Wijaya Karya Solid FY12 Showing

WIKA’s FY12 results were in line, with its revenue growing by 27% y-o-y to IDR9.8trn, 3%/4% above our and consensus estimates; while its bottom-line climbed 29% y-o-y to IDR458bn, 5%/4% ahead of our and street forecasts. The group plans to increase its gearing this year to secure additional power plant (IPP & EPC) projects. Higher power plant margins, along with its recent divestment of Jabar Power, should further propel WIKA’s earnings for FY13.

Solid FY12 results
WIKA’s FY12 revenue and net profit grew 27%/29% y-o-y respectively, putting its 3-year EPS growth at an impressive 35% CAGR. Interest expenses had more than doubled between FY11 to FY12, soaring by 131% y-o-y from IDR15.7bn in FY11 to IDR36.2bn in FY12. Balance sheet also expanded on the back of the group’s vigorous growth. Although its D/E ratio increased from 0.2x in FY11 to 0.4x in FY12, the company still managed to arrive at a net cash position, with the strongest balance sheet among all the fast-growing state-owned construction firms.

Heightened commitment to EPC in FY13
WIKA has guided for IDR1.78trn capital expenditure this year, half of which will go to finance its EPC and IPP projects. To fund this expenditure, the company plans to obtain up to IDR1.2trn worth of bank loans, up 30%-40% from its end-FY12 balance sheet. WIKA recently divested a majority stake in its ailing subsidiary WIKA Jabar Power. This latest development, along with EPC gross margins (~300bps higher than civil constructions) and ~18%-22% IRR through BOT scheme, would help propel WIKA’s earnings to 29% growth in FY13.

Maintain strong BUY at IDR1,850 TP
All in all, we have seen solid results for FY12 and bright prospects for FY13. We continue to promote the company as our top pick within the Indonesian construction sector in view of its: i) robust commitment to higher engineering, procurement and construction (EPC) project wins, which may further boost its earnings potential in FY13, and ii) rock-solid balance sheet which ensures its ability to take up larger infrastructure projects compared to other industry companies. We are maintaining our strong BUY on WIKA at the current IDR1,850 TP. It is trading at a 19.4x 2013PER.

WIKA – Carrying on SOLID FY12 RESULTS

FY12 results in line
WIKA booked IDR9.8trn in FY12 revenue, up 27% y-o-y and 3%/4% above our and consensus estimates. The bottom-line came in at IDR458bn, up 29% y-o-y and 5%/4% ahead of our and street forecasts. The group’s profits from joint operations (JO) increased two-fold on the back of larger project sizes, such as the Bali Ngurah Rai Airport expansion and power plant projects. On average, JO revenue per project jumped from IDR2.2bn FY11 to IDR4.2bn in FY12. Interest expenses more than doubled between FY11 to FY12, up 131% y-o-y from IDR15.7bn in FY11 to IDR36.2bn in FY12.

On a similar note, while its D/E ratio increased from 0.2x in FY11 to 0.4x in FY12, the company managed to arrive at a net cash position. This was within our expectations as the company had expanded at 25%-30% net profits CAGR over the past three years. WIKA plans to increase its gearing this year to secure additional power plant (EPC) projects, upon which we expect the company’s D/E ratio to increase to 0.6x-0.7x by end-FY13 and lose its net cash position.

Debt level to rise on heightened commitment to EPC
Despite a relatively stable proportion in FY12, WIKA’s mechanical & electrical business segment’s contribution grew steadily from 29% (pre-elimination) in FY10 to 32% (pre-elimination) by end-FY12. Contribution from EPC projects to total consolidated revenue soared from a mere 1% at end-FY10 to 31% at end-FY12. The company has recently divested the majority ownership of WIKA Jabar Power (WJP), a struggling 40-megawatt (MW) geothermal power plant based in Gunung Tampomas, West Java. WIKA has guided for IDR1.78trn capital expenditure this year, half of which will go to finance its investments in Independent Power Plant (IPP) projects.

To fund this expenditure, the company plans to obtain up to IDR1.2trn worth of bank loans, thus potentially pushing its debt-to-equity ratio from 0.4x as at end-FY12 to approximately 0.7x by end-FY13 – still below other fast-growing state-owned construction firms. We expect the company’s balance sheet to record net debt for the first time this year. Even so, EPC power plants development projects on average generate ~300bps higher gross margin than regular civil constructions, on top of the BOT scheme with ~18%-22% IRR.

Along with WJP’s divestment, WIKA targets FY13 revenue of IDR15.4trn on the back of its increased commitment in power plant projects (up another 27% y-o-y from FY12), while net income to grow by 29% y-o-y to IDR555.1bn. We are projecting some IDR11.1trn in revenue and IDR511bn in net profit by year-end. Note that we are revisiting our assumptions shortly upon this latest development.

Maintain strong BUY at IDR1,850TP
All in all, WIKA has again showed solid results for FY12. We continue to promote the company as our top pick within the Indonesian construction sector in view of its: i) robust commitment to EPC project wins, which may further boost its earnings potential in FY13, and ii) rock-solid balance sheet which ensures its ability to take up larger infrastructure projects compared to other industry companies. We are maintaining our strong BUY and IDR1,850 TP on WIKA, which is trading at a 19.4x 2013PER.