Indonesian Construction Companies in Focus: Adhi Karya
Indonesian state-controlled construction company Adhi Karya is facing a number of challenges and therefore CIMB Securities has cut its outlook for Adhi Karya's corporate earnings in the years ahead. These challenges include (1) uncertainty surrounding the financing of the light rail transit (LRT) Jakarta-Bogor-Depok-Bekasi, (2) the possibility of rising losses incurred due to the company's power plant and Residue Fluid Catalytic Cracking (RFCC) projects, and (3) the disappointing number of new contracts so far this year.
The Jakarta LRT is one of the many infrastructure projects in Indonesia that was delayed for many years. However, after the central government and local Jakarta administration set aside their differences about the route, rail model and other issues, they finally gave the green light for the start of the project in mid-2016 (and the project is scheduled to be completed before the start of the 2018 Asian Games). This project consists of one LRT track within Jakarta and one outside Jakarta that connects the satellite cities (Bogor, Depok, Tangerang and Bekasi) around Jakarta.
The LRT outside Jakarta is called the Greater Jakarta LRT project. Adhi Karya was appointed to handle the construction of this track that will be built in two phases. It was reported in June 2016 that Adhi Karya obtained additional funds to finance the LRT project from a limited right issue (IDR 2.75 trillion). However, in a recent report CIMB Securities states that there has emerged uncertainty about the financing of this project after the government decided that no state budget funds are available for this IDR 20 trillion (approx. USD $1.5 billion) project.
CIMB Securities also notes that the engineering, procurement and construction (EPC) business segment of Adhi Karya is plagued by a slowdown so far this year, primarily due to losses stemming from coal-fired power plant and RFCC projects. The loss was estimated at IDR 120 billion in the first half of 2016 and the loss could grow up to IDR 400 billion at the year-end. This will undermine the company's net profit.
Meanwhile, Adhi Karya announced recently that it cut its target for new contracts in 2016 from IDR 25 trillion to IDR 20 trillion. In the first nine months of 2016 the company only collected IDR 11 trillion in new contracts, up 10.4 percent (y/y) from new contracts in the same period one year earlier but far below initial estimates. Most of the new contracts - around 88 percent - generated in 2016 so far involve construction projects.
In the first half of 2016 Adhi Karya recorded IDR 3.1 trillion worth of revenue, down 3 percent from revenue in the first half of 2015.
CIMB Securities also cut its target for Adhi Karya's shares from IDR 3,800 to IDR 3,000 a piece. On Monday shares of Adhi Karya listed on the Indonesia Stock Exchange were flat at IDR 2,300 per share. Although CIMB Securities cut its outlook for the company's corporate earnings, it still sees enough room for growth to advise investors to purchase shares of Adhi Karya. So far this year, the company's shares have climbed 7.48 percent.
Stock Quote Adhi Karya - ADHI:
Future Forecast Adhi Karya's Financial Highlights:
| 2014 | 2015 | 2016F | 2017F | 2018F | |
| Revenues | 8,653.6 | 9,389.6 | 14,497.0 | 19,716.0 | 24,699.0 |
| Net Income | 329.1 | 463.7 | 402.1 | 658.0 | 718.8 |
| EBITDA | 759.0 | 913.6 | 971.0 | 1,571.0 | 1,959.0 |
| P/BV (x) |
2.6 | 1.2 | 1.6 | 1.4 | 1.2 |
| P/E Ratio (x) | 16.8 | 15.3 | 18.4 | 12.8 | 11.7 |
in billion IDR rupiah unless otherwise stated
¹ in IDR rupiah
Source: CIMB Securities (21/10/2016)
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