Indopremier WIKA - BUY TP Rp 430 Better Margin on Efficiency

9M09 figure shows that efficiency does sure lift up margin across the board which translate into more safety bet against unfavorable industry this year. Given better outlook ahead, bottom line should run faster. Other positive factor is unlike its closest competitor, WIKA relatively has less dispute project. BUY

Net Profit Up 56% amidst New Final Tax Rate
WIKA reported its 9M09 net profit surged 56% YoY to Rp133 billion but quarterly plunged by 17.2% due to seasonal demand. The figure inline fueling 78% of our estimate Rp170 billion. Net profit was lifted up by lower cost amidst zero growth in upper line at Rp4.5 trillion or equivalent with 30% project completion of WIKA outstanding order book 9M09 Rp15.2 trillion. Cost of construction tamped down by 4% YoY and 9% QoQ to Rp4.1 trillion blessed from stable material price and efficiency program across all divisions.

Sparking Revenue in Upcoming Quarter
Total new contract in 9M09 reached Rp7.16 trillion or 78% from our full year estimate at Rp9.1 trillion vs company’s target Rp9.3 trillion. We maintain our conservative picture since we do not see much change in realization of government infrastructure budget which only reached 40%. However we are optimist WIKA could meet our target in this full year-09 as the government usually tends to speed up budget spending in the last quarter hence sparking revenue in the last quarter is highly probable.

Possible Bond Issuance in 2010
The company cancelled the plan to acquire small mining contractor as new mining contractor law No. 25/2009 outlined only contractor with mining business license can undertake mining, processing and purification activities. As a consequence, WIKA will need bigger cash in their pocket to acquire mining contractor with mining business licenses. The company hinted source of financing whether coming from bond issuance or IPO of one of its subsidiary. We think the first option is more sense to take as the second option is more costly.

Valuation and Recommendation
We maintain our BUY call with unchanged TP Rp430 as we already use FY10F as present value in our DCF valuation. Our intrinsic value provides 37% potential upside compared to current price. Recent dip in the stock prices gives good entry point. Our TP implying 8.4x PE and 1.1x PBV FY10F, each is equivalent with -1 standard deviation on historical PE and PBV. BUY.