CLSA Wijaya Karya (WIKA IJ) - company visit by Sarina

Diligent analyst Sarina went to visit Wijaya Karya (WIKA IJ, mkt cap: US$238m, Not-Rated), one of the major construction companies in Indonesia. Key takeaways:

Margins expanded due to cost-cutting initiatives and selecting higher margins but lower risk projects. In 1Q10, WIKA booked an increase in net profit of 39% YoY to Rp64bn, although revenue dropped 13% YoY to Rp1.1tn. Gross margin expanded to 12.5% (vs peer ave of 8.5%); this was all-time high from average 8.2% in past 8 quarters.

Centralized procurement and revenue collection, reduction on admin expenses, and being more selective in projects selection resulted in lower bad debt provisioning.
Increasing order-book. WIKA has Rp10.7tn carry-over orders from past years, and this year is targeting to get Rp10tn new contract, hence total order book is targeted to increase 36% YoY. In 1Q10 WIKA has obtained Rp1.45tn new contract, and has bidded for a Rp15tn project of Pertamina’s Refinery Unit IV (winner of tender to be announce soon). By end of 2009, WIKA had participated in a total of Rp20tn tenders. WIKA targeted a revenue of Rp8tn this year.

Busier than ever. WIKA’s management mentioned that the construction industry is getting busier lately with so man new projects coming, and is hoping that acceleration of infrastructure development can boost this even further. Infrastructure investment in Indonesia had increased by cagr 30% in past 5 years.