We upgrade PT Wijaya Karya Beton Tbk (WTON) to a BUY, with a target price of Rp. 1,225/share, implying a 52 % upside from the current price.At these forecasts this would imply a forward P/E of 31x (v.s.TTM P/E of 36x) as we forecast net income to increase by 65%/15% inFY16E/FY17E as the company looks to benefit from increased precastdemand from the Jakarta-Bandung high speed rail project (HSR) and theLight Rail Transit project (LRT).
We forecast a total demand for precastproducts to be around IDR 10.4tn over three years from the twomegaprojects in West Java and Jakarta, where the company’s operationshave previously slowed due to increased competition.
Company’s Java operations to be significantly boosted by twomegaprojects. The company’s operations in Java, which accounted for 60%/53% of total revenue in FY14/FY15F, had been under major concern due to market share loss.
Utilization rates of factories in and around the area had fallen from 90% to c.66% in Java from FY14 to 1H15 as more contractors become more self sufficient with precast products and government budget absorption had been below expectations.
With the approval of both the LRT and HSR projects from FY16 to FY18-19, we expect a pick up in the company’s Java plants’ activities.