Construction: Indonesia
by Bob Setiadi
Rating: NOT RATED
Share price (9-Feb-16): IDR1,400
§ Newly listed and biggest foundation player with proven track record:With close to 40 years of experience in foundation business, Indonesia Pondasi Raya (IDPR), claims to be the largest in the sector with the management expecting IDR366bn from its IPO proceeds (15% stake sale in December 2015) to secure the company’s status. Majority owned by the Djunako family (exhibit 5), IDPR is supported by a well-experienced management team (exhibit 6) with average 18 years of experience in the company. Reputation-wise, IDPR is domestically recognized and offers one of the most comprehensive foundation services (exhibit 7-8) with specialty in bored piling and diaphragm wall works. The company also has a track record in diverse foundation works in high-rise buildings and infrastructure. Past projects include Jakarta International Container Terminal (JICT), Underpass Pramuka, Ritz Carlton Hotel, St. Moritz and Menara Astra (exhibit 9).
§ Invesments in machinery and precast to support future growth:Going forward, IDPR expects annual capex of around IDR100-150bn to increase the number of heavy equipment, essential in foundation works. IDPR typically works on 40-50 projects per annum with machinery utilization rate of 75-80%. Additionally, to increase non-core sales of its precast subsidiary, Rekagunatek Persada, IDPR would use IDR40bn from the IPO proceeds to add a new production line and expand its range of products. Currently, Rekagunatek owns a production plant and workshop in Tangerang (Banten – exhibit 10) with total capacity of 2,000-2,500m/day.
§ High gross margin with solid balance sheet: Compared to other construction companies, IDPR has reported higher margins (2012-14 IDPR’s GPM: 23-28% vs industry’s: 12-14%) on less competition due to the higher degree of complexity and risks in foundation works. Based on our discussion with IDPR, most of their foundation works had been direct contracts from repeat customers such as Summarecon (SMRA), Lippo Group and Agung Podomoro (APLN), suggesting confidence in IDPR’s ability to deliver projects on schedule. On the balance sheet, IDPR’s performance has been solid with ability to maintain low debt-to-equity ratio (6M15: 26%, 2014: 20%).
Outlook: Higher growth from Outer-Jakarta and infrastructure projects
Despite the recent slowdown in property market, IDPR still expects strong demand for foundation works with the company targeting 15-20% sales CAGR in the next 5 years. IDPR booked IDR1.1-1.2tn in new contracts in 2015 and aims a further increase to IDR1.6-1.8tn in 2016. Going forward, IDPR sees higher growth from Outer-Jakarta area, particularly in Surabaya (East Java) where it plans to open a representative office and set up a workshop. Meanwhile, with only 10% of its 2015 new contracts stemming from infrastructure works, IDPR targets to raise participation in toll-road and power plant projects. Based on the management’s 2016 net earnings guidance of IDR300bn, IDPR currently trades on 2016E PER of 9.3x, a 54% discount to average 2016F PER of 20.3x for construction companies under our coverage, with the stock’s 3% market outperformance since its IPO (exhibit 4).
§ Invesments in machinery and precast to support future growth:Going forward, IDPR expects annual capex of around IDR100-150bn to increase the number of heavy equipment, essential in foundation works. IDPR typically works on 40-50 projects per annum with machinery utilization rate of 75-80%. Additionally, to increase non-core sales of its precast subsidiary, Rekagunatek Persada, IDPR would use IDR40bn from the IPO proceeds to add a new production line and expand its range of products. Currently, Rekagunatek owns a production plant and workshop in Tangerang (Banten – exhibit 10) with total capacity of 2,000-2,500m/day.
§ High gross margin with solid balance sheet: Compared to other construction companies, IDPR has reported higher margins (2012-14 IDPR’s GPM: 23-28% vs industry’s: 12-14%) on less competition due to the higher degree of complexity and risks in foundation works. Based on our discussion with IDPR, most of their foundation works had been direct contracts from repeat customers such as Summarecon (SMRA), Lippo Group and Agung Podomoro (APLN), suggesting confidence in IDPR’s ability to deliver projects on schedule. On the balance sheet, IDPR’s performance has been solid with ability to maintain low debt-to-equity ratio (6M15: 26%, 2014: 20%).
Outlook: Higher growth from Outer-Jakarta and infrastructure projects
Despite the recent slowdown in property market, IDPR still expects strong demand for foundation works with the company targeting 15-20% sales CAGR in the next 5 years. IDPR booked IDR1.1-1.2tn in new contracts in 2015 and aims a further increase to IDR1.6-1.8tn in 2016. Going forward, IDPR sees higher growth from Outer-Jakarta area, particularly in Surabaya (East Java) where it plans to open a representative office and set up a workshop. Meanwhile, with only 10% of its 2015 new contracts stemming from infrastructure works, IDPR targets to raise participation in toll-road and power plant projects. Based on the management’s 2016 net earnings guidance of IDR300bn, IDPR currently trades on 2016E PER of 9.3x, a 54% discount to average 2016F PER of 20.3x for construction companies under our coverage, with the stock’s 3% market outperformance since its IPO (exhibit 4).