Bareksa.com - We reiterate BUY on WIKA with higher TP of Rp2.740,- (+22% of the prev.), 22% upside, implies P/E FY14F at 23x. To date, WIKA trades at 19x P/E FY14. We adjusted up our FY14F/15F earnings by 1-2%, as 2013 result gave higher than expected margin of some segments, composed a GM to expand by +146bps to 11.13% vs BCf of 10.25%. Our earnings forecast are 103% & 107% of cons. We still like WIKA, considering; I) 2013 OB of Rp38,7tn was the highest compared to other SOEs. II) 2013 Rev. and NP of Rp12tn (+20% YoY) & Rp570bn (+20% YoY) was in line with the cons. Its OPM of 10% was the highest amongst other SOEs. IV) Its well diversified businesses to manage the risk.

Proves the highest margin - WIKA booked Rp12tn (+20% YoY) in its 2013 Rev., 99%, 100% & 99% toward management, BCf & cons. The electrical & industrial’s margin developed by +353bps and +247bps, made the OPM surged to 10% vs 9% in 2012 (+145bps). There was a +434% in other expenses due to foreign exchange loss and an increase in impairment expense. Hence, the NP only grew by +20% YoY to Rp570bn; 103% of management, 93% of BCf and 98% of cons. However, the NM of 5% was still be the highest compared to the peers at 4%, thanks to its solid business diversification.

Construction and mechanical electrical will underpin 2014F revenue - In 2013, WIKA booked new contracts worth Rp17,7tn (+4% YoY), 86% of management and 85% of BCf. The slower of the new contract was mainly due to the Gov.’s approvals delays. In 2014F, WIKA targets a +46% YoY increases to Rp25,8tn, while we keep our target of Rp25,2tn. Up to February 2013, WIKA has secured new contract (EPC projects) amounting Rp4tn, made 15% and 16% of management’s and BCf. We expect that the construction and mechanical electrical business will underpin the 2014F Rev., with 66% portion vs 65% in 2013.

2013 revenue grew strongly by +20% YoY to Rp11,9tn, accounted 99%, 100% & 99% toward management, BCf & consensus. The construction, electrical and industrial businesses gave substantial contribution at 43%, 23% and 23%. In total, these businesses composed Rp10,5tn which formed 88% of its consolidated revenue. More-over, the electrical’s and industrial’s margin developed by +353bps and +247bps, respectively. Thus, 2013 operating margin surged to 10.23% vs 8.78% in 2012 (+145bps) or booked at Rp1,2tn (+40% YoY). We noted that company had to face a significant increases by +434% in other expenses due to foreign exchange loss related to Power Plant Project in Bali and an increase in impairment expense related to Hambalang Project, Adiwangsa Apartment. Hence, the net profit only made a +20% YoY growth to come to Rp570bn; 103% of management, 93% of BCf and 98% of consensus. However, the net margin of 5% was still be the highest compared to its peers at 4%, thanks to its solid business diversification.

On the quarterly basis, the 4thQ gave the highest contribution to its full year achievement; 33% in revenue and 32% in net profit. It was align with the trend of SOE’s companies.

In 2013, WIKA booked new contracts worth Rp17,7tn (+4% YoY), 86% of management’s initial target and 85% of BCf . The slower of new contract growth was mainly due to the Government’s approvals delays of some projects tender that actually have been won by the company. It made the project have not been awarded yet. Nevertheless, the new contract value made the 2013 order book arrived at Rp38,7tn (+15% YoY), marked as the highest compared to other SOEs. The company targets a +46% YoY increases in 2014 new contract, to come to Rp25,8tn. Meanwhile, we maintain our new contract target for 2014F of Rp25,2tn (+42% YoY).

Up to February 2013, WIKA has secured new contract amounting US$321mn or Rp4tn, made 15% and 16% of management’s target and BCf.

In January 2014, WIKA joint with PT Technip Indonesia, sealed US$234mn (Rp3tn) contract from PT Pertamina EP to build gas production facility in Mat-indok, Sulawesi. WIKA has 70% ownership of the contract value, equals to US$164mn.
In February 2014, Pertamina appointed WIKA as the winner of 2 Pertamina’s EPC projects; “Upgrading of Gasoline Hoarding Facilities” & “Development Project of Sambu Island Fuel Terminal”; with the total project value of US$157mn (Rp2tn)

We expect that the construction and mechanical & electrical business will under-pin the 2014F revenue of Rp14,9tn (+25% YoY), with the contribution of 66% vs 65% in 2013, to come to Rp8,6tn (+11% YoY). It comes along with the company’s vision to be one of the best integrated EPC and investment company in South East Asia.

In 2014F, company targets Rp14,1tn (+19% YoY) and Rp678bn in its sales and net profit. Moreover, company aims to continue to diversify its business by allocating approximately Rp2tn (+12% YoY) in capital expenditures with following details:
The capital expenditure will be funded by internal cash, bank loan and might be come from MTN (has not confirmed yet).

We adjusted our model as 2013 result which resulted higher than expected mar-gin of some business segments in 2013, composed an overall gross margin to ex-pand by +146bps to 11.13% vs our forecasted of 10.25%. Our adjustment made the net profit to increase by 1-2% in FY14F & FY15F, form 103% & 107% of consensus. We reiterate BUY on WIKA with higher TP of Rp2.740,- (+22% of our previous target), 22% upside and implies P/E FY14F and FY15F at 23x and 18x. To date, WIKA trades at 19x and 15x P/E FY14 and FY15F. We still like WIKA, considering; I) 2013 order book of Rp38,7tn was the highest compared to other SOEs. II) 2013 Rev. and NP of Rp12tn (+20% YoY) & Rp570bn (+20% YoY) was in line with the consensus. 2013 OPM of 10% was the highest amongst other SOEs. IV) Its well diversified busi-nesses to manage the risk.

*M. Dian Octiana is Analyst of PT Buana Capital. This article is part of the Equity Research of PT Buana Capital