WEGE
Contact our analyst Revita
102% upside. BUY
15th December, 2022
Current price Rp157
Target price Rp318
Current price Rp157
Target price Rp318
New contracts 60% of target
By November, WEGE new contracts reached IDR.4.24 trillion or 60% of the 2022F target of IDR. 7.1 trillion. Based on the project owner, new contracts as of Nov 2022 consist of Private 43.57%, Gov 32.86%, and SOE 23.56%. 67.08% of contracts were public facilities projects. WEGE's revenue in 3Q22 decreased by -31% QoQ and net profit was down by -22% QoQ. This is due to 1) a slowdown in the acquisition of new contracts, 2) slower progress on Carry-over projects from the private sector in the form of high rise apartments and offices, and 3) design changes to strategic projects such as airports in Kediri as a result of technical design requests from the operator, Angkasa Pura. Despite the slowdown in 3Q22’s revenue, we expect WEGE will see a revenue increase next year because of the large carry-over contracts and future contracts. This means that we set a target of 18% CAGR revenue growth in 2023F compared to 2021A.
Margin to continue improvement
In 2023, WEGE is optimistic growth will return as their strategy is now to book contracts from government, state-owned, and private projects that have strong funding to reduce receivables. WEGE also targets projects that can use Precast and Modular to speed up the construction process. In addition, WEGE will also use new technologies such as BIM (Building Information Modeling) to improve their performance. With these strategies, we estimate WEGE's net profit margin in 2023 will continue to improve to 8.66%, which is much better compared to 2021A’s 6.75%.
Construction of worker housing for the IKN project
WEGE joins ADHI in an operational cooperation project (KSO) that is accelerating the construction of a worker housing project in the “Ibu Kota Negara Nusantara” (IKN) by building 22 mini apartment towers. The IKN residential project for construction workers under WEGE, is at site 1A (4 towers), 1C (3 towers), and site 2 (5 towers) while ADHI is site 1B (10 towers). As of week 15, WEGE’s 12 towers are currently 60% complete and January 20, 2023, is the target completion date. WEGE only needs to complete non-modular elements of the project or interior finishings such as bathrooms. During the process, WEGE uses its modular technology for as many as 1,748 modules or 2x more than in their Mandalika project. The modular size used is about 2.6 x 5.2 m2. We believe that going forward WEGE will have plenty more IKN work as a result of their technology advantage and by using precast and modular construction.
Valuation: significant upside
Based on our DCF and the 9M22 results, we revise our target price to IDR. 318/share or trading at 8x PER. With 102% upside, we retain our recommendation to BUY.
By November, WEGE new contracts reached IDR.4.24 trillion or 60% of the 2022F target of IDR. 7.1 trillion. Based on the project owner, new contracts as of Nov 2022 consist of Private 43.57%, Gov 32.86%, and SOE 23.56%. 67.08% of contracts were public facilities projects. WEGE's revenue in 3Q22 decreased by -31% QoQ and net profit was down by -22% QoQ. This is due to 1) a slowdown in the acquisition of new contracts, 2) slower progress on Carry-over projects from the private sector in the form of high rise apartments and offices, and 3) design changes to strategic projects such as airports in Kediri as a result of technical design requests from the operator, Angkasa Pura. Despite the slowdown in 3Q22’s revenue, we expect WEGE will see a revenue increase next year because of the large carry-over contracts and future contracts. This means that we set a target of 18% CAGR revenue growth in 2023F compared to 2021A.
Margin to continue improvement
In 2023, WEGE is optimistic growth will return as their strategy is now to book contracts from government, state-owned, and private projects that have strong funding to reduce receivables. WEGE also targets projects that can use Precast and Modular to speed up the construction process. In addition, WEGE will also use new technologies such as BIM (Building Information Modeling) to improve their performance. With these strategies, we estimate WEGE's net profit margin in 2023 will continue to improve to 8.66%, which is much better compared to 2021A’s 6.75%.
Construction of worker housing for the IKN project
WEGE joins ADHI in an operational cooperation project (KSO) that is accelerating the construction of a worker housing project in the “Ibu Kota Negara Nusantara” (IKN) by building 22 mini apartment towers. The IKN residential project for construction workers under WEGE, is at site 1A (4 towers), 1C (3 towers), and site 2 (5 towers) while ADHI is site 1B (10 towers). As of week 15, WEGE’s 12 towers are currently 60% complete and January 20, 2023, is the target completion date. WEGE only needs to complete non-modular elements of the project or interior finishings such as bathrooms. During the process, WEGE uses its modular technology for as many as 1,748 modules or 2x more than in their Mandalika project. The modular size used is about 2.6 x 5.2 m2. We believe that going forward WEGE will have plenty more IKN work as a result of their technology advantage and by using precast and modular construction.
Valuation: significant upside
Based on our DCF and the 9M22 results, we revise our target price to IDR. 318/share or trading at 8x PER. With 102% upside, we retain our recommendation to BUY.
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