■ WIKA booked in-line core NP of Rp826.5bn (+21% yoy, +3% qoq) for 9M18.
■ 9M18 new contracts booking was a miss at Rp25.3tr (-19.5% yoy). However, WIKA is still confident of meeting its FY18 target.
■ Maintain Add and SOP-based TP of Rp2,000, which implies 10.1x CY19F P/E.

In-line 9M18 results

  • WIKA booked Rp21.0tr (+32% yoy, +19% qoq) revenue for 9M18. 9M18 gross profit was at Rp2.4tr (+44% yoy, +3% qoq), in line with our expectation at 55% of our FY18 forecast (3-year mean achievement for 9M: 56%). 9M18 GPM of 11.3% was in line with our estimate.
  • It booked Rp2.0tr (+28% yoy, +10% qoq) EBIT for 9M18. This accounted for 54% of our and 57% of Bloomberg consensus FY18 estimates (3-year mean achievement in 9M: 54%). 9M18 core NP was Rp826.5bn (+21% yoy, +3% qoq), at 55%/56% of our/ Bloomberg consensus FY18 estimates, in line (3-year mean achievement in 9M: 57%).
  • OCF balance at end-9M18 was at negative Rp3.7tr (vs. a positive Rp1.9tr balance at end-FY17). We project negative Rp8tr OCF balance at end-FY18F as most of its turnkey projects are only due in FY19-20F.

Remains optimistic of achieving FY18 new contracts target

  • WIKA booked Rp25.3tr (-19.5% yoy) new contracts in 9M18. This accounted for 44% of both its guidance and our estimate for FY18, missing expectations (3-year mean achievement in 9M: 58%). Despite that, WIKA remains confident of meeting its FY18 new contracts target of Rp58.1tr (vs. our estimate of Rp57.5tr). It expects additional new contract bookings in 4Q18 to come from toll road projects (c.Rp16.5tr), refinery projects (c.Rp1.7tr), building projects (c.Rp6tr), overseas projects (c.Rp2.4tr), airport projects (c.Rp2tr), and other projects (below Rp1tr).
  • WIKA now expects the tenders of major train projects to be moved to 2019F — i.e. for inner Jakarta loop line, inner Jakarta LRT phase II, and Jakarta MRT phase II (North- South line: Bundaran HI-Kampung Bandan).
  • In Oct, the government of Indonesia signed a c.Rp10tr loan agreement with the Japanese government to fund the development of Jakarta MRT phase II (North-South line:Bundaran HI-Kampung Bandan). The loan period would be for 40 years from 2018 with 0.1% interest p.a.

Add call maintained, with unchanged TP of Rp2,000

  • We maintain our Add call and SOP-based TP of Rp2,000, which implies 10.1x CY19F P/E (1 s.d. below its 3-year mean of 11.1x). Once a foreign investors’ darling, WIKA now has the least foreign shareholders among the four state-owned contractors, at c.19% of free-float (vs. 4-year mean of 34%). Better-than-expected earnings delivery is a potential re-rating catalyst. Slower-than-expected new contract bookings are a downside risk to our call.

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