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WTON - FY19 RESULTS UPDATE

POSITIVE DESPITE CHALLENGES

In FY19, WTON posted total revenue of Rp7.08 trillion, inched slightly higher by +2.2% Y/Y, which represents 83.2% of our FY19F. Net profit was recorded at Rp512 billion or grew by +5.3% Y/Y, equal to 97% of our estimate. Despite decelerating and below the target, WTON’s FY19 performance deserves appreciation as operational margins showed improvement and large cash increase resulting from exceptional operating cash flow reflected quality profit.

NEW CONTRACTS AND ORDERBOOK

In FY19, WTON managed to book new contracts amounting to Rp8.28 trillion or an increase of +8.1%. infrastructure-related projects still dominated the mix (72.8%), followed by energy (12.1%), property (8.1%), industry (3.6%), and mining (3.4%). Pekanbaru - Padang Toll was the single largest project by value (Rp1.45 trillion). Total orderbook reached Rp12.95 trillion and revenue/orderbook ratio stood at 54.7%, changed insignificantly compared to last year’s 54.2%.

MARGINS IMPROVEMENT & SOLID CASH, YET BEWARE OF MOUNTING DEBTS

Margin-wise, WTON’s FY19 profitability showed better results with GPM at 13.4% v. 12.7% in FY18, EBITDA margin 15% compared to 14.1%, and NPM 7.2% v. 7%. Solvability ratios, though, seemed to weaken as fast-growing loans eroded EBITDA/interest to 7.3x v. 10.3 in FY18, interest coverage 5.4x compared to 7.7; and increased gearing to 0.8x from 0.6x and liabilities/equity to 1.95x v. 1.83x.

Fortunately, solid operating cash flow (Rp1.1 trillion) accumulates to stronger cash balance of Rp1.6 trillion. This, in turn, was a result of well-managed cash conversion cycle and is worth reiterating as WTON’s competitive advantage.

 

2020 OUTLOOK AND VALUATION

As competition to remain relatively the same with last year and FY19 postponed projects being rolled over to FY20, it is safe to expect for better results this year. New contract is expected to grow more optimistically by +38% Y/Y to amount Rp11.5 trillion, while revenue to reach Rp9.5 trillion (+34% Y/Y) and net profit to amount Rp560 billion (+9.3% Y/Y).

Operational margins are expected to improve, or at least to remain relatively stable, as a result of the newly-launched Supply Chain Management initiative to uplift revenue and curtain costs, and the increasing outside Java projects (with thicker margin), mainly led by Trans-Sumatera Toll Road projects.

To sum up, we remain positive about our BUY recommendation on WTON with TP slightly upgraded to Rp690/share (+99.4% upside potential), reflecting +1SD of the shares’ 3-year historical mean of PER21F. We believe that WTON could maintain its profitability, competitiveness, and healthy operating cash flow to sustain future expansion and to cushion increasing debts.

For full PDF version, please kindly download the file on the following link: https://website.minnapadi.com/files/view_pdf/29baadf2ab39ed1/wton-fy19-results-update.pdf

Mon March 9Th, 2020

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