WTON
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49% upside
8th September 2020
Current price Rp 262
Target price Rp 390
8th September 2020
Current price Rp 262
Target price Rp 390
New contracts revised
WTON is further revising down their new contract target from IDR 11.5 tn to IDR 5,26 trillion. As of 1H20, IDR. 1,4 trillion of new contracts were booked which is down 47% yoy and 27% of the initial target. The new contracts are still dominated by infrastructure projects at 71,46% of the total. Based on customer profile (% of revenue), most new contracts are from parent WIKA Group and SOEs at 21,6% and 30,1% respectively. In order to mitigate the impact of the covid 19 outbreak, WTON is working on several plans, one of which is to maximize sales from carry over contracts (IDR 5 trillion) including from WIKA Group. WTON is also monitoring production and distribution schedules to control inventory and accelerate progress where possible. WIKA Group will help by accelerating payments from the HSR project, as well as Harbour (Ancol-Pluit), and Semarang-Demak toll roads, in 3Q20. Projects that have been acquired up to 1H20, include Indrapura Toll Road – Kisaran, Tebing Tinggi Toll – Parapat, Jakarta International Stadium, NYIA Airport Road, Balikpapan Samarinda Toll Road, NYIA Railway, Pekanbaru Dumai Toll Road, Pt Eclat Textile Indonesia factory development, Kijing Pier, Tahang Bridge, and others. With these strategies, we believe WTON will be able to achieve their revised target despite the current slowdown. Projects already acquired are being implemented with no delays, while some projects which have not started yet will experience delays until the current conditions are more conducive
WTON is further revising down their new contract target from IDR 11.5 tn to IDR 5,26 trillion. As of 1H20, IDR. 1,4 trillion of new contracts were booked which is down 47% yoy and 27% of the initial target. The new contracts are still dominated by infrastructure projects at 71,46% of the total. Based on customer profile (% of revenue), most new contracts are from parent WIKA Group and SOEs at 21,6% and 30,1% respectively. In order to mitigate the impact of the covid 19 outbreak, WTON is working on several plans, one of which is to maximize sales from carry over contracts (IDR 5 trillion) including from WIKA Group. WTON is also monitoring production and distribution schedules to control inventory and accelerate progress where possible. WIKA Group will help by accelerating payments from the HSR project, as well as Harbour (Ancol-Pluit), and Semarang-Demak toll roads, in 3Q20. Projects that have been acquired up to 1H20, include Indrapura Toll Road – Kisaran, Tebing Tinggi Toll – Parapat, Jakarta International Stadium, NYIA Airport Road, Balikpapan Samarinda Toll Road, NYIA Railway, Pekanbaru Dumai Toll Road, Pt Eclat Textile Indonesia factory development, Kijing Pier, Tahang Bridge, and others. With these strategies, we believe WTON will be able to achieve their revised target despite the current slowdown. Projects already acquired are being implemented with no delays, while some projects which have not started yet will experience delays until the current conditions are more conducive
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Net margin down
Despite WTON‘s cost reduction program for both COGS and overheads since earlier this year, as of June 2020, there was a decrease in the Company's net profit of 78% yoy, while sales decreased 29% yoy. This was due to a decrease in plant utilization from 83% in 1H19, to 51% in 1H20, resulting in inefficiencies in production costs. Inefficiencies occur when plant utilization is below normal. As a result, the NPM in 1H20 was down to 1,96% compared to 6,32% in 1H19. We estimate, margins will improve when production is back to normal utilization in 2021, as long as the current pandemic ends in 2020. We are targeting 2020F and 2021F net margins of 4,16% and 6,94% respectively.
Valuation: 49% upside
Based on our adjustments, we are targeting IDR. 390/share, which is 7,0x PER. With 49% potential upside, we maintain BUY.
Despite WTON‘s cost reduction program for both COGS and overheads since earlier this year, as of June 2020, there was a decrease in the Company's net profit of 78% yoy, while sales decreased 29% yoy. This was due to a decrease in plant utilization from 83% in 1H19, to 51% in 1H20, resulting in inefficiencies in production costs. Inefficiencies occur when plant utilization is below normal. As a result, the NPM in 1H20 was down to 1,96% compared to 6,32% in 1H19. We estimate, margins will improve when production is back to normal utilization in 2021, as long as the current pandemic ends in 2020. We are targeting 2020F and 2021F net margins of 4,16% and 6,94% respectively.
Valuation: 49% upside
Based on our adjustments, we are targeting IDR. 390/share, which is 7,0x PER. With 49% potential upside, we maintain BUY.
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