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WTON - 1Q20 RESULTS UPDATE

In 1Q20, WTON booked revenue of Rp1.16 trillion or declined by -9.9% Y/Y, representing 12.3% of the Company’s initial target at Rp9.5 trillion. Slower-declining COGS eroded gross profit margin by -1% to 11.4%, but double-growth service revenue at least offering a cushion. Operational efficiency, lower interest expense, and tax relief, all contributed to keep net profit growing modestly by +2.6% Y/Y to Rp73 billion, 12.8% of target.

OPERATIONAL HIGHLIGHTS

 

Not many would have well predicted that the new coronavirus could wreak such a havoc in short period of time. Therefore, we do some considerable adjustments to our previous forecast. Historically, WTON’s normal cycle is Q1 < Q2 < Q3 < Q4. Given the weak results in Q1, a probability of worse outcome in Q2, an expectation of normalization in Q3, and a hope of better Q4, the cycle could be Q2 < Q1 < Q3 < Q4.

We adjust new contracts realization by -38% to about Rp7 trillion vs Rp11.5 trillion (WTON’s initial target), with a moderate case that the pandemic could be brought under control by the latest in August. Revenue, gross profit, and net profit are adjusted to Rp6.4 trillion, Rp769 billion, and Rp392 billion, respectively. When income is difficult, it is better to economize expenses to keep the balance. And that is what we expect from WTON. In the balance sheet, we expect total assets to decline mainly as a result of declining cash position. Liabilities, too, are estimated to be lower in line with the payment of some bank loans and the postponement of initial expansion plans.

To sum up, we reiterate our BUY recommendation on WTON. However, given the considerable adjustments, TP is revised down quite significantly to Rp410/share (+50.7% upside potential), reflecting -1SD of the shares’ 3-year historical mean of PER21F. Currently, WTON is traded at 4.5x of PER21F, which means that the share is a bargain.

Mon June 15Th, 2020

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