|Wijaya Karya Beton (WTON IJ): BUY
Market Cap: US$245m | Average Daily Value: US$0.28m
Last Traded Price: Rp406; Price Target: Rp760 (Upside 87.2%)
Victor STEFANO +6221 3003 4934 victor.stefano
On track to meet FY18 target
- Topline and bottomline numbers are in line with our and consensus’ estimates
- Revenue and margin improvement seen in Java region
- Secured 48% of its new contract target in 7M18
- Maintain BUY with unchanged TP of Rp760
In-line 2Q18 earnings
Wijaya Karya Beton (WTON) booked a net profit of Rp102bn (+19% y-o-y, +78% q-o-q) in 2Q18, bringing its 1H18 net profit to Rp160bn.. 1H18 net profit forms 40% and 37% our and consensus’ FY18 estimates, respectively, largely in line with the 3-year historical average of 41%..
Double-digit topline growth
WTON booked 2Q18 revenue of Rp1.4tr (+11% y-o-y, +18% q-o-q). The revenue booked in 1H18 represents 39% and 42% of our and consensus’ full-year estimates, largely in line with its 3-year average of 38%. The decent topline growth was supported by its energy and industrial plant segment which recorded revenue of Rp1.5tr (+87% y-o-y, +58% q-o-q). Despite booking 5% lower revenue compared to 1Q18, the construction segment still recorded 12% revenue growth in 2Q18.
The decent topline growth was due to strong contribution from the Java area which saw a 21% y-o-y increase which was offset by a 5% y-o-y decrease from ex-Java regions.
Margin expansion from Java region
WTON’s 2Q18 gross margin expanded to 14..1% from 13.6% in 2Q17 and 11.5% in 1Q18. Likewise, net margin improved to 7.3% in 2Q18 from 6.8% in 2Q17 and 4.8% in 1Q18. The margin improvement was supported by strong margins in the Java region, even though ex-Java regions were hit by lower margins.
Secured Rp3.66tr new contracts in 7M18
In 7M18, WTON secured new contracts of Rp3.66tr (+11% y-o-y), which is 48% of its FY18 new contract target of Rp7.6tr. The new contract wins have largely stemmed from infrastructure projects that contributed 69% of the total.
Higher gearing from higher cash conversion cycle days
As of end-June 2018, WTON’s net gearing remained stable q-o-q at c.50% but was higher y-o-y vs. c.30% as of end-Dec 2017 on the back of a lower cash balance. WTON’s cash conversion cycle increased to 82 days as of end-June 2018 from 48 days as of end-Dec 2017 from higher receivable and inventory days, offset by higher payable days..
Valuation and recommendation
We are using 16.5x FY18F PE, or its 2-year average, to derive our TP of Rp760 (which implies 13.4x FY19F PE). We maintain our BUY call as the stock is currently trading at a forward PE of 7.4x, or -1.5SD of its historical mean.