WTON
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27% upside
8th August 2019
Current price Rp 550
Target price Rp 700
8th August 2019
Current price Rp 550
Target price Rp 700
18% increase in new contracts
- WTON is targeting 2019 new contracts of IDR.9trillion up 18% compared to last year and our previous report target. WTON’s new contracts in 2Q19 fell 13% QoQ to IDR.2.7 trillion due to the political situation which delayed some projects.
- WTON’s initial target remains and in 2H19 WTON will receive large projects from parent WIKA Group. In 2019, WTON will increase the portion of contracts from WIKA to 44% from 26% in 2Q19 as part of a group synergy program. As of 2Q19, the top 2 customers are WIKA group 26.1% and State electricity company (PLN) 13.9%. Large projects from WIKA Group are the HSR and Semarang-Demak toll road.
- We upgrade our bottom line target 2019-2020 to average 12% CAGR. We believe WTON can achieve this despite the slowdown in 1H19 as can be seen from the rising yoy growth trends.
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Capex upgraded 82%
New raw material procurement business
Valuation: 27% upside
- WTON is set to increase its 2019 capital expenditure by 82% to IDR. 779 billion from an initial plan of IDR. 428 billion. Capex will be used for land expansion, increased capacity of precast and ready mix development.
- Ready mix additional capacity is targeted to be 4mn tons as part of the plan to generate more revenue. WTON is the supplier of ready mix for projects such as Balikpapan-Samarinda Toll road and HSR (High Speed Railway). Both projects are scheduled to be completed by 2019 and 2020
- Precast capacity is targeted to increase from 3.6mn to 4mn tons mostly in the existing plant. In addition, WTON will also use capex for an additional 4 mobile plants in Pekanbaru to support Infrastructure projects in Sumatera. One of the sources of funding will be treasury stock of around IDR.240 billion targeted for 4Q19.
New raw material procurement business
- WTON is entering a new business in raw material procurement for split stone and sand. This will not be significant in 2019 but more in 2020-2021 and will impact COGS expenses.
- The development of this new business will be in cooperation with land owners in several locations such as in Quarry Tayan. WTON will also develop in South Sulawesi. Aside from cooperation with land owners, WTON will also do land tenure in Palu where WTON owns 20 to 40 Ha.
Valuation: 27% upside
- With WACC 9.1%. we are targeting a price within one year of IDR. 700/share or trading at 12.5x PER, which gives 27% upside, BUY
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