ConstructionIndonesia

Company Flash Note

Indonesia Adhi Karya

July 16, 2017 - 8:23 PM
Overhang on LRT project payment continues
HOLD (no change) An earlier-than-expected PT KAI PMN proposal in the revised state budget draft FY17
Consensus ratings*: Buy 19 Hold 5 Sell 0 was rejected by Parliament; now likely to be re-proposed in state budget draft FY18.
While earnings in 2Q17 are projected to be in line with our estimates, earnings risk
Current price: Rp2,100 has increased from LRT funding overhang.
Target price: Rp2,300 Maintain Hold with an unchanged TP, based on 16x 12-month forward P/E.
Previous target: Rp2,300
Up/downside: 9.5% The roller coaster ride continues
CIMB / Consensus: -14.5% It has been a long roller coaster ride for ADHIs stock price since it was first appointed
as the project contractor of LRT Jabodebek in September 2015.
Reuters: ADHI.JK The project has been through a lot of ups and downs: two Presidential Decree
Bloomberg: ADHI IJ revisions the latest was the official confirmation of only ADHI as project contractor
Market cap: US$560.6m and PT KAI (Kereta Api Indonesia) as project investor; two revisions in project contract
Rp7,477,784m value the latest estimated value of Rp21.7tr (down from revised value of Rp23.4tr);
Average daily turnover: US$1.38m an earlier-than-expected proposal for PT KAIs state capital injections (PMN) in the
Rp18,423m state budget draft 2017; and latest development: a rejection of said proposal.
Current shares o/s 3,561m Multiple news sources say Parliament rejected the proposed state capital injection into
Free float: 49.0% PT KAI (Rp2tr of total target proceeds Rp5.6tr) in the revised state budget draft 2017
*Source: Bloomberg as the submission mechanism was not in accordance with the Houses rules.
The PMN of PT KAI is likely to be re-proposed in the state budget draft FY18 as the
Key financial forecasts
project funding is targeted to come from Rp2tr PMN money in FY15 (reallocated from
Dec-17F Dec-18F Dec-19F Trans Sumatera railways project) and an additional Rp5.6tr in new PMN. The rest will
Net Profit (Rpb) 493.4 539.5 619.2 come from PT KAIs loans, which can be double the total PMN.
Core EPS (Rp) 138.6 151.5 173.9 ADHI had previously said it may slow down the progress of its projects if there is no
Core EPS Growth 84.2% 9.3% 14.8% certainty on project financing after the Rp1.4tr received from PMN in FY15 is used up.
FD Core P/E (x) 15.15 13.86 12.08 It said the PMN was fully depleted in May 17. Regarding the latest rejection of the PT
Recurring ROE 8.64% 8.55% 8.86% KAI PMN proposal, ADHI said it will continue with the construction works for now, but
P/BV (x) 1.25 1.13 1.02 will make a more definite decision after an upcoming board of directors meeting.
DPS (Rp) 17.73 27.91 30.52 As at Jun 17, project progress had reached 16% of the Rp23.4tr in revenue, implying
Dividend Yield 0.84% 1.33% 1.45% Rp3.7tr in revenue. Using the 15% GPM guidance from the company, the implied cost
incurred on the project is Rp3.2tr. This almost surpasses the Rp3.4tr total available
Price Close Relative to JCI (RHS)
funds that we consider as the project payments safety net (ADHIs PMN received in
FY15 of Rp1.4tr and PT KAIs PMN received in FY15 of Rp2tr).
2,700 98.7
ADHIs earnings outlook
2,200 77.8 We estimate ADHIs 2Q17F earnings to be in line, with solid yoy growth, supported by
the LRT projects progress. The implied LRT project revenue to be booked in 1H17F
1,700 57.0
200 should reach Rp1.8tr, or almost triple the value booked in 1Q17 of Rp644bn.
150
100 However, If LRT project progress slows down for the rest of FY17 and new contracts
Vol m

50
achievement continues to be weak (as at 5M17 at 27%/25% of CIMB/ADHIs targets or
Jul-16 Oct-16 Jan-17 Apr-17 behind by 6%/8% of its 3-year average achievement in 5M), we estimate its net profit
Source: Bloomberg in FY17F could see an up to 37% downside risk from our current forecast.
If ADHI continues project construction at the same pace as before for the rest of FY17,
Price performance 1M 3M 12M
we think our FY17F earnings forecast will be achievable, but with increasing downside
Absolute (%) -6.7 -9.9 -25.5 risk. ADHI has sufficient capital to do so as it issued Rp3tr bonds in Jun 17, of which
Relative (%) -7.4 -13.7 -40.2 Rp1tr of the proceeds will be allocated for LRT working capital.
Major shareholders % held Maintain Hold, unchanged TP
Government of Indonesia 51.0 We maintain our Hold call and target price of Rp2,300, still based on 16x of 12-month
forward P/E (at 3-year P/E mean). Key downside risks are cancellation of project
development and prolonged uncertainties in LRT project payment and financing. Key
upside risks are better than-expected new contract wins and lower-than-expected
impairment of receivables and/or gross EPC losses.

Figure 1: ADHIs share price performance

Indication of FY16 earnings target revision due
to EPC losses and overhang on LRT project
LRT Presidential Decree (Perpres investor, payment, and contract disbursement
No.98/ 2015 ) issued; highlights~ Indication of second LRT Presidential
ADHI was appointed as project Decree (Perpres No.49/ 2017) issuance;
2,900 highlight~ KAI was appointed as project
contractor, however source of
fund and project owner werent owner and to receive PMN as source of
2,700
clear funding plus loans

2,500

2,300 Indication of first LRT Presidential

Decree (Perpres No.65/ 2016) revision
2,100 issuance; highlights~ source of fund
Stronger than expected shall come from state budget and KAI PMN proposal
1,900 FY15 results standard gauge track will be used was rejected
Analyst(s)
1,700

Aurelia BARUS
T (62) 21 3006 1721 SOURCES: CIMB, COMPANY REPORTS
E [email protected]

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ConstructionIndonesiaAdhi KaryaJuly 16, 2017

BY THE NUMBERS

Profit & Loss Balance Sheet

(Rpb) Dec-16A Dec-17F Dec-18F Dec-19F (Rpb) Dec-16A Dec-17F Dec-18F Dec-19F
Total Net Revenues 11,133 13,540 18,355 20,646 Total Cash And Equivalents 3,365 1,392 385 4,856
Gross Profit 1,185 1,717 2,655 2,595 Total Debtors 9,802 18,067 25,030 22,317
Operating EBITDA 784 1,346 2,146 1,996 Inventories 131 156 207 238
Depreciation And Amortisation (56) (120) (165) (186) Total Other Current Assets 3,537 3,854 4,746 5,433
Operating EBIT 729 1,225 1,980 1,810 Total Current Assets 16,835 23,468 30,369 32,844
Financial Income/(Expense) (95) (234) (630) (586) Fixed Assets 1,460 3,340 4,674 5,988
Pretax Income/(Loss) from Assoc. 0 0 0 0 Total Investments 10 10 10 10
Non-Operating Income/(Expense) (21) (108) (274) (21) Intangible Assets 0 0 0 0
Profit Before Tax (pre-EI) 613 884 1,077 1,203 Total Other Non-Current Assets 1,790 1,561 1,692 1,825
Exceptional Items Total Non-current Assets 3,260 4,911 6,376 7,823
Pre-tax Profit 613 884 1,077 1,203 Short-term Debt 2,844 6,440 7,569 9,255
Taxation (298) (389) (535) (580) Current Portion of Long-Term Debt
Exceptional Income - post-tax 0 0 0 0 Total Creditors 8,604 10,534 13,797 15,775
Profit After Tax 315 495 542 622 Other Current Liabilities 1,596 1,902 2,357 2,633
Minority Interests (2) (2) (3) (3) Total Current Liabilities 13,044 18,875 23,723 27,663
Preferred Dividends 0 0 0 0 Total Long-term Debt 1,428 3,323 6,199 5,450
FX Gain/(Loss) - post tax Hybrid Debt - Debt Component
Other Adjustments - post-tax 0 0 0 0 Total Other Non-Current Liabilities 161 161 161 161
Net Profit 313 493 540 619 Total Non-current Liabilities 1,589 3,484 6,360 5,611
Recurring Net Profit 268 493 540 619 Total Provisions 19 19 19 19
Fully Diluted Recurring Net Profit 268 493 540 619 Total Liabilities 14,653 22,378 30,102 33,293
Shareholders' Equity 5,433 5,990 6,629 7,357
Minority Interests 10 12 14 17
Total Equity 5,443 6,001 6,643 7,374

Cash Flow Key Ratios

(Rpb) Dec-16A Dec-17F Dec-18F Dec-19F Dec-16A Dec-17F Dec-18F Dec-19F
EBITDA 784 1,346 2,146 1,996 Revenue Growth 17.8% 21.7% 35.7% 12.5%
Cash Flow from Invt. & Assoc. Operating EBITDA Growth 22.1% 71.6% 59.5% (7.0%)
Change In Working Capital 1,255 (5,094) (1,217) 5,863 Operating EBITDA Margin 7.1% 10.0% 11.7% 9.7%
(Incr)/Decr in Total Provisions Net Cash Per Share (Rp) (255) (2,351) (3,758) (2,766)
Other Non-Cash (Income)/Expense BVPS (Rp) 1,526 1,682 1,862 2,066
Other Operating Cashflow (2,434) (1,261) (3,117) (6,558) Gross Interest Cover 2.82 4.07 3.02 3.04
Net Interest (Paid)/Received (152) (359) (760) (720) Effective Tax Rate 48.6% 44.0% 49.6% 48.3%
Tax Paid (298) (389) (535) (580) Net Dividend Payout Ratio 25.3% 10.9% 15.7% 14.9%
Cashflow From Operations (843) (5,758) (3,483) 0 Accounts Receivables Days 232.6 345.7 399.9 387.2
Capex (441) (1,645) (1,500) (1,500) Inventory Days 5.40 4.43 4.21 4.49
Disposals Of FAs/subsidiaries 0 0 0 0 Accounts Payables Days 273.4 288.3 277.4 294.3
Acq. Of Subsidiaries/investments 0 0 0 0 ROIC (%) 17.7% 18.8% 13.6% 9.0%
Other Investing Cashflow (806) (125) (131) (133) ROCE (%) 9.9% 10.1% 11.1% 8.5%
Cash Flow From Investing (1,247) (1,771) (1,631) (1,633) Return On Average Assets 2.23% 3.01% 3.60% 3.12%
Debt Raised/(repaid) 1,171 5,490 4,006 937
Proceeds From Issue Of Shares 59 126 199 217
Shares Repurchased 0 0 0 0
Dividends Paid (93) (63) (99) (109)
Preferred Dividends
Other Financing Cashflow 1 2 3 3
Cash Flow From Financing 1,138 5,555 4,108 1,049
Total Cash Generated (952) (1,973) (1,007) (585)
Free Cashflow To Equity (920) (2,038) (1,109) (697)
Free Cashflow To Firm (1,776) (7,102) (4,327) (905)

12-mth Fwd FD P/E (x) - Adhi Karya Key Drivers

32.1 (Rpb) Dec-16A Dec-17F Dec-18F Dec-19F
Outstanding Orderbook 29,168 49,773 43,444 44,137
27.1 Order Book Depletion N/A N/A N/A N/A
Orderbook Replenishment 17,867 42,807 21,511 23,770
22.1 ASP (% chg, main prod./serv.) N/A N/A N/A N/A
Unit sales grth (%, main prod./serv.) N/A N/A N/A N/A
17.1 Util. rate (%, main prod./serv.) N/A N/A N/A N/A
ASP (% chg, 2ndary prod./serv.) N/A N/A N/A N/A
Unit sales grth (%,2ndary prod/serv) N/A N/A N/A N/A
12.1
Util. rate (%, 2ndary prod/serv) N/A N/A N/A N/A

7.1
Jan-13A Jan-14A Jan-15A Jan-16A Jan-17F

SOURCE: CIMB RESEARCH, COMPANY DATA

2
ConstructionIndonesiaAdhi KaryaJuly 16, 2017

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ConstructionIndonesiaAdhi KaryaJuly 16, 2017

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AAV, ADVANC, AMATA, ANAN, AOT, AP, BA, BANPU, BBL, BCH, BCP, BCPG, BDMS, BEAUTY, BEC, BEM, BJC, BH, BIG, BLA, BLAND, BPP,
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Score Range: 90 - 100 80 - 89 70 - 79 Below 70 or No Survey Result
Description: Excellent Very Good Good N/A
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ConstructionIndonesiaAdhi KaryaJuly 16, 2017

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Distribution of stock ratings and investment banking clients for quarter ended on 30 June 2017
1288 companies under coverage for quarter ended on 30 June 2017
Rating Distribution (%) Investment Banking clients (%)
Add 51.2% 5.5%
Hold 35.7% 3.1%
Reduce 11.9% 0.1%

Spitzer Chart for stock being researched ( 2 year data )

Adhi Karya (ADHI IJ)
Price Close

3,700 Recommendations & Target Price

3,850

3,200

3,500

3,500

2,500

3,000

3,800

3,000
2,600
2,050

2,400

2,300

3,200
3,450

2,700

2,200

1,700
Add Hold Reduce Not Rated
1,200
Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17

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ConstructionIndonesiaAdhi KaryaJuly 16, 2017

Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (Thai IOD) in
2016, Anti-Corruption 2016
AAV Very Good, n/a, ADVANC Very Good, Certified, AEONTS Good, n/a, AMATA Excellent, Declared, ANAN Very Good, Declared,
AOT Excellent, Declared, AP Very Good, Declared, ASK Very Good, Declared, ASP Very Good, Certified, BANPU Very Good,
Certified, BAY Excellent, Certified, BBL Very Good, Certified, BCH not available, Declared, BCP - Excellent, Certified, BEM Very Good,
n/a, BDMS Very Good, n/a, BEAUTY Good, Declared, BEC - Good, n/a, BH - Good, Declared, BIGC - Excellent, Declared, BJC Good,
n/a, BJCHI Good, Declared, BLA Very Good, Certified, BPP not available, n/a, BR - Good, n/a, BTS - Excellent, Certified, CBG Good,
n/a, CCET not available, n/a, CENTEL Very Good, Certified, CHG Very Good, n/a, CK Excellent, n/a, COL Very Good, Declared,
CPALL not available, Declared, CPF Excellent, Declared, CPN - Excellent, Certified, DELTA - Excellent, Declared, DEMCO Excellent,
Certified, DIF not available, n/a, DTAC Excellent, Certified, EA Very Good, Declared, ECL Good, Certified, EGCO - Excellent, Certified,
EPG Good, n/a, GFPT - Excellent, Declared, GLOBAL Very Good, Declared, GLOW Very Good, Certified, GPSC Excellent, Declared,
GRAMMY - Excellent, n/a, GUNKUL Very Good, Declared, HANA - Excellent, Certified, HMPRO - Excellent, Declared, ICHI Very Good,
Declared, INTUCH - Excellent, Certified, ITD Good, n/a, IVL - Excellent, Certified, JAS not available, Declared, JASIF not available, n/a,
JUBILE Good, Declared, KAMART not available, n/a, KBANK - Excellent, Certified, KCE - Excellent, Certified, KGI Good, Certified, KKP
Excellent, Certified, KSL Very Good, Declared, KTB - Excellent, Certified, KTC Excellent, Certified, LH - Very Good, n/a, LPN Excellent,
Declared, M Very Good, Declared, MAJOR - Good, n/a, MAKRO Good, Declared, MALEE Very Good, Declared, MBKET Very Good,
Certified, MC Very Good, Declared, MCOT Excellent, Declared, MEGA Very Good, Declared, MINT - Excellent, Certified, MTLS Very
Good, Declared, NYT Excellent, n/a, OISHI Very Good, n/a, PLANB Very Good, Declared, PLAT Good, Declared, PSH not available,
n/a, PSL - Excellent, Certified, PTT - Excellent, Certified, PTTEP - Excellent, Certified, PTTGC - Excellent, Certified, QH Excellent, Declared,
RATCH Excellent, Certified, ROBINS Very Good, Declared, RS Very Good, n/a, SAMART - Excellent, n/a, SAPPE - Good, n/a, SAT
Excellent, Certified, SAWAD Good, n/a, SC Excellent, Declared, SCB - Excellent, Certified, SCBLIF not available, n/a, SCC Excellent,
Certified, SCN Good, Declared, SCCC - Excellent, Declared, SIM - Excellent, n/a, SIRI - Good, n/a, SPA - Good, n/a, SPALI - Excellent,
Declared, SPRC Very Good, Declared, STA Very Good, Declared, STEC Excellent, n/a, SVI Excellent, Certified, TASCO Very Good,
Declared, TCAP Excellent, Certified, THAI Very Good, Declared, THANI Very Good, Certified, THCOM Excellent, Certified, THRE Very
Good, Certified, THREL Very Good, Certified, TICON Very Good, Declared, TIPCO Very Good, Certified, TISCO - Excellent, Certified, TK
Very Good, n/a, TKN Good, n/a, TMB - Excellent, Certified, TNR not available, n/a, TOP - Excellent, Certified, TPCH Good, n/a, TPIPP
not available, n/a, TRUE Very Good, Declared, TTW Very Good, Declared, TU Excellent, Declared, TVO Very Good, Declared UNIQ
not available, Declared, VGI Excellent, Declared, WHA not available, Declared, WHART not available, n/a, WORK not available, n/a.
Companies participating in Thailands Private Sector Collective Action Coalition Against Corruption programme (Thai CAC) under Thai
Institute of Directors (as of October 28, 2016) are categorized into:
- Companies that have declared their intention to join CAC, and
- Companies certified by CAC

CIMB Recommendation Framework

Stock Ratings Definition:
Add The stocks total return is expected to exceed 10% over the next 12 months.
Hold The stocks total return is expected to be between 0% and positive 10% over the next 12 months.
Reduce The stocks total return is expected to fall below 0% or more over the next 12 months.
The total expected return of a stock is defined as the sum of the: (i) percentage difference between the target price and the current price and (ii) the forward
net dividend yields of the stock. Stock price targets have an investment horizon of 12 months.
Sector Ratings Definition:
Overweight An Overweight rating means stocks in the sector have, on a market cap-weighted basis, a positive absolute recommendation.
Neutral A Neutral rating means stocks in the sector have, on a market cap-weighted basis, a neutral absolute recommendation.
Underweight An Underweight rating means stocks in the sector have, on a market cap-weighted basis, a negative absolute recommendation.
Country Ratings Definition:
Overweight An Overweight rating means investors should be positioned with an above-market weight in this country relative to benchmark.
Neutral A Neutral rating means investors should be positioned with a neutral weight in this country relative to benchmark.
Underweight An Underweight rating means investors should be positioned with a below-market weight in this country relative to benchmark.