International Conference

The 15th ICMSS

Investment Analysis
KSPM Rangers
Diponegoro University

PT. Waskita Karya

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Industry: Property, Real Ticker: WSKT.JK Recommendation: BUY

estate and building
construction
Company Name: Waskita Price: Rp 1.730 Price Target: Rp 2.020
Karya (Persero) Tbk

Financial Highlights 2014 2015 2016 F 2017 F 2018 F

Revenue (IDR Bn) 10,287 16,619 19,388 22,8 28,137
Gross Profit (IDR Bn) 1,109 1,901 2,218 2,653 3,306
Net Profit (IDR Bn) 501 810 903 1,081 1,433
EV/EBITDA (x) 12.3 11.5 10.9 9.5
Gross Margin (%) 10.8 11.4 11.4 11.6 11.8
Net Margin (%) 4.9 4.9 4.7 4.7 5.1
Return on Equity (%) 15.1 11.0 11.9 14.2
Return on Assets (%) 4.9 4.2 4.2 4.7

52 Week Price Range 1,062.50 - 1,900.00
Average Daily Volume
Beta
Dividend Yield (Estimated)
Shares Outstanding
Market Capitalization
Institutional Holdings
Insider Holdings
Book Value per Share
Debt to Total Capital
Return on Equity
Highlights
 WSKT is the strongest BUMN’s contractor: WSKT get
28.278.721
-- significant growth of net profit in 181%. However, ADHI
0,61%
13,572 17%, PTPP 9%, and WIKA -29%. It effects the price of the
22,462
stock. In last year, price of the stock increase 77%. WSKT has
3%
0% well-placed to handle infrastructure projects an construction
849.83 projects from aboard.
43.01%
2,42
 WSKT dominate the domestic construction sector: The
Company has gained trust from the Government and private
companies to handle their prestigious construction projects such
as Building, Road and Bridges. WSKT is leading national
player with good reputation and broad customer base. Until
September 2015, WSKT grab a new contracts with JO project
and non JO. There are Bendungan Karian Rp214 billion, Kuala
Tanjung Station Rp734,5 billion, and Access & Ducting Utility
terminal 3 Soekarno – Hatta Airport Rp253 billion. Meanwhile,
non JO project are MKTT highway Rp399,7 billion, additional
job in Ciawi – Sukabumi highway Rp220 billion, Balikpapan –
Simpang KM 38 highway Rp285,5 billion. Beside it, there are

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edifice project The Ritz Condo in Medan Rp425 billion and

Zalakka Hotel in Bali Rp224,8 billion.

 Precast Optimizises and Assets of Company: WSKT has

Wakita Beton Precast that has a task to conduct marketing,
production, design, precast development and expedition. The
Precast Business Unit has 4 concrete factory in Cibitung,
Pasuruan. Sadang, and Palembang. In 2014, the production
grew to 800,00 tons. The company also utilizes their assets well
to add profitability. WSKT positively responds the goverment’s
initiative to optimize asset of State Owned Enterprise.

Investment Summary
We issue BUY recommendation on PT Waskita Karya
(Persero) Tbk. (WSKT) with target price of IDR 1600. The
valuation method used is Discounted Free Cash Flow to Firm
(FCFF) model, closing price of IDR 1,640 in December 11
2014. WSKT has many project in 2016 and is expected to
continue strengthening its presence in construction industry.

PT Waskita Karya (Persero) Tbk has capability to be a

leader in Construction Industry
WSKT incluede LQ 45 in this year and WSKT has many
project from goverment at contruction project. WSKT has
target in 2016 take Rp 2 Billion provit from their activity, its
make hight expectation for investor and make the price
increase.

Valuation Method
We use Discounted Free Cash Flow to Firm (FCFF) model for
our valuation to arrive in our target price.

Financial Analysis
We expected that WSKT Free Cash Flow will be decrease until
2018
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Based on many Project in WSKT, they will need a lot of money

to realize their project. It means they are gonna spend their cash
with operational activities, so Free Cash Flow will be
decreasing too.

Figure 1: Graph/Table
Source : Yahoo finance

Valuation
We use a FCFF valuation (WACC: 12.1%, LTG: 8%) as the
company sets to take advantage of more and more toll road
projects and diversification away from traditional toll road
projects into newer construction segments.

Risks to Your Price Target

FCFF is assume by FCF is assume by perpetual growth rate so
it is really depend on terminal value of company. If there is any
changes with terminal value, it will change our target price.
Terminal value represent of sum amount of discounted cash
which main subject is growth rate, risk free, premium rate. It
depend on the advantage of new project of WSKT which will
be held on 2016 too. If there is any changes or failure, it will
change our target price.

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Business Description
PT Waskita Karya is one of the largest construction companies
in Indonesia. The company was established as State Owned
Enterprise (BUMN) on January, 1st 1961 through
nationalization of foreign corporation, namely Volker
Annemings Maatschapiij N.V. Then changed to PT Waskita
Karya (Persero). On December 2012, the company listed the
shares and became PT Waskita Karya (Persero) Tbk.

Business segments: Based on the company’s Articles of

Association Article 1, the company’s purposes to operate in
construction industry, fabrication, rental services, agency
services, investment, agro industry, integrated Engineering,
Procurement and Construction (EPC).

Business line: Supported by the Company’s good performance

in construction, the Company was able to obtain contracts
worth of IDR31.75 trillion. This amount included IDR10.26
trillion of total contract value in 2013 and new contract value of
IDR21.49. Profit after tax of the Company in 2014 was
IDR501.22 billion; an increase of 36.21% compared with
IDR367.97billion in 2013. Some of the large and prestigious
projects that the Company obtained are Suai Airport in Timor-
Leste, Raknamo Dam in NTT, Toll Road in Becakayu in
Jakarta, Balikpapan Stadium and Pejagang-Pemalang Toll Road
in Central Java.

Other Headings Relevant to Company

 Strength
1. State owned construction companies have significant
network and relationship

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2. Ability to tap into goverment’s equity injecion to

enlarge capital base
3. Higher project security from goverment budget
Market Cap  Weakness
1. Appointment based on tender with companies having

WTON to cut margin

WSKT
10% 2. Cash flow management for large organization could
20%
become unorganized
3. Intense competition among existing companies
PTPP
WIKA  Opportunities
40%
30% 1. Indonesia infrastructure network is significantly
under developed
2. Better cash flow management could improve
company’s prestige and value
3. There is still upside for construction companies to
expand across various value chain
 Threats
1. Intensifying competition between SOE companies
2. Non-paying customers, especially as construction
business depends on economic cycle

Industry Overview and Competitive

Positioning
In line with domestic economic downturn in industrial sectors
such as processing industry, energy consumption like
electricity, gas and water, as well as construction field, industry
growth in 2014, an increase of 6.97% compared with the
previous year of 5.32%.

National construction market dominated by infrastructure

projects funded by the Government, one of which is the
Ministry of Public Works (now Ministry of Public Works and
Public Housing). Budget from the Ministry of Public Works in
2014 was IDR76.46 trillion, less than amount needed to fund
the project, which was IDR110 as recommended by the
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Ministry of Public Works. Meanwhile, investment in private

construction sector also increased following the Government’s
plan after 2014 General Election.

Competitive Positioning
a. Leading national player with good reputation and broad
customer base.
b. Excellent products and high quality products.
c. Stable Income Growth and Increasing Competitiveness.
d. Decentralization of organization, marketing network and
extensive production area across Indonesia.
e. Having competent management and professionals
reliable in completing projects within time table.
f. Having integrated financial management system.
g. Well-placed to handle infrastructure projects and
construction projects from abroad.

Financial Analysis
Cash Flow
Cash flows from investing activities experienced a
significant increase of IDR1,08.2,45 billion or 185.92% from
minus IDR378.58 billion in 2013 to minus IDR1,082.45 billion
in 2014. The decrease was largely stemmed from the placement
in joint venture and associates, the acquisition of fixed assets
and realty investment.
In 2014, cash flows from financing activities were
IDR1,727.98 billion, an increase of 644.47% or IDR317.37
billion compared to 2013. The increase of cash flows from
financing activities was because fund from sales of shares and
bond issuance that was used for operating and financing
activities.
We expected that WSKT Free Cash Flow will be
decrease until 2018. It causes they will spent a lot of money to
build their contract on 2016.

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Investment Risks
Toll road land acquisition will still remain challenging
in the foreseeable future—Despite the introduction of the new
presidential decree ruling in favor of land acquisition, a lot of
construction works are still being delayed. Initial plans of
several projects have also had to be altered as a result of lack of
positive acquisition in land clearing. As toll road construction
will still remain WSKT’s backbone in the foreseeable future,
we reiterate our concerns that land acquisition processes may
take longer than expected.
The company’s intentions of being a toll road operator
may backfire in the first few years—In this position, WSKT
only recognizes the operations of the Kanci-Pemalang toll road
as part of its consolidated statements. If the company chooses
to become a toll road operator in the future, the company will
have to recognize the downsides of operating new toll roads in
which it has a share to profits as part of its statements. Here,
risks include: i) initial losses that toll roads usually incur in the
early years of operations, at least; ii) any interest expenses
incurred in acquiring the toll road.

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Figure 1: Income Statement

in millions
Source: Company Documents, Student Estimates
Income Statement
(in IDR ) 2013 2014 2015F 2016E 2017E 2018E
16,619,17 19,388,34 28,137,18
Revenue 9,686,6 10,286,8 9 2 ,800,388 6
Gross Profit 9 0,696 1,108,896 1,901,241 2,217,949 2,653,2 3,306,419
(8,775,91 (9,177,91 (14,717,9 (17,170,3 (24,830,7
Cost Of Revenues 4) 7) 38) 93) (20,147,111) 67)
Gross Profits include
JV 1,012,371 1,306,0 2,198,838 2,664,345 486,572 3,987,619
Joint Venture Income 101,675 197,116 297,597 446,396 -55,234 681,2
Selling Expenses -23,894 -25,516 -39,115 -47,183 -67,62
General/Admin (1,238,82
Expenses -316,29 -405,043 -706,608 -907,99 (1,035,124) 5)
EBIT 706,899 939,383 1,563,000 1,815,227 2,188,57 2,851,693
Other
Income/Expenses 34,712 63,93 109,884 106,055 139,057 170,519
e Before Tax 611,201 755,602 1,3 0,1 1,505,681 1,802,01 2,389,063
Interest Expense -96,851 -183,596 -212,825 -309,546 -386,546 -462,63
Income 367,97 501,213 -540,07 903,409 1,081,201 1,433,438
Tax Expenses -243,23 -254,389 810,105 -602,272 -720,8 -955,625

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Figure 2: Balance sheet

in millions
Source: Company Documents, Student Estimates
Balance Sheet (in IDR ) 2013 2014 2015F 2016E 2017E 2018E
Current Assets
Cash And Cash Equivalents 1,119,694 1,675,283 4,654,999 501,992 2,856,023 751,267
Total Receivables 2,342,084 2,990,509 3,897,385 5,144,466 5,988,738 7,039,835
Inventories 292,227 604,279 751,994 867,045 1,130,228 1,308,745
Amount due from Customers 3,312,276 4,270,520 5,929,342 7,198,671 8,688,549 10,402,654
Total Current Assets 7,781,413 10,524,167 16,690,367 15,507,809 20,856,043 22,209,091
Investment In Associates 8,392 7,315 474,815 1,225,515 1,976,215 2,259,415
Joint Ventures Assets 334,271 727,645 1,098,568 1,647,853 1,796,159 2,514,623
Long-Term Investments 37,500 628,099 433,775 1,055,450 1,630,250 2,146,250
Fixed Assets 415,44 621,792 1,591,414 2,824,903 2,421,827 2,543,868
Total Assets 8,788,303 12,542,041 20,483,053 22,513,973 28,993,567 32,059,229
Current Liabilities
Short-Term Bank Loans 874,808 1,917,129 958,565 479,282 3,696,780 1,037,224
Total Payables 4,086,007 5,272,332 7,269,793 8,779,753 10,609,002 12,678,993
Accrued Expenses 22,720 98,728 82,480 108,460 152,298 161,235
Total Current Liabilities 5,427,139 7,728,154 9,173,443 10,296,783 15,558,565 15,289,796
Non Current Liabilities
Bonds Payables- Net 748,045 1,245,657 2,745,657 2,745,657 2,745,657 4,745,657
Total Liabilities 6,404,866 9,693,211 12,626,370 13,915,901 19,494,977 21,343,441
Equity
Share Capital & APIC 1,794,361 1,853,540 6,143,633 6,143,633 6,143,633 6,143,633
Retained Earnings 562,911 954,024 1,663,828 2,405,216 3,305,735 4,522,933
Total Liabilities & Equity 8,788,303 12,542,041 20,483,053 22,513,973 28,993,567 32,059,229

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Figure 3: Statement of Cash Flows

in millions

Source: Company Documents, Student Estimates

Core Net Profit 353 504 761 1,053 1,103
Depr / Amort 53 86 131 251 431
Chg in Working Cap -743 -234 -2,154 -1,758 -1,874
Others -48 -445 175 - -
CF's from oprs -385 -89 -1,088 -454 -340
Capex -445 -637 -800 -1,200 -800
Others 66 -446 -20 -15 -14
CF's from investing -379 -1,082 -820 -1,215 -814
Net change in debt -296 1,540 -75 - -171
Others -21 188 5,151 -228 -316
CF's from financing -317 1,728 5,076 -228 -486
Net cash flow -1,081 557 3,168 -1,898 -1,641
Cash at BoY 2,184 1,120 1,675 4,844 2,946
Cash at EoY 1,120 1,675 4,844 2,946 1,305
Free Cashflow -234 -775 -106 -424 -60

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Figure 4: Other Statements or Exhibits

in millions

Source: Company Documents, Student Estimates

Financial Ratios Forecasts

Ratios 2015F 2016E 2017E 2018E 2019E

Profitability
ROE 15.1% 11.0% 11.9% 14.2% 14.1%
ROA 4.9% 4.2% 4.2% 4.7% 4.6%
Gross margin 11.4% 11.4% 11.6% 11.8% 11.6%
Operating margin 9.4% 9.4% 9.6% 10.1% 9.8%
Net margin 4.9% 4.7% 4.7% 5.1% 4.9%
Net income growth X 4.9% 4.7% 4.7% 5.1% 4.9%
Liquidity
Current Ratio (x) 1.82 1.51 1.34 1.45 1.43
Quick Ratio (x) 1.01 0.63 0.64 0.60 0.61
Cash Ratio (x) 0.51 0.05 0.18 0.05 0.06
Solvency
D/E (x) 0.47 0.38 0.68 0.54 0.55
Debt/Assets (x) 0.18 0.14 0.22 0.18 0.18
Valuations
P/E (x) 33.83 29.18 26.83 21.97 22.14
P/BV (x) 3.49 3.07 3.05 2.94 2.94
EV/EBITDA (x) 14.56 13.60 12.90 11.21 11.21

Investment
Toll Road Investment (IDR Bn) WSKT Ownership Invested Amount (IDR Bn)
Depok-Antasari 2,9 12.5% 363
Kanci-Pemalang 9,875 61.5% 6,073
Becakayu 9 60.0% 5,4
Jasa Marga Kualanamu 4 15.0% 600
Legundi-Bunder 5,9 48.0% 2,832
Solo-Ngawi 5,4 40.0% 2,16
Ngawi-Kertosono 4,1 40.0% 1,64
Serpong-Cinere 2,5 35.0% 875
Cimanggis-Cibitung 8,6 90.0% 7,74

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Disclosures:
Ownership and material conflicts of interest:

The author(s), or a member of their household, of this report [holds/does not hold] a financial interest in the securities of this company.

The author(s), or a member of their household, of this report [knows/does not know] of the existence of any conflicts of interest that
might bias the content or publication of this report. [The conflict of interest is…]

Receipt of compensation:

Compensation of the author(s) of this report is not based on investment banking revenue.

Position as a officer or director:

The author(s), or a member of their household, does [not] serves as an officer, director or advisory board member of the subject
company.

Market making:

The author(s) does [not] act as a market maker in the subject company’s securities.

Ratings guide:
Banks rate companies as either a BUY, HOLD or SELL. A BUY rating is given when the security is expected to deliver absolute
returns of 15% or greater over the next twelve month period, and recommends that investors take a position above the security’s weight
in the S&P 500, or any other relevant index. A SELL rating is given when the security is expected to deliver negative returns over the
next twelve months, while a HOLD rating implies flat returns over the next twelve months.

Disclaimer:

The information set forth herein has been obtained or derived from sources generally available to the public and believed by the
author(s) to be reliable, but the author(s) does not make any representation or warranty, express or implied, as to its accuracy or
completeness. The information is not intended to be used as the basis of any investment decisions by

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