Net profit target gets a deep cut: Business prospect of Construction SOEs deemed to be bleak
This article has been translated by PwC Indonesia as part of our Indonesia Infrastructure News Service. PwC Indonesia has not checked the accuracy of, and accepts no responsibility for the content.
Investor Daily - Target laba bersih dipangkas dalam: Prospek usaha BUMN Karya dinilai Suram
28 June 2023
By: Harso Kurniawan
Jakarta - Analysts have been continuously cutting the financial performance forecast of four construction state-owned enterprises (SOEs), namely PT Waskita Karya Tbk (WSKT), PT Wijaya Karya Tbk (WIKA), PT Adhi Karya Tbk (ADHI), and PT PP Tbk (PTPP) since the fourth quarter of 2022. The business prospect of construction SOEs are reckoned to remain bleak for the next few years.
Based on the research report of Mandiri Sekuritas (Mansek) that was quoted on Tuesday (27/6/2023), the analysis consensus lowered Wika’s revenue forecast for 2023 and 2024 by 9.2% and 1.1% respectively. The analysts also lowered Waskita’s revenue forecast for 2023 by 5.8%, but the estimate for 2024 was increased by 9.1%.
Next, PP’s revenue forecast was lowered by 9.7% for 2023 and was increased by 3.4% for next year. Only Adhi Karya’s revenue forecast was increased for 2023 and 2024 by 11.3% and 5.4% respectively.
Meanwhile, the net profit forecast of PP and Adhi Karya was lowered by 63% and 19% respectively for this year and by 46.7% and 39.1% respectively for next year. In the first quarter of 2023, Wika and Waskita were still experiencing net loss.
Meanwhile, Mansek lowered the net profit forecast of Adhi Karya, PP, and PT Wika Beton Tbk (WTON) by 67% for this year, excluding Waskita and Wika that are still experiencing loss. The local broker is maintaining a neutral recommendation for shares in the construction sector on Indonesia Stock Exchange (IDX).
Mansek reckoned that, despite the rally of construction SOE shares that are not suspended by IDX, there were many structural challenges that must be faced by construction SOEs, such as stagnant new contract realisation, limited project funding, and slow asset divestment due to the elections in 2024.
Moreover, the rerating of construction SOE shares will be sustained by the execution of new contracts in Nusantara Capital City (IKN), merger plans, and profitability and balance sheet improvements. However, before that, they must face four main challenges.
Firstly, new contracts tend to be flat as the state’s capital expenditure is not too generous and elections are approaching. Secondly, banks are currently more cautious about distributing loans to the construction sector. It will limit project funding.
Then, in the next 1-2 years, Mansek reckoned that asset sales would be quite difficult. It can change when the direction of the government is clear after the elections. Next, limited work capital. Last but least, low profitability that can be seen from the ROE estimate from 2023 to 2025 that reaches around 1%-3%, which is below the average in 2017-2019 that reached 11%.
Mansek predicts that the new contracts of the four construction SOEs will grow by one digit by 7.2% this year, which is below the management’s target that reaches around 10%-15%. The burn rate is improving to 22%-26% on average from the burn rate before the pandemic that reached 33%. However, it is also due to limited work capital.
“We lowered the net profit forecast of the construction sector by 67%, except for Waskita and Wika. Our net profit target for 2023 and 2024 is 15.5% and 8.4%, below the analysis consensus,” Mansek wrote.
As of April 2023, the new contract performance of the four construction SOEs varied. During the period, Adhi Karya’s new contracts increased by 23.5% to Rp10.1 trillion, PP was stable at Rp5 trillion, while the new contracts of Wika and Waskita plummeted by 16% and 27% to Rp1.1 trillion and Rp1.7 trillion respectively.
The balance sheet of the four construction SOEs is also burdened by large debts with interest. Waskita has a debt with an interest of Rp64 trillion, Waskita has Rp33.8 trillion, PP has Rp19.6 trillion, and Adhi Karya has Rp10.4 trillion.
The lowest net gearing is recorded by Adhi Karya at 0.7. Meanwhile, the highest is recorded by Waskita at 3.9, followed by Wika at 1.7, and PP at 0.9.
Waskita’s manoeuvre
Previously, Waskita Karya extended the standstill period in line with the decision made at the General Meeting of Bond Holders (RUPO) of Continuous Bonds III Phases II and III. Hence, the company is targeting to modify the master restructuring agreement by August 2023.
The RUPO result will provide more time for the company to preserve their cash to operate, complete the MRA modification process, and carry out the plan to settle their obligations to comprehensive stakeholders.
Waskita Corporate Secretary SVP Ermy Puspa Yunita explained that, with the RUPO result, the company could maintain their operation and hold intensive discussions with creditors.
“Waskita is in the process of restructuring and holding intensive discussions to obtain input from banking creditors and bond holders,” she said recently.
WSKT’s shares are still suspended by IDX as they were late in settling the debt’s interest. IDX Listing Director I Gede Nyoman Yetna said that his party has yet to receive a request to lift the suspension of the shares. On the other hand, to determine the next action, IDX needs a confirmation from related parties regarding WSKT’s certainty to settle the debt’s interest.
