WEGE
Contact our analyst Revita
72% upside.
25th August 2020
Current price Rp195
Target price Rp335
Current price Rp195
Target price Rp335
Revised contracts target
WEGE revised its new contract target for 2020 to Rp. 3.4 trillion down 77% from its initial target of Rp. 14.9 trillion due to some large projects experiencing slowdown or holdups during the current unfavorable situation. As of 7M20, new contracts obtained amount to Rp. 1,32 trillion of which 50% are modular hospital projects, such as, Covid 19 hospital on Pulau Galang, Rp. 113 billion, Corona Lamongan Hospital, Rp. 41.32 billion. The rest came from large projects such as Bank Indonesia Palangkaraya Rp. 200 billion, The Park Kendari Rp. 111.75 billion. Most contracts are from Gov and SOE projects. For this year, the company has been looking for projects with a Captive sales Market, such as Graha Mantab. WEGE also has Projects with the private sector for example a hospitals in Surabaya, but this project is constrained by land issues. If the issue has been completed, WEGE is expecting to start work immediately. WEGE also revised its capex, for example, the precast building development and Modular plant will be delayed until next year. As of 2Q20, with lower sales, operating cashflow was negative -Rp202bn compared to -Rp412bn in 1Q. The improving trend of lower sales declines & improving cashflow points to better results ahead. WEGE also continues to maintain a net cash position despite difficult market conditions and has offset lower revenues with lower costs. The order book shows an improving trend too. The new contracts jumped by 100% in one month, May to June. We revise our top line and bottom line down 43% and 50% respectively, from our initial target inline with the lower new contracts target.
WEGE's pandemic strategy
With the issuance of government regulation No. 22, the company can be appointed directly by the Government in the tender process when it meets pre-qualification and has the basic capabilities required. Therefore, starting April, WEGE can conduct government tenders without going through their holding company. As a result, during this pandemic, WEGE has received many Government and SOE projects. This year, WEGE will also focus on keeping the cash balance by ensuring Account Receivables are paid on time. Going forward, WEGE is focussing on being a leader in Modular Hospital construction by using their growing track record.
Valuation: 72% upside
Based on 1H20, we adjust and revise our target price to IDR. 335/share or trading at 12,33x PER. With 72% upside, we retain our recommendation to BUY.
WEGE revised its new contract target for 2020 to Rp. 3.4 trillion down 77% from its initial target of Rp. 14.9 trillion due to some large projects experiencing slowdown or holdups during the current unfavorable situation. As of 7M20, new contracts obtained amount to Rp. 1,32 trillion of which 50% are modular hospital projects, such as, Covid 19 hospital on Pulau Galang, Rp. 113 billion, Corona Lamongan Hospital, Rp. 41.32 billion. The rest came from large projects such as Bank Indonesia Palangkaraya Rp. 200 billion, The Park Kendari Rp. 111.75 billion. Most contracts are from Gov and SOE projects. For this year, the company has been looking for projects with a Captive sales Market, such as Graha Mantab. WEGE also has Projects with the private sector for example a hospitals in Surabaya, but this project is constrained by land issues. If the issue has been completed, WEGE is expecting to start work immediately. WEGE also revised its capex, for example, the precast building development and Modular plant will be delayed until next year. As of 2Q20, with lower sales, operating cashflow was negative -Rp202bn compared to -Rp412bn in 1Q. The improving trend of lower sales declines & improving cashflow points to better results ahead. WEGE also continues to maintain a net cash position despite difficult market conditions and has offset lower revenues with lower costs. The order book shows an improving trend too. The new contracts jumped by 100% in one month, May to June. We revise our top line and bottom line down 43% and 50% respectively, from our initial target inline with the lower new contracts target.
WEGE's pandemic strategy
With the issuance of government regulation No. 22, the company can be appointed directly by the Government in the tender process when it meets pre-qualification and has the basic capabilities required. Therefore, starting April, WEGE can conduct government tenders without going through their holding company. As a result, during this pandemic, WEGE has received many Government and SOE projects. This year, WEGE will also focus on keeping the cash balance by ensuring Account Receivables are paid on time. Going forward, WEGE is focussing on being a leader in Modular Hospital construction by using their growing track record.
Valuation: 72% upside
Based on 1H20, we adjust and revise our target price to IDR. 335/share or trading at 12,33x PER. With 72% upside, we retain our recommendation to BUY.
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