Wijaya Karya Ebullient Signal to A Robust Year Ahead

WIKA indicated that it booked IDR157bn worth of net profit in 1Q13, up 65% y-o-y and 28% of the company’s/our FY13 estimate – a strong signal to a robust year as the company historically booked a mere 18%-22% on its 1Q. WIKA remains our top pick for the construction sector as we maintain a strong BUY at TP IDR2,200.

Solid 1Q13 results indication; upside from FY13 target is imminent
At the conclusion of its Annual Shareholders General Meeting yesterday, WIKA indicated that it booked IDR IDR157bn worth of net profits, up 65.3% y-o-y and 28% of the company’s/our guidance estimate for FY13. It generally booked 18%-22% of its FY net profit in 1Q, making this latest event an ebullient signal of a robust year ahead. At the end of March, WIKA has already booked IDR4.68trn worth of new contract or 23% of the FY13 target – a significant progress considering that 60%-70% of the government’s infrastructure budget is commonly disbursed in 2H.

The best corporate strategy in the industry
WIKA is the only Indonesian construction firm with the ability to capture the country’s robust IPP pipeline (around USD45bn investment between 2012-2021). We see that its unflinching divestment in non-performing asset, the ailing geothermal power plant WIKA Jabar Power, will improve its CIP gross margin through better portfolio mix from its IPP investments (with a mandated 18%-22% IRR) and EPC contracts (300bps higher than civil construction’s 8%-10% on the gross margin level).

Subsidiary WIKA Beton, the largest pre-cast and concrete producer with 60% market share, provides it with one of the most strategic competitive advantages against the lean supply of raw materials. WIKA offers the strongest balance sheet among all state-owned (SOE) construction firms with a stable net cash position since it 2007 IPO – a prerequisite that enables it to take on SOE-dominated infrastructure projects with the least financial strain.

Valuation and Target Price
We maintain a strong BUY on WIKA at TP IDR2,200, while we see potential upside to our call. WIKA is trading at 23x 2013PER, a premium to the industry but deservedly so due to its well-rounded business model.