WEGE IJ - MNC Sekuritas Equity Report 08 April 2021

PT Wijaya Karya Bangunan Gedung Tbk (WEGE)

Construction Sector

First in It’s Class

FY20 Result: New Contract Realization 88.16% while Bottom-Line dropped -66.06% YoY

•  New contract recorded at IDR3.04 trillion (vs IDR9.7 trillion in FY19) or equals to 88.16% from the FY20 target. WEGE’s carry-over value stood at IDR11.47 trillion, so that the FY20 order book reached IDR14.41 trillion. Around 46% of the new contract consist of public facilities with 11 hospitals under construction amounts to IDR600 billion, which mostly used for Covid-19.
•  WEGE’s revenue tumbled by -38.47% YoY to IDR2.81 trillion in FY20 (vs IDR4.57 trillion in FY19). Construction services revenue decreased by -39.30% YoY, followed by property and concessions each weakening by -84.12%/-45.95% YoY. The industrial segment was able to grow by 167.97% YoY to IDR96.52 billion in FY20 (vs IDR36.02 billion in FY19).
•  WEGE's cost of revenue decreased by -36.66% YoY to IDR2.59 trillion from IDR4.1 trillion previously, so that WEGE's gross profit was recorded at IDR212.06 billion with a gross profit margin of 7.55% (vs 10.18% in FY19). WEGE's financial expense recorded a 59.37% YoY  increase while joint venture income dropped. Thus, net profit was recorded to decrease -66.06% YoY to IDR153.28 billion (vs IDR451.66 billion in FY19) with net profit margin at the level of 5.56%.

FY21E Outlook: More Efficiency & Confidence with new Technology 

•  WEGE IJ has secured new contracts amounting to IDR501.95 billion in 2M21 or equals to 11.89% from FY21E target (vs IDR209 billion in 2M20). Currently, there are ±20 projects that are included in the pipeline estimation reaching IDR4 trillion, consist of the government (43%), private segments (37%), and SOE (19%) with the majority of public facility projects in FY21E.
•  WEGE seeks to improve their performance by carrying out cost efficiency and also recovering impairments that are expected to support the net profit in FY21E. We see that this is also supported by changes to the final income tax from 3% to 2.65%, which will support the margins in FY21E.
•  To increase the value added, WEGE will made several effort as follows: 1) Optimizing Building Information Modelling (BIM) application with ISO 19650 kitemark. WEGE is leading because they have BIM level II with 4D-5D technology; 2) Concession project. There are 11 projects implemented by using BIM amounting to IDR4.7 Trillion. In addition, there is an indication that WEGE will get a Pullman hotel contract worth IDR700 billion in FY21E.

JIS: New Landmark in Jakarta

•  WEGE is currently constructing Jakarta International Stadium (JIS) located in North Jakarta. JIS is accessible to several public facilities: 1) 28km from Soekarno-Hatta Airport; 2) 11km from Gambir Station; and 3) 3.5km from the Tj.Priok Commuter line.
•  JIS was built in an area of 22 ha, reaching up to 65 meters with 9 floors and  a 82,000 spectators capacity which has a futuristic design, such as: 1) Sky viewing deck; 2) Retractable roof; 3) Connection bridge to public transportation area.
•  WEGE dominates the KSO project by 51% with a project value of IDR4.08 trillion (JKON IJ by 26.5% and PTPP IJ by 22.5%). It will be carried out in 26 months, and has reached 51.53% in 3M21 with a target of 90% completion in FY21E. The project is estimated to start operating in FY22F. In addition, WEGE can potentially receive additional contract value (5% -10% from the first value) in line with the revitalization of JIS's working area which will bring value added to WEGE's future contracts.

Valuation and Recommendation: BUY at Target Price IDR250

We recommend BUY for WEGE, with a TP: of IDR250 which implies PE/PBV 11.14x/1.02x in FY21E. WEGE’s valuation has become attractive as it is currently trading at a level of –1 STD (average 3-years PBV). Risks to our call would include: 1) Changes in government policy; 2) Potential delayed project triggered by COVID-19 pandemic.

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