WTON
Contact our analyst Revita
85% upside
10th March 2020
Current price Rp 314
Target price Rp 580
10th March 2020
Current price Rp 314
Target price Rp 580
New Contracts Jump
- WTON is targetting new contracts of IDR 11.4 tn in 2020, up 37% compared to last year. The significant increase is mainly due to large projects which were postponed from 2019 to 2020 which includes many infrastructure projects.
- As of 2019FY, New contracts were IDR.8.29 trillion of which the largest is the Pekanbaru – Padang toll road, Bengkinang – Pangkalan section which is worth IDR. 1.5 trillion. As of 2019, the top 3 customers are WIKA Group 27.4%, SOEs 34.1%, and Private companies at 38.5%.
- WTON’s new contracts not only come from production but also installation services which can range from 10-20% of the product value for large projects.
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Stronger market share
Maintaining margin
Valuation: 85% upside
Based on an adjusted WACC of 8.3%, we have a one-year target price of IDR 580/share, which is 10.4x PER and below our previous target. But this still represents 85% upside. Maintain BUY.
- To strengthen their position, WTON is trying to increase market share with higher capacity. As of 2019FY, Precast capacity has already been upgraded to 4.05 mn tons mostly in the existing plants.
- WTON plans to have new plants in Pekanbaru and Balikpapan and is currently selecting strategic locations. 2 new mobile plants in Pekanbaru and Medan will also supply mostly ready mix to support the Pekanbaru-Padang toll road project, The Pekanbaru Mobile plant has been completed and start production while Medan is still under construction and estimated to be finished and start producing in 3Q20.
Maintaining margin
- In order to maintain margins amid higher competition, WTON’s business strategy for 2020 is to invest in Supply Chain management (SCM) by integrating operations in order to be faster, cheaper and more efficient.
- WTON is starting planning for SCM in their Pasuruan Plant. WTON targets to have the SCM strategy implemented in 2H20 throughout the company so that efficiency is higher in 2021.
- We estimate average EBITDA margin from 2020-2021F will be 13.2%
Valuation: 85% upside
Based on an adjusted WACC of 8.3%, we have a one-year target price of IDR 580/share, which is 10.4x PER and below our previous target. But this still represents 85% upside. Maintain BUY.
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