Tuesday, March 29, 2011

PT Wijaya Karya (WIKA)

by CIMB Securities

In line; maintain Outperform. FY10 core profit was Rp257bn, +37% yoy, matching our estimate of Rp258bn but 5% below consensus. Lower-than-expected revenue was compensated by better margins primarily because of better yielding project composition. The divestment of its energy conversion trading unit also led to a gain of Rp68bn, partially offset by an additional tax burden of Rp41bn. We are maintaining our estimates pending further details, though we lower our target price of Rp830 (from Rp950), still pegged at a 10% discount to our market P/E target, which has been revised to 14x (from 16x). Our new target implies 12.6x CY12earnings. We also introduce FY13 forecasts. Order-book strength and a potential spin-off of its precast unit could serve as stock catalysts, in our view.

• Sales shortfall made up by margins. Project distribution was the main reason for its revenue shortfall, at 10% below our estimate. This was made up by better gross margins, particularly from construction services where margins surged to 11.6% from 6.5% a year ago. This led to operating and core profit margins of 7.9% and 4.3% respectively, the highest ever. Strong reported profit of Rp285bn, +51% yoy, was boosted by a one-off gain of Rp68bn from the 60% divestment of WIKA Intrade Energy (energy-conversion business) in 3Q10, offset by an additional tax burden of Rp41bn in 4Q10 (said for prior years’ tax underpayment). Put together, core profit of Rp257bn was 100% of our forecast but 5% below of consensus.

• Sound balance sheet. Cash surged to Rp1.2tr at end-CY10 from Rp800bn at end-3Q10. Net-cash position was Rp864bn. Wika’s balance sheet is more robust than its state contractor peers.

• 2011 outlook. The company is guiding for 23% revenue growth, backed by Rp1tr of new projects already in the bag by Feb 11. This is against its new-order target of Rp12tr for this year (vs. our estimate of Rp10tr). We may revisit our forecasts after the release of more details to factor in a potential listing of Wika Beton by 2H11, which the company is keen to proceed with.

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