Support for Wika in high-speed railway project
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 - Dukungan untuk Wika di proyek kereta cepat
27 October 2021
By: Parluhutan Situmorang
The government’s decision to finance Jakarta-Bandung high-speed railway is positively supporting PT Wijaya Karya Tbk (WIKA). The company is also supported by the domestic construction segment that is starting to recover.
Wika’s decision to delay the IPO of their two subsidiaries, PT Wika Realty and PT Wika Rekayasa Konstruksi, to 2023 is reckoned to be the right decision by analysts. Moreover, the corporate action aims to secure funds of around Rp3 trillion to Rp4 trillion.
BRI Danareksa Sekuritas analyst, Maria Renata, revealed that the government had issued Presidential Regulation Number 93 of 2021, which allowed the government to fund Jakarta-Bandung high-speed railway project.
“The involvement of the government in financing the project can impact the shareholding of consortium members, including Wika’s shareholding that can also be diluted after the appointment of PT KAI as the consortium leader,” she wrote in her research.
According to Maria, the government has also assigned Coordinating Minister for Maritime Affairs and Investment, Luhut Binsar Pandjaitan, to directly supervise the high-speed railway project. “With the appointment and the funding, the construction of the high-speed railway is expected to be progress more quickly, which will positively impact Wika,” she explained.
Besides that, Wika will secure a contract worth Rp15.5 trillion to construct the project, which is 30% of the total contract. The rest will be divided among 6 to 7 contractors from China. Wika has invested Rp1.7 trillion as equity in the project and provided a shareholder loan of Rp4.6 trillion.
The project construction progress has reached 77.9% and the construction progress carried out by WIka has reached 82%. The project is set to be finished by the middle of 2022 and to operate by the end of 2022. “KCIC is currently officially calculating the additional cost and [devising] a way to finance the project. Until now, around 75% of the project is financed from loans, which are predicted to increase in line with the investment value increase,” Maria revealed.
Those factors are encouraging BRI Danareksa Sekuritas to maintain their buy recommendation for WIKA shares with a target price of Rp1,400. Positive sentiment of the company’s shares came from the government support in the construction Jakarta-Bandung High-Speed Railway project and the potential of less company shares in the project.
Moreover, Wika’s net profit this year is predicted to increase to Rp274 billion from Rp186 billion last year. The company’s revenue is also predicted to grow from Rp16.53 trillion to Rp22.81 trillion. Meanwhile, their profit per share is predicted to increase from Rp20.7 billion to Rp30.5 billion.
Meanwhile, Samuel Sekuritas Indonesia analyst, Andreas Kristo Saragih, revealed that Wika’s financial performance would improve in the next three years. This expectation is supported by the double-digit growth of new contracts and the gradual increase of the burn rate.
“We also have positive perspective towards Wika thanks to the government’s involvement in resolving the cost overrun issue in the Jakarta-Bandung high-speed railway project, the loss at the early stage of the high-speed railway’s operation, and the project owner’s decision to delay spending,” Andreas wrote in his research.
Regarding new contracts, Wika’s compound annual growth rate (CAGR) can reach 23.3% until 2023. The increase will be supported by new contracts from SOEs (State-owned Enterprises) such as Pertamina, Pelindo, PLN and Angkasa Pura that are once again allocating their capital expenditure in activities that are Wika’s specialties. “We also estimate that several new contracts from 2022 to 2023 will come from infrastructure projects in the Capital city,” he explained.
Wika will also be supported by their capability to secure additional contracts worth Rp15 trillion in the fourth quarter of 2021. That amount considers the value of tenders that the company are participating in that reaches Rp24 trillion and the estimated value of tenders that will be released by the government and SOEs in the fourth quarter of 2021 that reaches around Rp15 trillion to Rp20 trillion. Several project tenders that Wika are participating in are toll road, smelter, building, dam, and irrigation construction projects.
Samuel Sekuritas recommends buying WIKA shares with a target price of Rp1,440. That target price reflects an estimated PE ratio of 42.8 in 2022. That target price also shows slow financial performance improvement in the next few years until it matches the realisation in the last few years.
