIKA WSKT Total sector
Total outstanding receivables (Rp tr) - RHS Hutama Karya's receivables portion
PLN's receivables portion
Navigating Indonesia
Construction │ November 22, 2018
34
Government support remains intact for infra lending
The government continues to support lending for national development purposes.
The legal lending limit for banks to SOE companies for national development
projects is 30% of each bank’s equity. This is higher compared to the regular
legal lending limit, at 20%-25% of each bank’s equity.
Additionally, projects or entities that are guaranteed by the government should
be exempt from legal lending limits.
Figure 52: Indonesia's infra sector has strong government support for obtaining bank loans
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
Room for more loans
As at end-9M18, total bank loans for the four SOE contractors in our coverage
and JSMR were at Rp77tr. This accounted for 7.1% of Indonesia’s banking
sector total equity of Rp1,089tr. We believe the SOE contractors and JSMR are
eligible for the 30% legal lending limit from the banking sector. Hence, there is
still plenty of room for the sector to obtain more loans from the banks.
Figure 53: The SOE contractors and JSMR's total loan only accounted for
6% to the total Indonesian's banks equity
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
Indonesia's banking legal lending limit (LLL)
Regulation: BI Regulation No. 7/3/PBI/2005 and No. 8/13/PBI/2006
Counterparty Maximum exposures
To related party Total related party portfolio cannot exceed more than 10% of equity
Max exposure 20% of total equity to one debtor
Max exposure 25% of total equity to one group obligor
*) Exposure measured based on outstanding exposure
**) Exposure includes purchase of securities, reverse repo, derivatives, acceptance receivables, off-balance sheet
***) Exposure to SOEs for the purpose of national development is set at max 30% of total equity
Exposures exempted from the LLL calculation
Purchase of securities issued by the Government of Indonesia
Exposure guaranteed by the Government of Indonesia
Exposure colaterised by cash/deposits/savings/margin deposit/gold/Indonesia government bonds *)
Exposure from/guaranteed by a prime bank **)
Exposure guaranteed by the multilateral organisations
*) the collateral must be placed with the loan provider or a prime bank
**) Prime Bank: Investment grade credit rating, and top 200 in the world in terms of total asset
To non-related party
Title:
Source:
Please fill in the values above to have them entered in your report
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
2015 2016 2017 9M18
Total bank loans- SOE contractors and JSMR As % to total Indonesian's banks equity (RHS)
in Rp bn
Navigating Indonesia
Construction │ November 22, 2018
35
Good appetite in banking sector for infra lending
As at end-Aug 18, Indonesia’s total infra banking loans were at Rp674.4tr, or
accounting for 13% of Indonesia’s total bank loans of Rp5,120tr. This was the
highest proportion of infra banking loans to total bank loans since 2008 (Figure
54).
Additionally, Indonesia’s total infra banking loan growth has outpaced
Indonesia’s total bank loan growth (Figure 55).
This indicates strong appetite for infra lending by the banks. Our banking
analysts suggest that the NPL ratio of SOE companies is very low, at nearly 0%.
Figure 54: Indonesia's total infra bank loan as a % of
total system loans
Figure 55: Indonesia's total infra bank loans and total
system loan growth
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
Figure 56: Composition of infra bank loans – by sector
(in value)
Figure 57: Contribution of infra bank loans to total
system loans – by sector
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
Title:
Source:
Please fill in the values above to have them entered in your report
9.0%
10.0%
11.0%
12.0%
13.0%
14.0%
15.0%
-
1,000
2,000
3,000
4,000
5,000
6,000
Indonesia's bank loan - total system (Rp tr)
Total infra bank loan (as % of total system loan) - RHS
Title:
Source:
Please fill in the values above to have them entered in your report
16%
7%
27%26%
29%
11%
12%
16%
13%11%
23% 23% 23%22%
12%
10%
8%8%
Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17
Indonesia's bank loan- total infra growth (yoy)
Indonesia's bank loan- total system growth (yoy)
Title:
Source:
Please fill in the values above to have them entered in your report
58 64 63 75 96 116 147 173 215
259 291
62 73 75 98
122 163
172 178
172
183 210
18 24 34
46
59
79 81
99
135
146
173
Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Sep-18
Utilities - loan (Rp tr)
Transport, warehouse, communication - loan (Rp tr)
Construction - loan (Rp tr)
Title:
Source:
Please fill in the values above to have them entered in your report
4% 4%4% 3% 4% 4% 4% 4%
5% 5% 6%
5% 5%
4% 4% 5% 5%5% 4%
4%4%
4%
1%2%
2% 2% 2%2% 2% 2%
3%3%
3%
Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Sep-18
Construction - loan Transport, warehouse, & communication - loan Utilities - loan
Navigating Indonesia
Construction │ November 22, 2018
36
More alternative funding could be expected
Going forward, alternative funding resources remain an option for SOE
contractors in our coverage and JSMR to fund infra developments.
Figure 58: Comparisons of new infra alternative funding resources
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
Instruments IssuersValue
(Rp bn)Tenure
Type of
instruments
Adding room
for
conventional
leverage
Interest/
coupon
rate
Cost of funds
vs.
conventional
instruments
Repurchase/
repayment
obligations
Impacts to cash
flows
Materialised
Revenue backed securities
(Jagorawi)JSMR 2,800 5 years debt yes 8.4% lower yes
in similar manner to
conventional debt
Project bonds (Marga Lingkar
Jakarta)JSMR 1,500 3-12 years debt no 7.5%-8.9% lower yes
in similar manner to
conventional debt
Close end fund (Kanci-
Pejagan, Pejagan-Pemalang,
Pasuruan-Probolinggo toll
roads)
Divestment P/BV valuation:
3.1x
WSKT 5,000 5 years hybrid yes
• promised
IRR: 10%
(paid based
on units
repurchased)
• implied
overall cost of
fund after tax
on gain is
8.7%
lower
not obligated to
repurchase, and
trying to seek for
third parties to
repurchase
better than
conventional debt as
lower interest
payment during the
tenure; interest
payment is based on
repurchase units
Komodo bonds JSMR 4,000 3 years debt no
7.5% (pre-tax)
9.2% (after-
tax)
on par
(including 20%
tax)
yesin similar manner to
conventional debt
Komodo bonds WIKA 5,400 3 years debt no
7.7% (pre-tax)
9.2% (after-
tax)
on par
(including 20%
tax)
yesin similar manner to
conventional debt
Close end fund phase I (Solo-
Ngawi, Ngawi-Kertosono, and
Batang-Semarang toll roads)
Divestment valuation: 1.8x
P/BV
JSMR 1,400 5 years hybrid yes
• promised
IRR: 10.25%
(paid based
on units
repurchased)
• implied
overall cost of
fund after tax
on gain is
8.8%
lower
not obligated to
repurchase, but
likely to
repurchase the
options
better than
conventional debt as
lower interest
payment during the
tenure; interest
payment is based on
repurchase units
Perpetual notes PTPP 250
no tenure,
cost of fund
should
increase
after year 3
(step-up
rate: 5%) if it
doesn’t
repurchase
hybrid (treated
in similar
manner to
preferred
shares)
yes 9.0%
higher if
compared to
cost of debt;
but lower if
compared to
cost of equity
and WACC
not obligated. If
not repurchase
the instrument's
cost of fund may
increase, but
remains lower
compared to its
cost of equity
in similar manner to
conventional debt
Pipelines
Perpetual notes WIKA 1,000
no tenure,
cost of fund
should
increase
after year 3
(step-up
rate: 1-3%) if
it doesn’t
repurchase
hybrid (treated
in similar
manner to
preferred
shares)
yes
higher if
compared to
cost of debt;
but lower if
compared to
cost of equity
and WACC
not obligated. If
not repurchase
the instrument's
cost of fund may
increase, but
remains lower
compared to its
cost of equity
in similar manner to
conventional debt
Perpetual notes phase II PTPP 250
no tenure,
cost of fund
should
increase
after year 3
(step-up
rate: 5%) if it
doesn’t
repurchase
hybrid (treated
in similar
manner to
preferred
shares)
yes
higher if
compared to
cost of debt;
but lower if
compared to
cost of equity
and WACC
not obligated. If
not repurchase
the instrument's
cost of fund may
increase, but
remains lower
compared to its
cost of equity
in similar manner to
conventional debt
Dana Investasi Infrastruktur /
DINFRA (Gempol-Pandaan toll
road)
JSMR 1,100 5 years hybrid yes lower yes
in similar manner to
conventional debt for
the debt instrument
Close end fund phase II (Solo-
Ngawi, Ngawi-Kertosono, and
Batang-Semarang toll roads)
JSMR 1,600 5 years hybrid yes lower
not obligated to
repurchase, but
likely to
repurchase the
options
better than
conventional debt as
lower interest
payment during the
tenure; interest
payment is based on
repurchase units
Navigating Indonesia
Construction │ November 22, 2018
37
Divestment with foreign participation is an alternative
During the International Monetary Fund (IMF)-World Bank annual meeting 2018,
the government offered a total of 78 projects amounting to investment
opportunities worth US$42.1bn to foreign investors. This included direct and
capital market investment.
Direct investment opportunities involved, among other forms, strategic
partnerships and equity participation in infra, energy and oil and gas projects,
including WSKT’s plans to divest a total 11 toll road assets.
Figure 59: Government offered total of US$42.1bn investment opportunities during IMF-World Bank annual meeting in 2018
SOURCES: CGS-CIMB RESEARCH, MINISTRY OF SOE
Navigating Indonesia
Construction │ November 22, 2018
38
PROJECT PAYMENTS
Entering the payment cycle of turnkey receivables
The sector is entering the payment cycle of turnkey projects awarded in 2015-
2017. We continue to expect that three of the four SOE contractors in our
coverage will have positive operating cashflows (OCF) by the end of FY18F,
except for WIKA. However, WIKA mentioned that it also expects to achieve
positive OCF by the end of FY18F. For now, we prefer to stick with our estimate
for WIKA as its turnkey project payments are not due until FY19-20F.
Details of the expected turnkey project payments for the SOE contractors are as
follows:
ADHI
It currently only has one project on a turnkey payment basis for the
Jabodebek LRT. We expect ADHI to receive a total of Rp7tr for the
Jabodebek LRT until the end of FY18F. Despite missing its target for the
second payment (Rp3.6tr) from the project twice, it still expects to
receive the second payment by the end of FY18F. We think this should
materialise as it is just waiting on the audit results from BPKP for the
project payment.
According to our channel checks, the National Railways Company (KAI
or Kereta Api Indonesia), or the project owner, has received the last
tranche of capital injection money for the project from the government,
and is waiting for the audit results before disbursing the money to ADHI.
We expect it to continue to receive more payments from the project in
FY19-20F, hence OCF could still be positive at the end of FY19-20F -
unless it adds more turnkey projects in the future.
Figure 60: ADHI's OCF outlook
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
Title:
Source:
Please fill in the values above to have them entered in your report
(2,500)
(2,000)
(1,500)
(1,000)
(500)
-
500
1,000
1,500
2,000
2011 2012 2013 2014 2015 2016 2017 2018F 2019F 2020F
OCF (Rp bn)
Navigating Indonesia
Construction │ November 22, 2018
39
PTPP
It has the lowest number of turnkey projects among the other SOE
contractors in our coverage, with only one turnkey project currently.
Figure 61: PTPP's OCF outlook
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
WIKA
It currently has a total of four turnkey projects (three toll roads and one
port) with total value of Rp8.8tr. We expect WIKA to only receive one
turnkey project payment in FY18F from Belawan Multipurpose Port,
totaling Rp209.3bn. Hence, we expect it to have a negative OCF
balance by the end of FY18F.
However, we expect its OCF balance to turn positive at the end of FY19-
20F as we estimate a total of Rp6.6tr and Rp7.3tr turnkey receivables
due in FY19F and FY20F, respectively.
Figure 62: WIKA's OCF outlook
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
Title:
Source:
Please fill in the values above to have them entered in your report
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2011 2012 2013 2014 2015 2016 2017 2018F 2019F 2020F
OCF(Rp bn)
Title:
Source:
Please fill in the values above to have them entered in your report
(10,000)
(8,000)
(6,000)
(4,000)
(2,000)
-
2,000
4,000
6,000
8,000
2011 2012 2013 2014 2015 2016 2017 2018F 2019F 2020F
OCF (Rp bn)
Navigating Indonesia
Construction │ November 22, 2018
40
WSKT
For FY18F, WSKT expects to receive Rp26tr in turnkey receivable
payments, comprising Rp6tr from the State Asset Management Agency
(LMAN, the public agency that manages the programme to fund land
acquisitions for national strategic projects), Rp8.7tr from South
Sumatera LRT (Rp4.0tr from state budget and Rp4.7tr from the sale of
receivables) and the remaining from Waskita’s, Jasa Marga’s and Astra
Infra’s toll road projects. WSKT expects major turnkey receivable
payments in FY19F of Rp6tr to come from electricity transmission
network phases I-II (from PLN) and Rp8tr from the Trans-Sumatera toll
road (from Hutama Karya).
Figure 63: WSKT's OCF outlook
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
Switching to milestone payment terms should improve cash flow
Going forward, the SOE contractors in our coverage expect to improve working
capital by switching to milestone payment terms for future projects.
WIKA has already implemented the new payment terms at its Serang-
Panimbang toll road project, which it had previously considered taking on a full
turnkey payment basis. PTPP also successfully switched the payment terms for
the Kulonprogo Airport from full turnkey to milestone. WSKT and ADHI also
mentioned that they would negotiate more milestone payment terms for toll road
projects in the future.
Under the milestone payment scheme, contractors do not receive a down
payment at the beginning of the project, similar to full turnkey projects. However,
the key difference is that contractors will receive payments based on the agreed
progress of completion once certain milestones are achieved, before the project
is fully completed.
Based on our sensitivity analysis, the account receivables (A/R) days of a
project (over a three-year construction period) on a milestone payment basis (for
every 25% of the project completed) could be reduced to 61 days during the first
and 183 days during the second year of construction (vs. 365 days and 639
days based on full turnkey payment terms), respectively.
There would be no difference in the A/R days for a project (over a three-year
construction period) on a milestone payment basis with payments due when
50% of the project is completed vs. full turnkey payments during the first year of
construction. Project completion usually does not surpass 50% during the first
year. However, a more meaningful impact is expected during the second year,
when A/R days for a project can be reduced to 183 days on a milestones
payment basis (payment for every 50% completed). This is much lower
compared to the A/R days of a project on a turnkey payment basis, which can
reach 639 days during the second year of construction.
Title:
Source:
Please fill in the values above to have them entered in your report
(10,000)
(8,000)
(6,000)
(4,000)
(2,000)
-
2,000
4,000
6,000
8,000
10,000
2011 2012 2013 2014 2015 2016 2017 2018F 2019F 2020F
OCF (Rp bn)
Navigating Indonesia
Construction │ November 22, 2018
41
Figure 64: Sensitivity analysis of impact of switching from full turnkey payment terms to milestone payment terms
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
VALUATION AND RECOMMENDATION
Valuations move in cycles
Based on our study, the sector’s valuation cycle can be grouped into two phases:
Risk-aversion cycle
Investors tend to assign a higher risk premium to the sector due to
concerns over specific risks (Figure 65), and are likely to
underappreciate earnings growth momentum (Figures 66 & 68). This
results in a low valuation cycle despite decent earnings growth
momentum.
Bull cycle
Investors tend to give assign a lower risk premium to the sector as
specific concerns are alleviated by game changer(s) (Figure 65). This
results in a high valuation cycle as investors tend to overappreciate
earnings growth momentum (Figure 67).
Figure 65: SOE contractors' risk premium over the JCI during the three cycles
SOURCES: CGS-CIMB RESEARCH, BLOOMBERG
Assumptions Rp bn
Projects contract 1,000
Full turnkey payment term
Progress-
cummulative
Progress-
additions
Revenue-
cummulative
(Rp bn)
Revenue -
additions
(Rp bn)
Payment
(Rp bn)
Outstanding-
Receivables
(Rp bn)
A/R
days
End of yr-1 30% 30% 300 300 - 300 365
End of yr-2 70% 40% 700 400 - 700 639
Yr-3 (project completion) 100% 30% 1,000 300 1,000 - -
Milestones payment term (payment every 25% progress completion)
Progress-
cummulative
Progress-
additions
Revenue-
cummulative
(Rp bn)
Revenue -
additions
(Rp bn)
Payment
(Rp bn)
Outstanding-
Receivables
(Rp bn)
A/R
days
A/R days (as % to full
turnkey payment)
End of yr-1 30% 30% 300 300 250 50 61 17%
End of yr-2 70% 40% 700 400 250 200 183 29%
Yr-3 (project completion) 100% 30% 1,000 300 500 - - 0%
Milestones payment term (payment every 50% progress completion)
Progress-
cummulative
Progress-
additions
Revenue-
cummulative
(Rp bn)
Revenue -
additions
(Rp bn)
Payment
(Rp bn)
Outstanding-
Receivables
(Rp bn)
A/R
days
A/R days (as % to full
turnkey payment)
End of yr-1 30% 30% 300 300 - 300 365 100%
End of yr-2 70% 40% 700 400 500 200 183 29%
Yr-3 (project completion) 100% 30% 1,000 300 500 - - 0%
Title:
Source:
Please fill in the values above to have them entered in your report
-80%
-60%
-40%
-20%
0%
20%
40%
60%
Jan-
09
Mar
-09
May
-09
Jul-0
9
Sep
-09
Nov
-09
Jan-
10
Mar
-10
May
-10
Jul-1
0
Sep
-10
Nov
-10
Jan-
11
Mar
-11
May
-11
Jul-1
1
Sep
-11
Nov
-11
Jan-
12
Mar
-12
May
-12
Jul-1
2
Sep
-12
Nov
-12
Jan-
13
Mar
-13
May
-13
Jul-1
3
Sep
-13
Nov
-13
Jan-
14
Mar
-14
May
-14
Jul-1
4
Sep
-14
Nov
-14
Jan-
15
Mar
-15
May
-15
Jul-1
5
Sep
-15
Nov
-15
Jan-
16
Mar
-16
May
-16
Jul-1
6
Sep
-16
Nov
-16
Jan-
17
Mar
-17
May
-17
Jul-1
7
Sep
-17
Nov
-17
Jan-
18
Mar
-18
May
-18
Jul-1
8
Sep
-18
SOE contractors risk premium gap to JCI index's-higher/(lower) JCI risk premium SOE contractors risk premium
risk-aversion cycle v.01 bull cycle v.01 risk-aversion cycle v.02
Navigating Indonesia
Construction │ November 22, 2018
42
Figure 66: Sector’s P/E vs. core NP
growth (yoy) during 2009-2011 (risk-
averse cycle v.01)
Figure 67: Sector’s P/E vs. core NP
growth (yoy) during 2012-2015 (bull cycle
v.01)
Figure 68: Sector’s P/E vs. core NP
growth (yoy) during 2016-2017 (risk-
averse cycle v.02)
SOURCES: CGS-CIMB RESEARCH, BLOOMBERG SOURCES: CGS-CIMB RESEARCH, BLOOMBERG SOURCES: CGS-CIMB RESEARCH, BLOOMBERG
Since 2009, the sector has gone through three valuation cycles:
1. Risk-aversion cycle v.01 in 2009-2011
During this cycle, the main overhang on the sector was uncertainty over
land acquisition and the state budget. This resulted in investor concerns
over the earnings delivery outlook for the sector.
The sector’s implied risk premium was on average 14-28% pts higher
than the JCI index.
In fact, during this period, the sector delivered decent earnings growth of
+28% to +41% yoy.
2. Bull cycle v.01 in 2012-2015
During this cycle, the key re-rating catalysts for the sector were the
issuance of the reformed land law (Law No.2/2012) and higher infra
budget as a percentage of GDP, offset by lower energy subsidy (which
was first implemented in 2015). This eased investors’ concerns over the
earnings delivery outlook for the sector.
The sector’s implied average risk premium over the JCI during this
period was between -19% pts to 10% pts.
In fact, during this period, the sector delivered lower earnings growth of
+12% to +39% yoy (vs. +28% to +41% yoy and +48% to + +86% yoy in
both risk-averse cycles).
3. Risk-aversion cycle v.02 in 2016-2017
During this cycle, the key concerns included uncertainties over business
direction, higher leverage (due to high investments and turnkey projects),
and negative operating cashflow (OCF).
The sector’s implied risk premium over the JCI in 2016-2017 was 7%-
16% pts higher.
In fact, during 2016-2017, the sector delivered the highest earnings
growth compared to the past two cycles (+48% to +86% yoy).
Title:
Source:
Please fill in the values above to have them entered in your report
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
-
5
10
15
20
25
2008 2009 2010 2011 2012
SOE contractors sector's end of year P/E-(LHS)
SOE contractors sector's core NP growth (yoy)
Title:
Source:
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
-
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25
2011 2012 2013 2014 2015 2016
SOE contractors sector's end of year P/E-(LHS)
SOE contractors sector's core NP growth (yoy)
Title:
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0%
10%
20%
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2015 2016 2017 2018
SOE contractors sector's end of year P/E-(LHS)
SOE contractors sector's core NP growth (yoy)
Navigating Indonesia
Construction │ November 22, 2018
43
In a risk-aversion cycle, despite improving outlook
In YTD 18, the sector remains in a risk-aversion cycle, the SOE contractors’
share prices fell by 17%-42% and underperformed the JCI by 10%-35% (Figure
69). The sector’s P/E valuation continued to de-rate from the peak in 2015 and
bottomed out at end-Oct 18 (Figure 70). The sector’s de-rating valuations were
on the back of uncertainties over business direction and negative OCF.
Figure 69: SOE contractors’ share price vs. JCI index
performance in YTD 18
Figure 70: SOE contractor's premium (discount) to market
SOURCES: CGS-CIMB RESEARCH, BLOOMBERG SOURCES: CGS-CIMB RESEARCH, BLOOMBERG
Between 30 Oct and 21 Nov 2018, the share prices of SOE contractors
rebounded by 10.4%-22.2%, and outperformed the JCI by 8.3%-20.1%. We
think this was in response to the decent 9M18 results for the sector, which was
previously deemed to be lagging due to slow contracts booking.
Title:
Source:
Please fill in the values above to have them entered in your report
40
60
80
100
120
140
160
PTPP ADHI WSKT WIKA JCI Index
Title:
Source:
Please fill in the values above to have them entered in your report
-60%
-40%
-20%
0%
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60%
-
5
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30
Premium (Discount) to Market-RHS SOE Const P/E JCI P/E
Navigating Indonesia
Construction │ November 22, 2018
44
Risk-reward underpins our Overweight rating
Although SOE contractors’ share prices have rebounded strongly at this point,
we believe the sector’s valuations remain attractive, with substantial upside.
Currently, the sector’s implied risk premium gap over the JCI index is at (36%
pts higher) is within its widest range compared to the past bull and risk aversion
cycles. Diminishing risks should translate into a lower risk premium gap to the
JCI index for the sector, in our view.
The formation of infra and property holding companies could be the answer to
concerns over uncertainty in the sector’s business direction. Holding companies
could also offer a better outlook for funding. Additionally, we still forecast an
improvement in OCF by the end of FY18F as the sector is entering the payment
cycle for turnkey projects. Going forward, SOE contractors expect to see
improved working capital by switching from turnkey payments to milestone
payments. If this materialises, the sector could reduce the risk of negative OCF
balance in the future.
Our TP for the four state-owned contractors imply a weighted average risk
premium gap of 14% to the JCI index’s (assuming the JCI index’s risk premium
is 12%). The weighted average implied risk premium for the sector is 26%. We
view this as undemanding as it is similar to the sector’s implied risk premium
over the JCI in 2010 when several issues plagued the sector.
On a P/E basis, our TP for the four SOE contractors are undemanding, or at
8.7x FY19F P/E to 12.5x FY19F P/E. We reiterate our Overweight rating for the
sector with WSKT (Add; TP Rp3,000) and ADHI (Add; TP Rp2,000) as our key
picks.
Figure 71: SOE contractors' sector risk premium gap over the JCI index’s
SOURCES: CGS-CIMB RESEARCH
Figure 72: Sector / Peers Comparison
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
Title:
Source:
Please fill in the values above to have them entered in your report
-30%
-20%
-10%
0%
10%
20%
30%
40%
2009-mean
2010-mean
2011-mean
2012-mean
2013-mean
2014-mean
2015-mean
2016-mean
2017-mean
YTD-18-mean
Target px-mean
Higher/(lower) - in percentage pt
mean
ffff
PriceTarget
Price
(local curr) (local curr) 2018F 2019F 2018F 2019F 2018F 2019F 2018F 2019F
Adhi Karya ADHI IJ ADD 1,375 2,000 335 6.7 6.0 20.6% 0.73 0.64 12.2% 11.4% 2.1% 3.0%
Pembangunan Perumahan PTPP IJ ADD 1,545 3,700 656 6.4 5.0 19.9% 0.76 0.67 12.8% 14.2% 3.1% 4.0%
Waskita Karya WSKT IJ ADD 1,590 3,000 1,478 8.1 6.6 -16.6% 1.29 1.12 18.0% 18.1% 5.4% 3.7%
Wijaya Karya WIKA IJ ADD 1,290 2,000 792 7.7 6.6 16.8% 0.83 0.75 11.7% 12.0% 1.8% 2.3%
P/BV (x) Recurring ROE (%) Dividend Yield (%)Company
Bberg.
TickerRecom.
Market Cap
(US$ m)
Core P/E (x) 3-year EPS
CAGR (%)
Navigating Indonesia
Construction │ November 22, 2018
45
Key picks: WSKT and ADHI
Going into 2019, our key picks for the sector are WSKT (Add; TP Rp3,000) and
ADHI (Add; TP Rp2,000). Overall, we believe both companies will adopt an
infrastructure holding company model. Hence, we think both companies should
retain their businesses as contractors and infra players. Additionally, infra project
construction contracts’ ticket sizes are usually much bigger compared to the
ticket sizes of property projects. Bigger value contracts suggest fewer projects to
be managed. This should improve efficiency and cost, in our view.
Our TP for WSKT implies a -1% pt risk premium gap to the JCI index. This is
because we arrive at WSKT’s target price using an SOP valuation, where its toll
road assets contribute 22% of its total targeted equity value. Additionally, our
current estimate for WSKT’s NP is already very conservative or 78% of the
Bloomberg consensus estimate. Hence, all else being equal, we believe there is
no further downside risk for WSKT’s earnings in FY19F from our forecast.
Potential earnings upside for WSKT could come from the materialisation of its
asset recycling plan, which could lift our FY19F NP forecast by 64% to 89%. We
discussed this in our report “NDR takeaways: lower growth, focus on
deleveraging” published on 13 Sep 2018.
Figure 73: ADHI's LT forward P/E band Figure 74: ADHI's LT forward P/BV band
SOURCES: CGS-CIMB RESEARCH, BLOOMBERG SOURCES: CGS-CIMB RESEARCH, BLOOMBERG
Figure 75: PTPP's LT forward P/E band Figure 76: PTPP's LT forward P/BV band
SOURCES: CGS-CIMB RESEARCH, BLOOMBERG SOURCES: CGS-CIMB RESEARCH, BLOOMBERG
Title:
Source:
Please fill in the values above to have them entered in your report
-
5
10
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30
35
40
ADHI P/E 3YR MA +1 St Dev
+2 St Dev -1 St Dev -2 St Dev
31.0x
23.3x
15.6x
7.9x
0.2x
(x)Title:
Source:
Please fill in the values above to have them entered in your report
-
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
ADHI P/BV 3YR MA +1 St Dev
+2 St Dev -1 St Dev -2 St Dev
1.9x1.6x
1.3x
0.9x
0.6x
(x)
Title:
Source:
Please fill in the values above to have them entered in your report
4
8
12
16
20
24
28
PTPP P/E 3YR MA +1 St Dev
+2 St Dev -1 St Dev -2 St Dev
19.8x
16.3x
12.7x
5.6x
9.2x
(x) Title:
Source:
Please fill in the values above to have them entered in your report
-
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
PTPP P/BV 3YR MA +1 St Dev
+2 St Dev -1 St Dev -2 St Dev
2.3x
1.9x
1.5x
1.1x
0.7x
(x)
Navigating Indonesia
Construction │ November 22, 2018
46
Figure 77: WIKA's LT forward P/E band Figure 78: WIKA's LT forward P/BV band
SOURCES: CGS-CIMB RESEARCH, BLOOMBERG SOURCES: CGS-CIMB RESEARCH, BLOOMBERG
Figure 79: WSKT's LT forward P/E band Figure 80: WSKT's LT forward P/BV band
SOURCES: CGS-CIMB RESEARCH, BLOOMBERG SOURCES: CGS-CIMB RESEARCH, BLOOMBERG
Title:
Source:
Please fill in the values above to have them entered in your report
0
5
10
15
20
25
30
35
40
WIKA P/E 3YR MA +1 St Dev
+2 St Dev -1 St Dev -2 St Dev
22.6x
18.3x
14.0x
9.7x
5.4x
(x)Title:
Source:
Please fill in the values above to have them entered in your report
-
1.0
2.0
3.0
4.0
5.0
6.0
WIKA P/BV 3YR MA +1 St Dev
+2 St Dev -1 St Dev -2 St Dev
1.9x
1.6x1.3x1.0x
0.7x
(x)
Title:
Source:
Please fill in the values above to have them entered in your report
5
7
9
11
13
15
17
19
21
23
25
WSKT P/E Mean +1 St Dev
+2 St Dev -1 St Dev -2 St Dev
14.4x
12.5x
10.5x
8.6x
6.6x
(x) Title:
Source:
Please fill in the values above to have them entered in your report
-
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
WSKT P/BV 3YR MA +1 St Dev
+2 St Dev -1 St Dev -2 St Dev
3.0x
2.6x
2.1x
1.6x
1.1x
(x)
Navigating Indonesia
Construction │ November 22, 2018
47
How are investors positioned on the sector
At end of Oct 2018, local investors had higher ownership in the SOE contractors
sector compared to foreign investors.
Figure 81: Local-foreign investor ownership in the SOE contractors sector (end of
Oct-18)
SOURCES: CGS-CIMB RESEARCH, KSEI
At end of Oct 2018, as a total, local investors had Overweight positions in the
SOE contractors sector while, as a total, foreign investors were Underweight.
Figure 82: As a total, local investors had overweight positions on SOE contractors
(end of Oct-18)
SOURCES: CGS-CIMB RESEARCH, KSEI
Title:
Source:
Please fill in the values above to have them entered in your report
0.00% 0.10% 0.20% 0.30% 0.40% 0.50% 0.60%
Total local investorsownership in SOE
contractors sector-weighted to JCI index
Total foreigninvestors ownership
in SOE contractorssector- weighted to
JCI index
SOE contractorssector - weighted to
JCI index
Title:
Source:
Please fill in the values above to have them entered in your report
0.0% 0.2% 0.4% 0.6% 0.8%
Total foreign investors ownership in SOE contractors sector- weighted to their total portfolioin JCI index
Total local investors ownership in SOE contractors sector-weighted to their total portfolio in JCI index
SOE contractors sector- weighted to JCI index
Navigating Indonesia
Construction │ November 22, 2018
48
Figure 83: Local pension funds have the largest ownership in the sector (end of Oct-
18)
SOURCES: CGS-CIMB RESEARCH, KSEI
Figure 84: Local-foreign investor ownership in ADHI (end of Oct-18)
SOURCES: CGS-CIMB RESEARCH, KSEI
Figure 85: As a total, local investors had overweight positions
on ADHI (end of Oct-18)
Figure 86: Local mutual funds have the largest ownership in
ADHI (end of Oct-18)
SOURCES: CGS-CIMB RESEARCH, KSEI SOURCES: CGS-CIMB RESEARCH, KSEI
Title:
Source:
Please fill in the values above to have them entered in your report
0.0% 0.5% 1.0% 1.5% 2.0% 2.5%
Local-insurance
Local-pension funds
Local-mutual fund
Local-others
SOE contractors sector- weighted to…
Foreign-insurance
Foreign-pension funds
Foreign-mutual fund
Foreign-others
Local-insurance Local-pension funds
Local-mutual fund Local-others
SOE contractors sector- weighted to JCI index Foreign-insurance
Foreign-pension funds Foreign-mutual fund
Foreign-others
weighted to their total portfolio in JCI index
weighted to their total portfolio in JCI index
Title:
Source:
Please fill in the values above to have them entered in your report
0.00% 0.01% 0.02% 0.03% 0.04% 0.05% 0.06% 0.07%
Total local investors ownership in ADHI- weighted to JCIindex
Total foreign investors ownership in ADHI- weighted to JCIindex
ADHI - weighted to JCI index
Title:
Source:
Please fill in the values above to have them entered in your report
0.00% 0.03% 0.05% 0.08% 0.10%
Total local investors ownership in ADHI -weighted to their total portfolio in JCI index
Total foreign investors ownership in ADHI -weighted to their total portfolio in JCI index
ADHI - weighted to JCI index
Title:
Source:
Please fill in the values above to have them entered in your report
0.00% 0.10% 0.20% 0.30%
Local-insurance
Local-pension funds
Local-mutual fund
Local-others
ADHI - weighted to JCI index
Foreign-insurance
Foreign-pension funds
Foreign-mutual fund
Foreign-others
weighted to their total portfolio in JCI index
weighted to their total portfolio in JCI index
Navigating Indonesia
Construction │ November 22, 2018
49
Figure 87: Local-foreign investor ownership in PTPP (end of Oct-18)
SOURCES: CGS-CIMB RESEARCH, KSEI
Figure 88: As a total, local investors had overweight positions
on PTPP (end of Oct-18)
Figure 89: Local pension funds have the largest ownership in
PTPP (end of Oct-18)
SOURCES: CGS-CIMB RESEARCH, KSEI SOURCES: CGS-CIMB RESEARCH, KSEI
Figure 90: Local-foreign investor ownership in WIKA (end of Oct-18)
SOURCES: CGS-CIMB RESEARCH, KSEI
Title:
Source:
Please fill in the values above to have them entered in your report
0.00% 0.02% 0.04% 0.06% 0.08% 0.10% 0.12% 0.14%
Total local investors ownership in PTPP- weighted to JCIindex
Total foreign investors ownership in PTPP- weighted to JCIindex
PTPP - weighted to JCI index
Title:
Source:
Please fill in the values above to have them entered in your report
0.11% 0.12% 0.12% 0.13% 0.13%
Total local investors ownership in PTPP -weighted to their total portfolio in JCI index
Total foreign investors ownership in PTPP -weighted to their total portfolio in JCI index
PTPP - weighted to JCI index
Title:
Source:
Please fill in the values above to have them entered in your report
0.00% 0.10% 0.20% 0.30% 0.40% 0.50%
Local-insurance
Local-pension funds
Local-mutual fund
Local-others
PTPP - weighted to JCI index
Foreign-insurance
Foreign-pension funds
Foreign-mutual fund
Foreign-others
weighted to their total portfolio in JCI index
weighted to their total portfolio in JCI index
Title:
Source:
Please fill in the values above to have them entered in your report
0.00% 0.02% 0.04% 0.06% 0.08% 0.10% 0.12%
Total local investors ownership in WIKA- weighted to JCIindex
Total foreign investors ownership in WIKA- weighted to JCIindex
WIKA - weighted to JCI index
Navigating Indonesia
Construction │ November 22, 2018
50
Figure 91: As a total, local investors had overweight positions
on WIKA (end of Oct-18)
Figure 92: Local pension funds have the largest ownership in
WIKA (end of Oct-18)
SOURCES: CGS-CIMB RESEARCH, KSEI SOURCES: CGS-CIMB RESEARCH, KSEI
Figure 93: Local-foreign investor ownership in WSKT (end of Oct-18)
SOURCES: CGS-CIMB RESEARCH, KSEI
Figure 94: As a total, local investors had overweight positions
on WSKT (end of Oct-18)
Figure 95: Local pension funds have the largest ownership in
WSKT (end of Oct-18)
SOURCES: CGS-CIMB RESEARCH, KSEI SOURCES: CGS-CIMB RESEARCH, KSEI
Title:
Source:
Please fill in the values above to have them entered in your report
0.00% 0.05% 0.10% 0.15% 0.20%
Total local investors ownership in WIKA -weighted to their total portfolio in JCI index
Total foreign investors ownership in WIKA- weighted to their total portfolio in JCI
index
WIKA - weighted to JCI index
Title:
Source:
Please fill in the values above to have them entered in your report
0.00% 0.20% 0.40% 0.60%
Local-insurance
Local-pension funds
Local-mutual fund
Local-others
WIKA - weighted to JCI index
Foreign-insurance
Foreign-pension funds
Foreign-mutual fund
Foreign-others
weighted to their total portfolio in JCI index
weighted to their total portfolio in JCI index
Title:
Source:
Please fill in the values above to have them entered in your report
0.00% 0.05% 0.10% 0.15% 0.20% 0.25%
Total local investors ownership in WSKT- weighted to JCIindex
Total foreign investors ownership in WSKT- weighted to JCIindex
WSKT - weighted to JCI index
Title:
Source:
Please fill in the values above to have them entered in your report
0.00% 0.10% 0.20% 0.30%
Total local investors ownership in WSKT -weighted to their total portfolio in JCI index
Total foreign investors ownership in WSKT -weighted to their total portfolio in JCI index
WSKT - weighted to JCI index
Title:
Source:
Please fill in the values above to have them entered in your report
0.00% 0.20% 0.40% 0.60% 0.80% 1.00%
Local-insurance
Local-pension funds
Local-mutual fund
Local-others
WSKT - weighted to JCI index
Foreign-insurance
Foreign-pension funds
Foreign-mutual fund
Foreign-others
weighted to their total portfolio in JCI index
weighted to their total portfolio in JCI index
Navigating Indonesia
Construction │ November 22, 2018
51
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Navigating Indonesia
Construction │ November 22, 2018
52
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The current prices/yields in this issue are based upon closing prices from Bloomberg as of the day preceding publication. Please note that neither the German Federal Financial Supervisory Agency (BaFin), nor any other supervisory authority exercises any control over the content of this report.
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finance) activities. Any investors wishing to purchase or otherwise deal in the securities covered in this report should contact the Head of Sales at CGS-CIMB Securities (Hong Kong) Limited. The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Conduct Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CHK has no obligation to update its opinion or the information in this research report.
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The research analysts, strategists or economists principally responsible for the preparation of this research report are segregated from the other activities of CGS-CIMB India and they have received compensation based upon various factors, including quality, accuracy and value of research, firm profitability or revenues, client feedback and competitive factors. Research analysts', strategists' or economists' compensation is not linked to investment banking or capital markets transactions performed or proposed to be performed by CGS-CIMB India or its affiliates.
CGS-CIMB India does not have actual / beneficial ownership of 1% or more securities of the subject company in this research report, at the end of the month immediately preceding the date of publication of this research report. However, since affiliates of CGS-CIMB are engaged in the financial services business, they might have in their normal course of business financial interests or actual / beneficial ownership of one per cent or more in various companies including the subject company in this research report.
CGS-CIMB or its associates, may: (a) from time to time, have long or short position in, and buy or sell the securities of the subject company in this research report; or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the subject company in this research report or act as an advisor or lender/borrower to such company or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions.
CCGS-CIMB India, its associates and the analyst engaged in preparation of this research report have not received any compensation for investment banking, merchant banking or brokerage services from the subject company mentioned in the research report in the past 12 months.
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This research report is not an offer of securities in Indonesia. The securities referred to in this research report have not been registered with the Financial Services Authority (Otoritas Jasa Keuangan) pursuant to relevant capital market laws and regulations, and may not be offered or sold within the territory of the Republic of Indonesia or to Indonesian citizens through a public offering or in circumstances which constitute an offer within the meaning of the Indonesian capital market law and regulations.
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Recipients of this report are to contact CGS-CIMB Research Pte Ltd, 50 Raffles Place, #16-02 Singapore Land Tower, Singapore in respect of any
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matters arising from, or in connection with this report. CGS-CIMBR has no obligation to update its opinion or the information in this research report. This publication is strictly confidential and is for private circulation only. If you have not been sent this report by CGS-CIMBR directly, you may not rely, use or disclose to anyone else this report or its contents.
If the recipient of this research report is not an accredited investor, expert investor or institutional investor, CGS-CIMBR accepts legal responsibility for the contents of the report without any disclaimer limiting or otherwise curtailing such legal responsibility. If the recipient is an accredited investor, expert investor or institutional investor, the recipient is deemed to acknowledge that CGS-CIMBR is exempt from certain requirements under the FAA and its attendant regulations, and as such, is exempt from complying with the following :
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CGS-CIMBR, its affiliates and related corporations, their directors, associates, connected parties and/or employees may own or have positions in specified products of the company(ies) covered in this research report or any specified products related thereto and may from time to time add to or dispose of, or may be materially interested in, any such specified products. Further, CGS-CIMBR, its affiliates and its related corporations do and seek to do business with the company(ies) covered in this research report and may from time to time act as market maker or have assumed an underwriting commitment in specified products of such company(ies), may sell them to or buy them from customers on a principal basis and may also perform or seek to perform significant investment banking, advisory, underwriting or placement services for or relating to such company(ies) as well as solicit such investment, advisory or other services from any entity mentioned in this report.
As of November 21, 2018, CGS-CIMBR does not have a proprietary position in the recommended specified products in this report.
CGS-CIMBR does not make a market on other specified products mentioned in the report.
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Thailand: This report is issued and distributed by CGS-CIMB Securities (Thailand) Co. Ltd. (“CGS-CIMB Thailand”) based upon sources believed to be reliable (but their accuracy, completeness or correctness is not guaranteed). The statements or expressions of opinion herein were arrived at after due and careful consideration for use as information for investment. Such opinions are subject to change without notice and CGS-CIMB Thailand has no obligation to update its opinion or the information in this research report.
CGS-CIMB Thailand may act or acts as Market Maker, and issuer and offerer of Derivative Warrants and Structured Note which may have the following securities as its underlying securities. Investors should carefully read and study the details of the derivative warrants in the prospectus before making investment decisions.
AAV, ADVANC, AMATA, AOT, AP, BANPU, BBL, BCH, BCP, BCPG, BDMS, BEAUTY, BEM, BGRIM, BJC, BH, BLA, BLAND, BPP, BTS, CBG, CENTEL, CHG, CK, CKP, COM7, CPALL, CPF, CPN, DELTA, DTAC, EA, EGCO, EPG, ERW, ESSO, GGC, GFPT, GLOBAL, GLOW, GPSC, GUNKUL, HANA, HMPRO, INTUCH, IRPC, ITD, IVL, KBANK, KCE, KKP, KTB, KTC, LH, LPN, MAJOR, MEGA, MINT, MTLS, ORI, PRM, PSH, PSL, PTG, PTT, PTTEP, PTTGC, QH, RATCH, ROBINS, RS, SAWAD, SCB, SCC, SGP, SIRI, SPALI, SPRC, STA, STEC, SUPER, TASCO, TCAP, THAI, THANI, TISCO, TKN, TMB, TOA, TOP, TPIPL, TPIPP, TRUE, TTW, TU, TVO, UV, WHA, WHAUP, WORK.
Corporate Governance Report:
The disclosure of the survey result of the Thai Institute of Directors Association (“IOD”) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the Market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information.
The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey result may be changed after that date. CGS-CIMB Thailand does not confirm nor certify the accuracy of such survey result.
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Score Range: 90 - 100 80 – 89 70 - 79 Below 70 or No Survey Result
Description: Excellent Very Good Good N/A
United Arab Emirates: The distributor of this report has not been approved or licensed by the UAE Central Bank or any other relevant licensing authorities or governmental agencies in the United Arab Emirates. This report is strictly private and confidential and has not been reviewed by, deposited or registered with UAE Central Bank or any other licensing authority or governmental agencies in the United Arab Emirates. This report is being issued outside the United Arab Emirates to a limited number of institutional investors and must not be provided to any person other than the original recipient and may not be reproduced or used for any other purpose. Further, the information contained in this report is not intended to lead to the sale of investments under any subscription agreement or the conclusion of any other contract of whatsoever nature within the territory of the United Arab Emirates.
United Kingdom and European Economic Area (EEA): In the United Kingdom and European Economic Area, this material is also being distributed by CGS-CIMB Securities (UK) Limited (“CGS-CIMB UK”). CGS-CIMB UK is authorized and regulated by the Financial Conduct Authority and its registered office is at 27 Knightsbridge, London, SW1X7YB. The material distributed by CGS-CIMB UK has been prepared in accordance with CGS-CIMB’s policies for managing conflicts of interest arising as a result of publication and distribution of this material. This material is for distribution only to, and is solely directed at, selected persons on the basis that those persons: (a) are eligible counterparties and professional clients of CGS-CIMB UK; (b) have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the “Order”), (c) fall within Article 49(2)(a) to (d) (“high net worth companies, unincorporated associations etc”) of the Order; (d) are outside the United Kingdom subject to relevant regulation in each jur isdiction, material(all such persons together being referred to as “relevant persons”). This material is directed only at relevant persons and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this material relates is available only to relevant persons and will be engaged in only with relevant persons.
Where this material is labelled as non-independent, it does not provide an impartial or objective assessment of the subject matter and does not constitute independent “research” (cannot remove research from here under the applicable rules of the Financial Conduct Authority in the UK. Consequently, any such non-independent material will not have been prepared in accordance with legal requirements designed to promote the independence of research (cannot remove research from here) and will not subject to any prohibition on dealing ahead of the dissemination of research. Any such non-independent material must be considered as a marketing communication.
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CGS-CIMB Securities (USA) Inc. does not make a market on other securities mentioned in the report.
CGS-CIMB Securities (USA) Inc. has not managed or co-managed a public offering of any of the securities mentioned in the past 12 months.
CGS-CIMB Securities (USA) Inc. has not received compensation for investment banking services from any of the company mentioned in the past 12 months.
CGS-CIMB Securities (USA) Inc. neither expects to receive nor intends to seek compensation for investment banking services from any of the company mentioned within the next 3 months.
Other jurisdictions: In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is only for distribution to professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.
Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (Thai IOD) in 2017, Anti-Corruption 2017
AAV – Very Good, n/a, ADVANC – Excellent, Certified, AEONTS – Good, n/a, AMATA – Very Good, n/a, ANAN – Excellent, n/a, AOT – Excellent, Declared, AP – Excellent, Declared, ASK – Very Good, Declared, ASP – Very Good, Certified, BANPU – Excellent, Certified, BAY – Excellent, Certified, BBL – Very Good, Certified, BCH – Good, Declared, BCP - Excellent, Certified, BCPG – Very Good, n/a, BEM – Very Good, n/a, BDMS – Very Good, n/a, BEAUTY – Good, n/a, BEC – Very Good, n/a, , BGRIM – not available, n/a, BH - Good, n/a, BJC – Very Good, Declared, BJCHI – Very Good, Declared, BLA – Very Good, Certified, BPP – Good, n/a, BR - Good, Declared, BTS - Excellent, Certified, CBG – Good, n/a, CCET – Good, n/a, CENTEL – Very Good, Certified, CHG – Very Good, Declared, CK – Excellent, n/a, COL – Very Good, Declared, CPALL – not available, Declared, CPF – Excellent, Declared, CPN - Excellent, Certified, DELTA - Excellent, n/a, DEMCO – Excellent, Certified, DIF – not available, n/a, DTAC – Excellent, Certified, EA – Very Good, n/a, ECL – Very Good, Certified, EGCO - Excellent, Certified, EPG – Very Good, n/a, GFPT - Excellent, Declared, GGC – not available, Declared, GLOBAL – Very Good, Declared, GLOW – Very Good, Certified, GPSC – Excellent, Declared, GRAMMY - Excellent, n/a, GUNKUL – Excellent, Declared, HANA - Excellent, Certified, HMPRO - Excellent, Certified, ICHI – Excellent, n/a, III – not
Rating Distribution (%) Inv estment Banking clients (%)
Add 60.5% 4.2%
Hold 25.8% 2.4%
Reduce 13.7% 0.4%
Distribution of stock ratings and inv estment banking clients for quarter ended on 30 September 2018
759 companies under cov erage for quarter ended on 30 September 2018
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available, n/a, INTUCH - Excellent, Certified, IRPC – Excellent, Certified, ITD – Very Good, n/a, IVL - Excellent, Certified, JAS – not available, Declared, JASIF – not available, n/a, JUBILE – Good, Declared, KAMART – not available, n/a, KBANK - Excellent, Certified, KCE - Excellent, Certified, KGI – Very Good, Certified, KKP – Excellent, Certified, KSL – Very Good, Certified, KTB - Excellent, Certified, KTC – Excellent, Certified, LH - Very Good, n/a, LPN – Excellent, Certified, M – Very Good, n/a, MACO – Very Good, n/a, MAJOR – Very Good, n/a, MAKRO – Very Good, Declared, MALEE – Very Good, n/a, MBKET – Very Good, Certified, MC – Very Good, Declared, MCOT – Excellent, Certified, MEGA – Very Good, n/a, MINT - Excellent, Certified, MTLS – Very Good, Declared, NYT – Excellent, n/a, OISHI – Very Good, n/a, PLANB – Excellent, Declared, PLAT – Very Good, Certified, PSH – Excellent, Certified, PSL - Excellent, Certified, PTT - Excellent, Certified, PTTEP - Excellent, Certified, PTTGC - Excellent, Certified, QH – Excellent, Certified, RATCH – Excellent, Certified, ROBINS – Excellent, Certified, RS – Very Good, n/a, SAMART - Excellent, n/a, SAPPE - Good, n/a, SAT – Excellent, Certified, SAWAD – Very Good, n/a, SC – Excellent, Declared, SCB - Excellent, Certified, SCBLIF – not available, n/a, SCC – Excellent, Certified, SCN – Very Good, Declared, SCCC - Excellent, Declared, SIM - Excellent, n/a, SIRI – Very Good, Declared, SPA - Good, n/a, SPALI - Excellent, n/a, SPRC – Excellent, Declared, STA – Very Good, Declared, STEC – Excellent, n/a, SVI – Excellent, Certified, TASCO – Very Good, n/a, TCAP – Excellent, Certified, THAI – Very Good, n/a, THANI – Very Good, Certified, THCOM – Excellent, Certified, THRE – Very Good, Certified, THREL – Excellent, Certified, TICON – Very Good, Declared, TIPCO – Very Good, Certified, TISCO - Excellent, Certified, TK – Very Good, n/a, TKN – Very Good, Declared, TMB - Excellent, Certified, TNR – Good, n/a, TOP - Excellent, Certified, TPCH – Good, n/a, TPIPP – not available, n/a, TRUE – Excellent, Declared, TTW – Very Good, n/a, TU – Excellent, Declared, TVO – Excellent, Declared, UNIQ – not available, Declared, VGI – Excellent, Declared, WHA – not available, Declared, WHART – not available, n/a, WORK – not available, n/a.
Companies participating in Thailand’s Private Sector Collective Action Coalition Against Corruption programme (Thai CAC) under Thai Institute of Directors (as of October 28, 2016) are categorized into:
- Companies that have declared their intention to join CAC, and
- Companies certified by CAC
Recommendation Framework
Stock Ratings Definition:
Add The stock’s total return is expected to exceed 10% over the next 12 months.
Hold The stock’s total return is expected to be between 0% and positive 10% over the next 12 months.
Reduce The stock’s total return is expected to fall below 0% or more over the next 12 months.
The total expected return of a stock is defined as the sum of the: (i) percentage difference between the target price and the current price and (ii) the forward net dividend yields of the stock. Stock price targets have an investment horizon of 12 months.
Sector Ratings Definition:
Overweight An Overweight rating means stocks in the sector have, on a market cap-weighted basis, a positive absolute recommendation.
Neutral A Neutral rating means stocks in the sector have, on a market cap-weighted basis, a neutral absolute recommendation.
Underweight An Underweight rating means stocks in the sector have, on a market cap-weighted basis, a negative absolute recommendation.
Country Ratings Definition:
Overweight An Overweight rating means investors should be positioned with an above-market weight in this country relative to benchmark.
Neutral A Neutral rating means investors should be positioned with a neutral weight in this country relative to benchmark.
Underweight An Underweight rating means investors should be positioned with a below-market weight in this country relative to benchmark.
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International Network Asia
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Europe Americas
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