Bahana WIKA

Support from government spending
Ahead of the 2009 elections, we remain bullish on the outlook for the construction sector this year, in spite of the current tight liquidity condition. Within the state budget, the government has allocated IDR61.7t for infrastructure-related spending (please see table 1 for details), of which around IDR17.5t from a total of IDR35t would be spent on making new roads and improving existing roads and facilities as part of the massive government spending program on infrastructure. This year’s road construction program financed by the ministry would prioritize inter-city roads across Java and Sumatra. The other IDR17.5t would be spent on irrigation canals amounting to IDR8t while IDR9.5t would go towards sanitation and other projects. At the local government level, we expect IDR59t to be spent while from the private side some IDR47t could materialize as interest rates further fall in 2H09. Historically, WIKA has participated in various projects such as toll road projects, irrigation canals and power plants.
Power plant projects: Still on track
Having finished two power plant projects, PLTU Celukan Bawang Bali and PLTU Labuhan Angin, in 2008, WIKA still has seven power plant projects in the pipeline. WIKA is also acting as an EPC for steam power plants in South Kalimantan and South Sulawesi, which are both slated for completion in 2010. Additionally, WIKA is doing 2,670MW projects (please see table 2 for details) as part of the government’s 10,000MW coal-fired power plant projects. The management has informed us that in spite of concerns over possible delays, WIKA portions would still remain on track.
Other projects to support performance
WIKA has many planned projects in their pocket including offers to develop bridges and tunnels in Aljazair and Dubai through their subsidiary WIKA beton. Plans to acquire a mining contracting company, valued at IDR35b coupled with 20% investment in Marga Nujyasumo Agung, concession holder of the Surabaya-Mojokerto 77km toll road, should raise WIKA’s revenue, although to be conservative we have excluded these from our numbers.
Upgrading target price to IDR290
We like WIKA’s medium-term plan to increase government proportion for its revenue to 73% from the current 60%. Additionally, we like the company’s well-diversified business, which would cushion the recent adverse impact coming from the unfavorable construction tax regulation. Furthermore, WIKA could benefit from possible future projects which we have not taken into account. Finally, we also like WIKA’s net cash position which would be an advantage given the current tight liquidity condition. We come up with a new TP of IDR290, based on 2009 10x PE, or a 30% premium to the average 2009 Indonesian construction companies. At our new target price, WIKA would still trade on a 20% discount to its regional peers, which are trading on 12x 2009 PE. Thus, we re-iterate our BUY recommendation for the counter.