Equity Research

Equity Research

Wednesday, 06 Nov 2019 09:12

PT WIJAYA KARYA BETON TBK 

3Q19 Strong Result

 

WTON booked a strong 3Q19 result in which the revenue and net profit increased by 28.9% QoQ and 42.5% QoQ attained to Rp 1.7 trillion and to Rp 137 billion, respectively. The company managed to improve its 3Q19 gross margin by 140 bps to the level of 14.8% which was fuelled by higher margin from concrete product and service segments at the level of 15.3% and 14.1%, respectively.  Recently, the share price has shrunk by 29% from its highest closing price YTD 2019 and traded at its 3-years average fwd PER band – 1 stdev of 6.17x. Keep  BUY rating on the counter.

 

Strong 3Q19 Result – post Election Effect

On quarterly basis, the company managed to record a strong performance in 3Q19, in which the revenue and net profit increased by 28.9% QoQ and 42.5% QoQ attained to Rp 1.7 trillion (vs Rp 1.3 trillion in 2Q19) and to Rp 137 billion (vs 96 billion in 2Q19), respectively, thanks to higher infrastructure spending (usually happens in 2H19) and the completion of 2019 Presidential Election. We note that WTON’s new contract soared by 66.1% QoQ became to Rp 2.1 trillion (vs Rp 1.3 trillion in 2Q19) which was mainly dominated from infrastructure project (~71% portion), i.e.: toll road projects (Pekanbaru-Pangkalan, Section 3A BORR toll road, Balikpapan-Samarinda, Serang-Panimbang and Pekanbaru-Dumai), Kulon Progo Airport’s infrastructure project, Tahang Bridge and Hassanuddin Airport project.

 

Profitability continued to improve in 3Q19

The company managed to improve its profitability in 3Q19 as a result of its 3Q19 strong performance and its strategy as a one-stop solution of precast concrete business. We note that the gross margin surged by 140 bps to the level of 14.8% in 3Q19 (vs 13.4% in 2Q19) which was triggered from significant increases in concrete product and service gross margins by 115 bps (15.3% in 3Q19 vs 14.1% in 2Q19) and by 468 bps (14.1% in 3Q19 vs 9.4% in 2Q19), respectively. WTON’s operating margin also improved significantly by 295 bps from 10.1% in 2Q19 to 13.0% in 3Q19 thanks to its lower operational expenses (-30.1% QoQ). As a result, the net margin during the same period also grew by 75 bps from 7.1% to 7.9%. 

 

Forecast Revision - 9M19 below expectation

We cut our 2019 revenue and net profit forecast by 7.7% and 6.6% become to Rp 7.3 trillion (vs previously at Rp 7.9 trillion) and to Rp 495 billion (vs previously at Rp 530 billion) since the company 9M19 result came below our expectation, in which the revenue and net profit only formed 56% and 57% to previous 2019F due to 1H19 lower infrastructure spending and 2019 presidential election process that has delayed new project contract tenders. Note that, the company’s revenue and net profit in 9M19 only grew by 6.5% YoY and 8.4% YoY reach to Rp 4.4 trillion (vs Rp 4.1 trillion in 9M18)  and to Rp 303 billion (vs Rp 280 billion in 9M18), respectively.

 

Keep BUY rating with TP Rp 790/share

Given by those forecast revision, we obtain new fair value for WTON at Rp 790/share (from previously fair value of Rp 830/share) which implying a 9.73x PER 2020F target. Recently, the share price has shrunk by 29% from its highest closing price YTD 2019 and traded at its 3-years average fwd PER band – 1 stdev of 6.17x which was translated into an attractive valuation. Maintain BUY rating on the counter with 71% upside potential.

 

The Risk: 1) delays in infrastructure projects; 2) rising raw material prices; 3) weakening Rupiah currency; 3) delays in production capacity expansions; 4) contingencies from being labour¿intensive; and 5) increasing competition.

 

 

Financial Summary

 (Rp billion)

2017A

2018A

2019F

2020F

2021F

 Revenue

5,362

6,931

7,252

9,642

11,143

 EBITDA

709

959

989

1,296

1,473

 Net profit

337

486

495

708

813

 EPS (Rp)

39

56

57

81

93

 PER (x)

11.94

8.28

8.13

5.69

4.95

 BVPS (Rp)

307

352

392

456

525

 PBV (x)

1.50

1.31

1.18

1.01

0.88

 EV/EBITDA (x)

6.82

5.18

5.21

4.29

3.91

 Dividend yield (%)

2.63

3.62

3.69

5.27

6.06

 RoE (%)

13.22

16.94

15.29

19.16

19.03

Source: Company data and Lotus Andalan  Research

Equity Research

Wednesday, 06 Nov 2019 02:00

PT TIMAH TBK 

A gruesome outlook

TINS’s 9M19 revenue was great, but its bottom line was below our (and consensus) expectations due to higher operating cost despite strong contribution from tin sales volume. We have more conservative on TINS earnings and cut our FY20-21F EPS by -65.1% and -48.4%, mainly to adjust higher COGS and operating cost.  We downgrade rating to neutral recommendation and TP also lowered to Rp 900/share, from previously Rp 1.700/share. Our TP implies 20.0x P/E and 11.1x EV/EBITDA, based on FY20F forecasts.

Earnings shocks due to higher than expected cost

In 3Q19, TINS booked higher net losses of Rp 381.1 bn (vs 2Q19 net profit of Rp 96 bn) bringing the 9M19 net loss Rp 175bn (vs 9M18: Rp 255bn). The numbers fell short due to higher-than-expected COGS, amounts to Rp 206 bn in 9M19 (+69% QoQ,+%163 YoY). We observed the most significant increase in raw materials of tin ore (+209.2% YoY) and third parties service (+842.1%YoY) as the company used some private smelters to increase production amid regulations in the refined tin industry in Indonesia. Furthermore, the company's performance was depressed from the higher finance cost for bonds and loans   + 163.38% YoY, from Rp 124.7 billion to Rp 328.43 billion, and higher interest expenses (+162% YoY).  At the top line, TINS managed to booked sales revenue of Rp 14.6 Tn or +114%YoY, representing 76% of our estimates.  For quarterly basis lower revenue in 3Q19 was backed by weak ASP (- 13.2%QoQ, to US$ 17,165 ton) as the average LME tin price declined.

Margin squeeze driven by higher cost structure

TINS reported lower profitability margin with GPM and EBIT margin falling by 860bps YoY to 7.3% and 500bps YoY to 0.9% in 9M19, mainly driven by higher raw material costs and third-party service fees. In particular, its inventory as of September 19 remained high at Rp 8.19Tn (vs 9M18: Rp 4.2Tn) that eroded its cash flow and increased its short- term debt. As the result, its interest cost has more than doubled to Rp525bn (vs 9M18: Rp 200bn), which contributed to its net loss in 9M19.

Downgrade to neutral with lower TP Rp 900

Responding to the 9M19 result that was below our expectation, we have to revise down our projection. TINS’s cost structure is more volatile as companies depends on third party to secure raw materials, which represent ~ 60% of production costs.  In this case, TINS must reduce the cost of its material for tin ore and lower costs for third party service as both accounts more than 80% of COGS.  Our new TINS’s fair value of Rp900/ share. This implies a valuation target P/BV 1.0x and EV/EBITDA 10.27x for FY20F. Based on yesterday’s closing price, our TP offers 8.0% upside, NEUTRAL recommendation.

Key Risk: 1) Higher production costs 2)  Lower than expected LME tin price 3) Indonesian authorities fail to suppress illegal mining and

 

 

Financial Summary

 

(Rp billion)

 2017A

 2018F

 2019F

 2020F

 2021F

 

Revenue

9,217

11,050

17,192

18,777

19,470

EBITDA

1,247

1,319

850

1,607

1,721

Net profit

502

532

(140)

261

285

EPS (Rp)

67

71

(19)

35

38

PER (x)

12.31

11.63

(44.07)

23.69

21.68

PBV (x)

1.02

0.95

1.01

0.96

0.93

EV/EBITDA (x)

6.83

8.75

17.72

9.65

8.63

Dividend yield (%)

1.22

2.84

3.01

(0.79)

1.48

RoE (%)

8.57

8.45

(2.22)

4.15

4.35

 

 

 

 

 

 

 

 

 

 

Source: Company data and Lotus Andalan Research