Mandiri Sekuritas WIKA: Sturdy by design

WIKA plans to spend around Rp400bn for new investments this year. Aside from that, industry outlook in 2010 for construction services is also appealing, as the government will increase its spending for infrastructure by as much as 12.7% yoy, aside from the Rp19bn allocation they made for infrastructure financing. Both additional income from future projects and realization of infrastructure projects l provide upside potential to our forecast. Meanwhile, we maintain our Buy recommendation with higher price target of Rp540/share. This reflects PER10F of 11.8x.

In-line FY09 results. FY09 revenue was relatively flat compared with FY08 (+0.5% yoy), as the company recorded gain from joint operations of Rp22bn, compared with Rp3bn loss in FY08. Despite that, we noticed that gross margin improved to 9.8% from 6.8% in 2008. It shows that it could transfer the increasing tax rate to customers around 2.1% from sales in 2009 vs 1.2% in 2008, and it has better quality projects obtained in 2009. Thus down to bottom line, the figure was in l! ine with consensus estimates, and slightly above ours.

Net cash/share of some Rp180 as per FY09. WIKA’s FY09 cash position and total debt were Rp1.2tn and Rp156bn, respectively. It thus translated to net cash/share of Rp180, which is equal to 45.6% of current share price.

2010 coming from a low base 2009. Since it started off with a low base in 2009, the company has plenty of room to grow, particularly thanks to the government’s plan to increase its spending for infrastructure projects (+12.7% yoy). We projected a 24.5% yoy growth for FY10 revenue and slightly better margins, which resulted in higher increment of 39.4% yoy.

Buy with higher target price of Rp540/share. The above-mentioned paragraph makes WIKA attractive. Aside from that, WIKA is on average trading at 7.7% discount to JCI since it is listing date. At the current price, the company is trading at PER10F of 8.6x, which is 41.5% discount to JCI (of some 14.7x). Very much lower compared with the average discount, add to that a relatively low PBV10F of 1.3x. We maintain our Buy recommend! ation wit h a higher target price of Rp540/share from Rp460/share. Our target price reflects PER10F of 11.8x.