Established in 1997, PT Wijaya Karya Beton Tbk (WTON), a subsidiary of PT Wijaya Karya (Persero) (WIKA) is currently one of the largest precast concrete producers in Indonesia, and even in Southeast Asia. The company primarily deals with concrete trading and manufacturing, construction services and other related businesses. Supported by high order book, its FY17 revenue came at IDR 5.4 Tn (+54% YoY). Concrete segment which contributed most to WTON revenue (89%) grew by 43.5%, while quarry (0.8% contribution) and services (10.2%) figures went up 91% and 310.5% respectively.
This year, we expect another solid contracts achievement reflected by the continued infrastructure development in the country. Furthermore, given its dominance in the precast industry, WTON is very well positioned to benefit most from infrastructure projects in the country. We reinitiate our coverage on WTON with a BUY rating and target price of IDR 640/share.
WTON’s production capacity, from 14 Concrete Products Plants spread across Indonesia, reached 3 million tons in 2017, a 20% increase from 2016’s 2.5 million tons. Having utilization rate of 103% last year, WTON plans to increase capacity up to 3.6 million tons this year to keep up with the demand. With the operational commencement of line 4 at Lampung precast factory in January 2018, WTON production capacity has reached 3.2 million tons.
In addition, WTON currently undergoes capacity expansion of its Makassar factory to reach 300-500 thousand tons (from 200,000 capacity) to cater precast concrete needs of infrastructure projects, particularly in Eastern Indonesia.
WTON plans to issue medium-term notes (MTN) worth IDR 400 bn which matures in 2-3 years to finance capital expenditure (capex) and working capital needs. About 50% of the capex will be allocated for production capacity’s expansion. While, the rest will be used for operational purposes including land acquisition to build new office.
Up to 4M18, WTON has obtained new contracts worth IDR 2.05 Tn (+15.5% YoY). This represents 27.1% of WTON’s 2018 new contracts target of IDR 7.56 Tn. Last year, WTON secured order book worth IDR 11 tn (7 tn of new contracts & 4 tn of carryovers). This year we foresee WTON’s order book to reach around IDR 13 tn. Out of that amount, new contracts accounted for IDR 7.5 tn, a similar amount compared to company’s target, while the rest comes from carryovers from last year.
Reinitiate with BUY
We reinitiate our coverage on WTON with a BUY rating and 12-month forward price target of IDR 640 per share using Discounted Cash Flow valuation method implying upside potential of 49.5%. The valuation assumes terminal growth of 6% and WACC of 9.5% to arrive at the target price which implies 12.8x FY18F P/E ratio and 7.8x FY18F EV/EBITDA. Downside risks to our call include lower contract achievement, lower margins, delays in infrastructure development and slow funds disbursement.