Wijaya Karya : Key points from company visit (WIKA, Under review, Rp1,730)
Key points from company visit to Wijaya Karya (WIKA IJ):
- 2012 net earnings will most likely be around Rp440bn, which is in line with consensus and 24% yoy growth from 2011. The company expects that the positive momentum will keep going into 2013, where net earnings guidance is at Rp555bn, or 26% yoy growth. The figure is 1% below consensus.
- Supported by positive macro and government initiatives to accelerate infrastructure spending, the industry is experiencing tight supply on contractors (mainly due to human resources). WIKA is utilizing the positive trend to be selective on projects in order to improve margins (gross margin in 2011 and 2012F are 11% and 12%, respectively). It stated that EPC projects will be the key segment where margin improvement is highly possible. EPC equals to around 27.8% of 2012F revenue.
- The company also stated its investment commitment in the power sector. WIKA currently has invested in 5 projects (4 are already in operation with 160MW capacity). It will allocate around Rp645bn for power plant investment in 2013.
- We are currently reviewing our recommendation on this counter. WIKA is currently traded at 18.05x PE13 Cons, or 38% premium to ADHI, 45% premium to PTPP and 13% premium to WSKT.
Vale Indonesia: Key takeaways from conference call with the BoD (Under review)
Vale Indonesia held a conference call yesterday with key speaker Mr Fabio Bechara, CFO of the Company. Please find the key highlights below:
2013 outlook - Company targets to produce 77k tons nickel in matte (+10% YoY growth) and expects 5% total cost saving per tonnage in FY2013. The cost efficiency initiatives are combination from better economic of scale, fully effect of Karrebe hydropower, coal convertion project for the drier which expected to be commissioning in 2Q13 to replace some HSFO consumption and others operational efficiency program. The net saving from the coal conversion project itself is expected around US$18-20mn or about 2-2.5% of the COGS
Company plans to spend US$125mn capex (12% lower than FY12) for this year with main project for coal conversion infrastructure and logistics. And the debt repayment schedule for this year about US$38mn. Company remains mute on the nickel price outlook as global crisis economy outlook remain uncertain combined with high LME inventory.
Another bumpy year ahead in 2014 - To achieve 90k tons target production by 2015, Company plans to shut down its electric furnace no 1 (which has been repaired and completed early year 2012) to rebuild and upgrade the power capacity from 75MW to 90MW, similar to furnace no 2. Therefore we’ll see a bumpy year ahead 2014 to INCO share price it may affect 20-25% of the total production capacity, learn from the previous overhaul it may take 20-25 weeks to complete.
CoW renegotiation process underway - Company remain mute about the potential outcome from its renegotiation with the Minister of Energy and Minerals (ESDM) about its CoW status as it is still underway. However, Company highlighted that additional project development cost (with regard on some projects development including Bahodopi mines) recorded in the the P&L will start to be capitalized into balance sheet as there’s certainty or clarity about its CoW extension status from the ESDM. Company expects that the renegotiation will complete in 2Q13.
Based on the latest case, Government has successfully amended and increased the royalty rate for Freeport and Newmont from 1% to 3%, offering important insights into the current state of Indonesia mining industry extremely has come at a significant cost to foreign investor confidence in Indonesia. Therefore, in our view Vale Indonesia likely to face the same challenges.
