Universitas Padjadjaran IIRC 2014 Final Report-WTON
1. 1
CFA Institute Research Challenge
Hosted by
Local Challenge CFA Society of Indonesia
Universitas Padjadjaran
2. Construction Sector
Precast Concrete Industry
Universitas Padjadjaran
This report is published for educational purposes only by students
competing in The CFA Institute Research Challenge
WTON: Building The Nation
Initiate BUY at IDR1,327; Potential Upside of 11,97%- The structural growth
potential for Wijaya Karya Beton (WTON) is supported by dominating market share
for each business segment, bright future precast concrete product, and increasing
concrete consumption projection on few years ahead. In our perspective, increasing
capacity production house will improve the earnings. In addition, their good
historical healthy balance sheet, track record in steady earnings growth given its
defensive nature, we recommend to BUY with target price of IDR1,327; a potential
upside of 11.97%.
Higher Sales with solid performance
WTON has expansion with allocated their capital expenditure to increasing
production capacity & Working Capital from IPO Proceed, and starting to gain the
benefits in near future. Moreover, Precast Concrete Demand will grow with CAGR
16.3% in 2014-2018 which is higher than the historical growth of CAGR 9.9% in
2011-2013. In the past five years, the company's revenue continued to increase and
recorded a 12,62% CAGR with the major contributors to the Piling sector above 50
% on revenues followed by concrete bridge sector and the sector of railroad
padsWTON also had a sustained growth on the back of MP3EI, the Masterplan for
Acceleration and Expansion of Indonesia’s Economic Develpoment, through 2025.
WTON’s integrated plants should help pave the way for operating efficiencies,
enhanced by 6 selling areas across the archipelago and supported by a wide client
base.
Solid Fundamentals and Valuations
We use DCF model as our primary model, and Residual Income & Abnormal Earning
Growth as the robustness check. Our valuation models lead to a target price of IDR
1.327, supported by the DCF, PBR and, PER. We believe WijayaKaryaBeton may offer
a long term upside from the high room to grow in its Piling division performance
and underpenetrated market unit performance with the support from the
established concrete bridge and railroad pads. The steady and diversified business
model of WijayaKaryaBeton with a defensive nature is a big plus.
Ticker (Bloomberg):
WTON:IJ
Market Cap
Avg Vol
Share Outstanding
52-Week High
52-Week Low
Beta
ROA (%)
ROE (%)
Sources: Bloomberg
Recommendation
Target Price (IDR)
Price, 17 Nov 14 (IDR)
Upside (%)
BUY
1,327.00
1,180.00
11,97
9,064,085 M
50,258,000
8,715 M
1,240
590
1.34
10.02
21.35
WTON’s Key Financial Ratios
Currency (IDR) 2010A 2011A 2012A 2013A 2014F 2015F 2016F 2017F 2018F
Revenue (Tn) 1,430 1,635 2,030 2,644 3,066 3,955 4,479 5,077 5,556
Net Income (Tn) 92 145 179 243 310 392 492 606 726
Earnings per Share (x) 14 22 27 36 46,05 58,19 72,81 89,66 107,53
Return on Asset 6,04% 7,86% 7,47% 8,33% 6,53% 3,72% 3,93% 4,05% 4,07%
Return on Equity 28,59% 33,62% 29,68% 33,30% 13,84% 14,88% 15,70% 16,20% 16,27%
Gross Profit Margin 10.32% 12.62% 13.07% 14.68% 16.15% 15.90% 17.83% 19.98% 23.18%
Net Profit Margin 7.59% 11.23% 11.41% 12.56% 13.85% 13.56% 14,98% 16.27% 17.82%
Analysts:
Asakita Dikarla Muhammad
Joviana Aprilia
Mario Bugchi Habe
Devananda Ega Saputra
Franklin Michael Hutasoit
3. 2
Figure 1. Share ownership as of
December 31, 2013
Business Description n
Wijaya Karya Beton Tbk is Indonesia’s Biggest Precast Concrete
Wijaya Karya Beton Tbk (WTON) which well known as WIKA Beton is construction
material company that established on March 11, 1997, as a subsidiaries of Wijaya
Karya Tbk which is a part of expansion in pre-cast concrete industry. Today, as a
leading construction material company in Indonesia with 9 segments in piling
(51.3% of total net revenue), concrete bridge (13.1% of total net revenue), railroad
pads (12.2% of total net revenue), concrete piles (9.2 % of total net revenue),
concrete retaining wall soil (7% of total net revenue), concrete other buildings
(5.1% of total net revenue) , concrete building (0.9% of total net revenue), services
(0.8% of total net revenue and ) concrete water construction (0.5% of total net
revenue). Based on those percentage it implies that WTON is focused on precast
concrete. As the market leader in precast concrete industry in Indonesia within the
amount of market share 60% (referring to MARS Survey).
WTON Manufactures and Distributes Construction Products
The Company produces precast concrete structures, including bridge beams,
retaining walls, pipes and bearings. WTON serves the heavy construction market in
Indonesia.
Within 2 million tons per year production capacity is equivalent to 38.6% of total
national production capacity and currently owning 8 (eight) operating factories,
WTON as the largest precast concrete producer in Indonesia and broader to South
East Asia. The existing competitor of WTON is Adhimix Precast Indonesia with the
amount of production capacity 0.825 million ton per year is equivalent to 15.93%
and owning 4 (four) factories and Jaya Beton Indonesia with the amount of
production capacity 0.52 million is equivalent to 10.04% and owning 3 operating
factories.
Company
Production
Capacity (ton)
Capacity Share
(%)
Number of
Factories
Factory Location
WIKA Beton 2,000,000 39 8
North Sumatera,
Lampung, West Java,
South Sulawesi
Adhimix
Precast
Indonesia
825,000 16 4 West Java, East Java
Jaya Beton
Indonesia
520,000 10 3
North Sumatera,
Jakarta, East Java
Total
National
Capacity
5,178,000
Precast Concrete is a Component Key For Infrastructure Project and Buildings
Primary consumer of precast concrete is infrastructure project (44%), property
(17%) and energy (15%). Dam and highway is infrastructure project which requires
big amount of precast concrete structure. Concrete pills contribute biggest revenue
inflow to the Company in percentage: 53 %. Referring to previous brief description,
we consider the Company has a fine prospect in the nearly future consider as the
first company in its industry which already listing. Current firm position as existing
industry player which becomes today’s market leader is even stronger as a result
from being supported by Indonesia’s infrastructure expense which brings the
Company closer to consumer.
Supported by large number of factories owned, variety of products as well as
professional management, WTON has prevailed in becoming the major
manufacturer and market leader of pre-cast concrete product in Indonesia. In term
of assuring consistent quality, WTON has applied the “ISO 9000 Quality
78%
1%
15%
6%
PT Wijaya Karya (Persero)
Tbk
Yayasan Karyawan WIKA
Koperasi Karya Mitra Satya
Saham yang dibeli kembali
oleh perseroan
Wijaya Karya (WIKA)
WIKA’s Employee Foundation
Karya Mitra Satya Cooperative
Buyback Share Capital
Source: Company Profile
4. 3
Figure 2. Revenue Breakdown
2013
Management System”.
Gain that is resulted by IPO funding will be allocated to build a concrete
factory,enlarge the capacity will strengthen its position as market leader. The
factory spreads over strategic locations in Indonesia brings the Company closer to
the consumer. Furthermore, well financial performance is reflected from the
increase of profit margin, 90% acquisition of Citra Lautan Teduh (CLT) in
September 2014 as Bloomberg shows that the largest IPO this year raised by WTON
in March also already signed contract for the development of a commercial tower in
Myanmar implies its overseas expansion marking three times to overseas contract
in 2013, and the double-digit growth referring to revenue and net profit leads the
Company to gain potency to grow even better and progressively in the nearly future.
Business Segment : Significant Piling Trader; Highly Dominate on Precast
Concrete Product
Piling/PC Piles - The largest contributor for the revenue came from the
sales of PC piles, which contributed 51.31 percent to the revenue or
Rp1,356,405 million. PC Piles sales surged 111.67 percent as of December
31, 2013, compared to 2013 RKAP and 18.7 percent higher compared to the
same period last year, which was Rp1,142,032 million. WTON has a
significant presence in the integrated concrete and construction related
business in Indonesia and become leader market share in Indonesia (42%)
and It produce 38,6 % of total national production capacity. The company
has planned build some manufacture to increasing production capacity to
expanding its precast concrete raw unit vigorously in Indonesia due to the
ever growing demand for concrete and other material related.
Concrete Bridge – The second largest contributor was from the sales of
Bridge Concrete Products that reached Rp345,758 million, or took 13.08
percent out of the Company’s revenue this year and 175.35 percent
compared to 2013 RKAP. The Bridge Concrete Products sales also saw a
43.84 percent higher than last year, which amounted to Rp240,381 million.
This concrete road and bridge components have been widely used in both
private and public projects, both in Indonesia andoverseas, including North
Africa (Algeria). The latest projects that used WTON’s box girder was the
inner ring nontoll flyover in Jakarta and Bogor Outer Ring Road (BORR). The
project that usedthe Company’s T-Girder was Algeria’s East West Motorway
Project. This division generate second biggest revenue with 240 billion
Rupiahs, and grew over 59 % in 2012 (YoY). The company has dominant
player in the concrete bridge market. This is mainly due to the company’s
long history in the business and the widespread recognition that the
company’s concrete offer fast growth and are disease resistant.
Railroad Pads– Railway sleepers were the third largest contributor to the
Company’s revenue with 12.16 percent out of the revenue. this year’s sales
reached Rp321,377 million, which was 106.77 percent of RKAP, and had
been increasing gradually since last year, which was Rp82,154 million or
291.19 percent higher. The concrete-based railway sleepers are the
substitutes for wooden railway sleepers. WTON’s railway sleepers are
mono-block pretension system using a single line production system. This
production method is very flexible and suitable for the condition in
Indonesia. The Company’s railway sleepers have been used for various
projects in Indonesia and have been tested in static and dynamic testing by
the Construction Test Laboratory – the Agency for the Assessment and
Application of Technology in Serpong. This division generate third biggest
growth revenue with 82 billion Rupiahs, with grew over 12 % in 2012 (YoY).
WTON is also building a manufacture for railroad pads as a project of their
expansion on 2015.
9%
52%
14%
12%
13%
Concrete Piles Piling
Others Railroad Pads
Concrete Bridge
Source: Company’s Annual Report
5. 4
Figure 3. Indonesia GDP
Figure 4. Total Rupiah Bank Loans
to Construction Sector
Figure 5. Demand of Precast
Concrete in Indonesia
Industry Overview and Competitive Analysis s
Indonesia Macro Economic Performance
Recorded a Surplus Balance Despite the Negative Trend in Emerging Market
(EM) Countries
Global economy slumped by 3.1% in 2012 to 3.0% in 2013 as the effects of U.S
monetary policy that deliver negative impact on emerging market (EM) countries,
except the Indonesia which recorded a current account deficit declined significantly
and a surplus on balance of payments.
The Government successfully achieved economic growth of 5.8% in 2013, exceeding
the IMF forecast of 5.3%. Although the economy is expected to weaken in Q4 of
2014, IMF forecasted that Indonesia will managed strong in 2015, back to its GDP
positive trend by handling the economy right through tight and structural monetary
policy. Indonesian Central Bank (BI) believes that economic growth in the future
will be more balanced so that it will further strengthen the economic stability.
Priority Policy of the New Government
Infrastructure sector looks very promising because this sector is national priority
for the Indonesian government at the moment. Measured from The State Budget
allocation for this sector has positive trend from IDR78.7 trillion (USD6.4 billion) in
2008 to IDR206 trillion (USD16.8 billion) in 2014. The new government of Jokowi
even stated that the allocation for infrastructure will reach IDR469 trillion per year
by 2019.
Money Injection to Accelerate the Realization
Development in the construction sector is affected by the injection of funds for the
realization of the project. Based on data released by Indonesian Central Bank, seen
the total loans from the banking sector for construction has increased from year to
year. In 2007, total number of loans is 36,799 and this number increased to 132,604
on September 2014. The data showed an increase in the number of loans of 260%
between 2007-2014.
Vigorous Infrastructure Realization in Indonesia to be Continue
Infrastructure sector also effected by the Masterplan for Acceleration and Expansion
of Indonesia's Economic Development (MP3EI) from 2011 to 2025, which already
realizing 204 infrastructure projects with a total investment of IDR412.3 trillion
(USD33.9 billion) within a period of 3 years (2011 to June 2014). The target
investment value of this infrastrucutre project is IDR1,786 trillion (USD147 billion)
by the end of 2025.
Infrastructure Development Creates Demand for the Industry
The total contribution of GDP from the cement and concrete industry sector rose by
6.7% from the first half of 2013. This uptrend of contribution strongly believe
effected the demand for precast concrete to experience the same thing. The demand
is currently at 3,748,000 ton and predicted to reach 7,965,000 ton demand by 2018
with Compounded Annual Growth Rate (CAGR) at 16.3% . The same situation
happen in WTON annual net profit which also increasing. WTON booked a rise of
24% in 2014’s first semester net profit than last year’s net profit at the same period.
Investment Regulation Expected to Reform
High dependence on government that run the MP3EI, the realization of investments
in the infrastructure sector slow down as a result of the election in the middle of
2014. During this project realization, it hampered in inter-agency coordination and
officer at local levels. However, because the new government has been formed, the
process is expected to be back to normal as the result of reformation in the
bureaucracy. This will allow the infrastructure sector to recover and grow because
more than half the infrastructure projects run by private contractors which requires
permission from the state officer .
0
20
40
60
80
100
120
140
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
NumberofLoans(thousand)
Bank Loans to Construction
Sector
3,176
3,748
4,572
5,670
6,422
7,279
7,965
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
12A 13A 14F 15F 16F 17F 18F
ThousandTon
Total Demand of Precast
Concrete in Indonesia
Source: BCI Asia Estimates, Company
1451
1682
1922
2092
2368
5.2 5.5
0
1
2
3
4
5
6
7
0
500
1000
1500
2000
2500
2009
2010
2011
2012
2013
2014F
2015F
%
IDRTrillion
GDP Current Prices
Real GDP
Source: IMF
Source: Indonesian Central Bank
6. 5
0
1
2
3
4
5
Threat of
New
Entrants
Threat of
Substitute
Products
Bargaining
Power of
Buyers
Bargaining
Power of
Supplier
Intensity of
Competitive
Rivalry
Figure 7. Precast Concrete
Capacity Share in Indonesia
Competitive Positioning
WTON has a Sustainable Business Model for Expansion and strong future
growth
The company’s growth is supported by the increasing demand of infrastructure
products especially in Indonesia, its precast concrete stock which has big capacity
production to compete under penetrated market, its strong balance sheet, its
precast concrete product which is the company has a lot of experience to prevent
risk, also precast concrete from WIKA Beton has dominate indonesian market share.
Moreover, part of the company’s expansion plan is financed by the share capital
from the market.
Competitive in Precast Concrete Industry
The Porter’s Five Forces model indicates that WIKA Beton has a strong advantage in
Precast Concrete industry ,especially in the threat of new entrants, bargaining
power of supplier, and intensity of competitive rivalry. WIKA Beton enjoys its
dominance due to the high barrier of entry to precast concrete industry, making it as
the largest precast concrete company in Indonesia.
Bright Expansion Outlook in Indonesia
Massive development in infrastructure sector and its growing demand is predicted
give WTON at least a total value of IDR4 trillion (USD326.8 million) new contract in
2015. Using the money from IPO process, WTON use 85% of share for the expansion
by developing new factories in three locations that already had its groundbreaking
in 2014. Beside that, WTON developed quarries in four existing factories. The
company’s development of stone quarry sites secures the main raw material while
the building of near-to-shore factories should enhance profitability going forward
once economies of scale are reached.
High Dominating in Market Share
Leading in Industry Sales and Production – Recorded a rise in sales in the first
half of 2014 by 13%, wika BETON increasingly dominate the national market share
of precast concrete. The amount of 42.7% national market share controlled by wika
beton and produces 38.6% of the total national production capacity of Indonesia.
With 8 factories operating, WTON is expected to produce 2.05 million tons of
precast concrete in 2014.
Strategic National Distribution Landscape - Owns 8 existing factories with a
strategic location such as in North Sumatra, Lampung, Bogor, Karawang,
Majalengka, Boyolali, Pasuruan and South Sulawesi, WIKA BETON has its own
distribution system. Relying on its professional management and high quality of
human resources, WIKA BETON will deliver products for projects in land to sea. In
addition, WIKA BETON can provide installation assistance and guidance that the
process can be efficient and achieve competitive cost.
Legend:
5 – No threat to the business
0 – High threat to the business
Source: MARS
0
200
400
600
800
1000
1200
1400
Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14
IDRPerShare
Indonesia's Opposition
Coalition Won the
Legislature's Speaker
Position
Acquires Concrete
Company, Citra
autan Teduh
39%
16%
10%
35%
WTON
Adhimix
Jaya Beton
Figure 6. Five Porter
Analysis
Figure 8. WTON Share Prices
Rises 36% in
IPO Debut
Two Indonesia’s Politic
Coalition Make a Peace
Movement
First Half Net
Profit Increases
26.3%
7. 6
Table 1. Target Price Breakdown
Method Price Weight
Price x
Weight
DCF 1,464 40% 586
PBR 1,115 30% 334
PER 1,356 30% 407
Total 1,327
UPSIDE 11.97%
Investment Summary y
Intiate Buy Target Price of IDR1,327 Potential Upside 11.97%
Currently WTON trading at IDR1,180 per share which we believe is discounted to
our 12 months target price which is at IDR1,327 per share. Our valuation is based
on our estimation that WTON growth will be higher in the future due to WTON
aggresive expansion and Initial Public Offering (IPO).
Earnings Up 30% (YoY)
As a market leader in the precast concrete product industry, the Company’s growth
is closely linked to the trends of infrastructure development in Indonesia
Construction services sector enjoyed a 7.50% growth (BPS data related to
Indonesia’s gross domestic products in 2012) and as we known precast concrete
products become main components of each infrastructure development;
Comparing WTON financial statement year 2012 to 2013, the company managed to
increase its net income to IDR241.206 million as of December 31, 2013, or 34.48%
higher than 2012 net income of IDR179,368 million. Such an increase in net income
was due to the increase in Company’s revenue,
Improving Revenue on Concrete Piles Growth
The innovation on Two-Layered PC Piles is a method of pile production that is
developed by Head Office. The method enables the use of PC bar and join plate with
a smaller diameter on piles to produce PC Piles, which eventually improved the
efficiency of raw materials and products. Through this inovation and other factors,
WTON estimated revenue of IDR 3,543 billion, up 25-30%y-y. First half 2014
revenue growth 24%y-y CAGR. Concrete piles are WTON’s main revenue
Contributor (66% of first half of 2014 total revenue). Followed by bridge concrete
(13 % in first half of 2014 total revenue).
Higher 2014 Operating Margin
The Company has also increased its production capacity and new additional lines,
new business expansion, particularly quarry and post-tensioning, as well as opened
an integrated factory in South Lampung and another factory in East Kalimantan. In
addition, the Company has teamed up with PT Krakatau Engineering to establish a
joint-venture company in 2014, The realization of the Company’s sales was
accounted to IDR2.64 trillion as of Dec. 2013, or 112.62% from RKAP that is worth
IDR2.34 trillion. WTON booked operating income of IDR717 billion up 34% y-y with
24 % CAGR.
Valuation y
We use 5-years forecast for WTON valuation by allocating proportion of each
valuation. We believed this method present better result compare to Discounted
Cash flow or Residual Earnings or Abnormal Earning Growth solely since each
model has its own weakness. Such as Discounted Cash Flow have problem in its
treatment to the capital expenditure and Residual Earnings & abnormal Earning
Growth will not be accurate if the revenue recognition and discretionary accrual are
being set as company wish. So by combining the method, we could neutralize the
weakness of each valuation method. We divide the proportion same each method.
Our team divide the proportion with giving more weight on Discounted Cash Flow
(40%) and PBR & PER Term forecast it could explain in more precise way. We
choose blended method since all valuation method is equally able to explain the
same variation of change in WTON price.
Source: Team Estimates
8. 7
Table 2. Valuation Assumption
Valuation Assumption
Risk Free Rate 7.50%
Risk Premium 6.50%
Return Market 14%
Beta 1.3
Cost of Equity 16.2%
Marginal Tax Rate 25%
Figure 9. Sales Forecast 2014-
2018
Figure 10. Sales 2009-2018
Figure 11. Net Income After Tax
Valuation assumption
5 Years Projected Net Income, Proportion for Each Method, Cost of Capital, and
Continuing Value
5-year projected Net income assumption : we use 5 years forecast because
Construction Business have stable growth in medium term. The revenue projection
was based on projection of revenue driver by categorizing Demand and the
government policy. Looking at all division outlook, we believed that WTON could
improve the growth of revenue by 14,65% CAGR
Forecasted Sales
The five-year projected cash flows are derived from increasing sales due to the
Demand of Indonesia Precast Concrete. It is assumed that the capacity production is
equal to the sales production. The increased in production capacities are as stated in
allocation of Usage IPO Proceed. Based on our calculation, sales are expected to
grow at the CAGR of 12,62 % over the next 5 years.
Company Outlook & Strategy
In 2014, the demand for precast concrete will grow with CAGR 16,3% in 2014-2018
which is higher than the historical growth of CAGR 9,9% in 2011-2013. Moreover,
MP3EI will increase demand precast for infrastructure which is equally 50% on
average of total demand in 2014-2018.
Cost of Capital
There are several components and assumption to calculate Cost of Capital. The cost
of Equity was derived from CAPM, the risk free rate was get from BI Rate, the
market return was 14% with excluding special event. For the beta, it was calculated
from unlevered beta WIKA multiply by debt to Equity team’s Estimation WTON. For
the cost of debt, it was derived from corporate bonds with rating AA which is 9.5%.
5-Year Proportion Method
This is generated from DCF, PBR, &PER valuation method by allocating each
proportion of contribution. During the time projection, we forecast the company
sales grow will be determined by MP3EI and Demand Precast Concete in Indonesia.
This will have significant impact to the company sales revenue growth for the next 5
year projection.
Weighted Cost of Capital
WTON has capital structure 85% of equity and 15% of debt. We can find that WTON
weighted cost of capital is 14.82%.
Continuing Value: The perpetual growth is set at 5% which is logically
conservative as it is below the inflation and close to the GDP growth rate.
Weighting of The Models: We put each Valuation method same with the ratio of
40:30:30 for DCF : PBR : PER
Conclusion: Considering the current WTON performance and its potential growth,
we are sure that the intrinsic price for WTON at IDR 1,327 compare to IDR 1,185.
There are potensial upside 11,97% exclude dividend yield.
Source: Team Estimates
3.066
3.955
4.479
5.077 5.556
2014F2015F2016F2017F2018F
-
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
-
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
1 3 5 7 9
9. 8
Table 3. Discount Rate (WACC)
Discount Rate (WACC)
Risk Free Rate 7.50%
Risk Premium 6.50%
Return Market 14%
Unlevered Beta 1.3
Cost of Equity 16.2%
Cost of Debt 9.5%
Marginal Tax Rate 25%
WACC 14.82%
Figure 12. Operating Profit
Margin & Gross Profit Margin
Financial Analysis y
Income Statement Performance
Wijaya Karya Beton recorded sales CAGR 13.30% from 2009-2013, and our team
believe that CAGR sales will become 12.62% in 2014F-2018F, driven by the revenue
of precast concrete. MP3EI also have biggest stakes in determining WTON sales
growth.
Good Revenue and Earnings Growth Prospect Ahead
We forecast sustained revenue growth for WTON on the back of the government’s
MP3EI, the masterplan for acceleration and Expansion of Indonesia’s economic
Development, though 2025. WTON’s Integrated plants should help pave the way for
operating efficiencies, enhanced by 6 selling areas across the archipelago and
supported by a wide client base.The forecasted WTON YoY sales growth 14,65 %
CAGR.
Good Liquidity
WTON has a good ability to pay off its short-term debt obligations. Current ratio of
WTON is stable around 1,057 in the next five years. While the cash ratio and quick
ratio is also steady around 0.23 to 0.482 for quick Ratio & cash ratio. The greater the
coverage of liquid assets to short-term liabilities the better as it is a clear signal that
a company can pay its debts that are coming due in the near future and still fund its
ongoing operations.
Margin Improved
Although COGS raised as BBM Increase in 2014, the company still can maintain its
profit margin. The Piling will have improvement because of Jokowi’s program
(MP3EI). It has good utilization in generating shareholder value. We estimate the
gross profit margin will increasing 16,15-23.18 % from 2014-2018 . WTON also
prove that it has an increase avegare 19 % from 2014-2018.
Usage of IPO Proceed
WTON has use IPO Proceed for business expansion (85%) and working capital
(15%). In september 30th 2014, Wika Beton has used 36,5% for processing of
natural materials quarry in Cigudeg, donggala, Boyolali and South Lampung,
Development of New factories in South Lampung, Pasuruan, and Kalimantan
(20.7%), Capacity Expansion of Existing factories (23.9%), and the services business
development such as purchase of inner boring pile equipment and addition of post
tensioning equipment (18.7%). We forecast sustained revenue growth for WTON on
the back of the government’s MP3EI, the masterplan for acceleration and Expansion
of Indonesia’s economic Development, through 2025. WTON’s Integrated plants
should help pave the way for operating efficiencies, enhanced by 6 selling areas
across the archipelago and supported by a wide client base.The forecasted WTON
YoY sales growth 24 % CAGR, is expected to grow at a CAGR of 24%.
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
45.00%
2009
2010
2011
2012
2013
2014F
2015F
2016F
2017F
2018F
Source: Team Estimates
10. 9
Figure 13. Cement Consumption
in Indonesia
Investment Risk and Sensitivity y
Macroeconomic Risk
Fluctuated price of steel. One of the raw material used to produce concrete is steel.
The price of steel is fluctuating and it is implied to the production cost.
Price of Cement Increasing Every Year. The price of cement is increasing every
year, this means that WTON has to adjust their price due to this condition. Cement
used as one of the raw material to produce concrete.
Unstable Political Situation. Indonesia have already choose the new president for
the next five years. The problem is the executive and legislative are coming from
different coalition party. The executive come from “Great Indonesia Coalition” and
legislative from “Red and White Coalition”. This political environment will lead to a
condition that the new president will find it more difficult to make a decisions and
conduct regulations. Although the situation may get better, but still political is a
dynamic thing which can change everytime.
Operational Risks
Decreasing Supplies of Natural Raw Material. This is caused by the limited of
natural resources that used to be the raw material for WTON. It’s implied to the
price of the raw material which will be increasing every year.
Risk of a Labor Strike. As a concrete company which works in an industrial
production, then labor is one of important sources. In Indonesia, there are a lot of
labor strike happened to some companies that didn’t give a good treatment to their
labor. So, there is always a possibility that labor strike will happened in Wijaya
Karya Beton, but as long as they can make a good profit and treat their labor well, it
will not be happened.
Competition Risks
The Decline of Project Ordered. Although the company is a market leader, but
there is always a possibility for other competitors, such as Adhimix and Jayabeton
Indonesia. For this time, Wika Beton is the concrete company with biggest
production level, up to 2 million ton/year, meanwhile on the other hand, the other
competitor just under 1 million ton/year.
Other Risk. There are several other risks that lies in the activity and the nature of
this business, such as production failure rate that may produce additional cost or
late payment from the customers.
Source: Bloomberg
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
0
10
20
30
40
50
60
70
050607080910111213
IDRThousand
Last Price % Change
11. 10
Appendices
Appendix 1: Income Statement
Income Statement
(In Million Rupiah)
2010 2011 2012 2013 2014F 2015F 2016F 2017F 2018F
Net Revenue 1.430.435 1.635.087 2.030.597 2.643.724 3.066.720 3.955.344 4.479.933 5.077.769 5.556.317
COGS 1.282.793 1.428.781 1.765.145 2.255.749 2.571.554 3.326.484 3.681.280 4.063.480 4.268.169
Gross Profit 147.642
206.306
265.452 387.975 495.166 628.861 798.653 1.014.289 1.288.147
Total Operating
Expense
27.438 22.750 33.670 55.833 70.486 92.456 127.764 188.302 297.767
Operating Income 108.575 183.556 231.782 332.142 424.680 536.405 670.889 825.987 990.380
Interest expense - - - 3.620 3.946 4.301 4.688 5.110 5.570
Interest income 9.287 6.211 1.900 1.900 1.948 1.996 2.046 2.097 2.150
Income before tax 117.862 189.767 233.682 330.422 422.682 534.100 668.247 822.975 986.960
Net tax expense 25.788 45.325 54.313 87.315 111.694,94 141.138 176.586 217.474 260.807
Net Income after tax 92.074 144.442 179.369 243.107 310.987 392.963 491.661 605.501 726.153
18. 17
Appendix 8 : Valuation Analysis
Discount Rate (WACC) Worksheet
Public Market Price/Share 1.185
Diluted Shares O/S (TS Method) 8.715
Public Market Capitalization 10.327.832
Debt 2014F 633.316
Cash 2014F 1.301.359
Net Debt 2014F (668.043)
Public Market Enterprise Value 9.659.789
E/(D+E) @ Public Mkt Value 85%
D/(D+E) @ Public Mkt Value 15%
Corporate bond with rating AA 9,5%
Marginal Tax Rate 25,0%
Cost of Equity= rf+beta( Rm-Rf) 16,1%
Risk Free rate: Rf 7,5%
Unlevered Beta 1,3
Risk premium (Rm-Rf) 6,5%
WACC=E/(D+E)* Re+ D/(D+E)*Rd(1-T) 14,786%
Valuation Assumption
Risk free rate 7,50%
Risk premium 6,50%
Beta 1,33
Cost of Equity 16,14%
Marginal tax rate 25%
Perpetual growth rate 5,0%
Assumptions
Long term growth rate in EBIT 5,0%
Terminal Value
Sum of PV of FCF (5 years) 4.961.685
WACC 14,8%
Long term growth rate in EBIT 5,0%
Present value of terminal Value 7.132.686
Terminal Value as % of Total Value 59,0%
19. 18
DCF (Intrinsic Value) Calculation
EV (Equity Value + Net Debt) 12.094.371
- Debt 633.316
+ Cash 1.301.359
Net Debt (668.043)
Equity Value (Market Capitalization) 12.762.414
Diluted Shares O/S 8.715,47
Fair Value Per Share 1.464
PBR (Intrinsic Value) Calculation
Book Value 9.045.583
-Debt 633.316
+Cash 1.301.359
Net Debt (668.043)
Equity Value (Market Capitalization) 9.713.626
Diluted Shares O/S 8.715,47
Fair Value Per Share 1.115
AEG (Intrinsic Value) Calculation
Book Value 11.148.376
- Debt 633.316
+ Cash 1.301.359
Net Debt (668.043)
Equity Value (Market Capitalization) 11.816.419
Diluted Shares O/S 8.715,47
Fair Value Per Share 1.356
Weight Method Price E (Price)
40% DCF 1.464
1.32730% PBR 1.115
30% AEG 1.356
Sensitivity Perpetual Growth
WACC 4% 5% 6%
13,79% 1.378 1.450 1.541
14,79% 1.271 1.327 1.395
15,79% 1.184 1.228 1.280
28. 27
Probability
Appendix 17 : Risk Matrix
Impact
Low Medium High
Minor The Decline of Project
Ordered
Unstable political
situation
Moderate
Fluctuated price of steel Increasing price of
cement every year
Significant
Decreasing Supplies of
Natural Raw Material
Risk of a Labor Strike
Macroeconomic Risks
Fluctuated price of steel. One of the raw material used to produce concrete is steel. The price of steel is
fluctuating and it is implied to the production cost.
Price of Cement Increasing Every Year. The price of cement is increasing every year, this means that WTON has
to adjust their price due to this condition. Cement used as one of the raw material to produce concrete.
Unstable Political Situation. Indonesia have already choose the new president for the next five years. The
problem is the executive and legislative are coming from different coalition party. The executive come from
“Koalisi Indonesia Hebat” and legislative from “Koalisi Merah Putih”. This political environment will lead to a
condition that the new president will find it more difficult to make a decisions and conduct regulations.
Operational Risks
Decreasing Supplies of Natural Raw Material. This is caused by the limited of natural resources that used to be
the raw material for WTON. It’s implied to the price of the raw material which will be increasing every year.
Risk of a Labor Strike. As a concrete company which works in an industrial production, then labor is one of
important sources. In Indonesia, there are a lot of labor strike happened to some companies that didn’t give a good
treatment to their labor. So, there is always a possibility that labor strike will happened in Wijaya Karya Beton, but
as long as they can make a good profit and treat their labor well, it will not be happened.
Competition Risks
The Decline of Project Ordered. Although the company is a market leader, but there is always a possibility for
other competitors, such as Adhimix and Jayabeton Indonesia. For this time, Wika Beton is the concrete company
with biggest production level, up to 2 millions ton/year, meanwhile on the other hand, the other competitor just
under 1 million ton/year.
Other Risk. There are several other risk that lies in the activity and the nature of this business, such as production
failure rate that may produce additional cost or late payment from the customers.
29. 28
CFA Institute Research Challenge
Definition of Ratings
This research uses the following rating system:
BUY - Total return is expected to be above 5% in the next 12 months
HOLD - Total return is expected to be between -5% to 5% in the next 12 months
SELL - Total return is expected to be below -5% in the next 12 months
Disclosures:
Ownership and material conflicts of interest:
The author(s), or a member of their household, of this report does not hold a financial interest in the securities of this company.
The author(s), or a member of their household, of this report does not know of the existence of any conflicts of interest that
might bias the content or publication of this report.
Receipt of compensation:
Compensation of the author(s) of this report is not based on investment banking revenue.
Position as a officer or director:
The author(s), or a member of their household, does not serves as an officer, director or advisory board member of the subject
company.
Market making:
The author(s) does notact as a market maker in the subject company’s securities.
Disclaimer:
The information set forth herein has been obtained or derived from sources generally available to the public and believed by the
author(s) to be reliable, but the author(s) does not make any representation or warranty, express or implied, as to its a ccuracy or
completeness. The information is not intended to be used as the basis of any investment decisions by
