construction - shifting into high gear
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8/16/2019 Construction - Shifting Into High Gear
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Construction and Materials│Indonesia│Equity research│September 20, 2015
Sector Note │ Alpha series
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Powered by EFA
ConstructionShifting into high gear
After the 1H15 lull, construction activities are starting to pick up, as project awards■
and government spending accelerates.Timely 2016 budget approval in Oct would signal speedier, more even project■awards and hence, improving earnings visibility for contractors.
Better balance sheets and earnings growth upside indicate room for re-rating.■
Our top picks are laggards that have room to re-rate (ADHI) and those that have■not received rights yet (PTPP & WIKA).
Scalable growth – on the road to infrastructure buildoutGiven the lacklustre progress on tax collection YTD, we recognise that an infrastructurespending cut may be on the government’s agenda in 2015. In our base-case scenario, aRp250tr shortfall in FY15 state revenue would translate into a spending cut of Rp105tr orrevised infra spending of Rp185tr. Nevertheless, the Rp185tr infrastructure spending stillrepresents a rise of above 20% yoy, largely thanks to the favourable base in 2014.
YTD new contract awards progress breeds confidenceThe four listed state-owned contractors guide for 12-76% new contract growth in FY15or 39% on an aggregate basis (higher than the 3-year CAGR of 14% in 2011-14). Wethink that this is achievable considering that 8M15 new contract signings reached Rp48tr(+37% yoy) or 47% of the FY15 new contract target for the sector. Recent positivenewsflow on contract awards such as the 177km Solo-Kertosono toll road and LRTproject points toward a more dynamic job-awarding period in the coming months.
Balance sheets are supportiveThe four listed state-owned contractors are expected to receive capital from thegovernment. Successful fund raising, along with the plausible project line-up, shouldcreate a captive job market for the contractors. Hence, providing multi-year job flows andboost near-to medium-term earnings visibility. In our view, enlarged equity base willeventually translate into higher earnings growth from greater ability to leverage.
Convergence of positivesThe sector had a good share price run in 2014 and commands a premium valuationrelative to other sectors. We think that the premium valuation is warranted due to theconvergence of positive factors like: 1) the government’s longstanding commitment toinfrastructure buildout, as reflected in the public spending boost, 2) full implementation ofthe land-clearing law and removal of bottlenecks for most infrastructure projects, and 3)fortified balance sheets from state capital injection.
Valuation at a premium over other sectors for good reasonOverall, YTD new contract achievement has been on track and the government’scontinued commitment to infrastructure buildout paints a buoyant picture for thecontractors in FY16. Indonesian contractors are trading at 13x CY16 P/E with 18% 3-year EPS CAGR (CY15-17), cheaper than regional peers but with more potential
earnings upside.
Figure 1: Construction vs. JCI
SOURCES: CIMB, COMPANY REPORTS
Overweight (no change)
Highlighted companies
Adhi KaryaADD, TP Rp2,500, Rp2,075 close
Direct appointment of being sole contractor forJakarta’s LRT project should provide ADHIwith multi-year contracts. This should answersinvestors’ concerns with regards to ADHI’sexecution risk in terms of job-fetching abilities.The stock is attractive on valuation basis.
Pembangunan PerumahanADD, TP Rp4,500, Rp3,400 close
As a state-owned contractor with the biggestlocal presence, the company is also one of thebeneficiaries of improved governmentspending Its known expertise in building
seaports stand in good stead consideringJokowi’s medium term plan for connectivitybetween islands.
Summary valuation metrics
Linda LAUWIRA
T (62) 21 3006 1734E linda.lauwira@cimb.com
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Premium (discount) Construction P/E JCI P/E
P/E (x) Dec-14A Dec-15F Dec-16F
Adhi Karya 11.53 10.31 11.19
Pembangunan Perumahan 30.94 24.16 16.41
Waskita Karya 30.94 23.22 16.77
Wijaya Karya 27.05 28.71 20.19
P/BV (x) Dec-14A Dec-15F Dec-16F
Adhi Karya 2.14 2.05 2.71
Pembangunan Perumahan 6.89 5.57 4.32
Waskita Karya 5.45 2.45 2.19
Wijaya Karya 4.17 3.79 3.30
Gross Dividend Yield Dec-14A Dec-15F Dec-16F
Adhi Karya 1.14% 0.78% 0.59%
Pembangunan P erumahan 0.56% 0.70% 0.90%
Waskita Karya 0.68% 0.71% 1.12%
Wijaya Karya 1.03% 1.11% 1.04%
http://www.efa.biz/http://www.efa.biz/http://www.efa.biz/
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KEY CHARTS
Scalable growthThe government has allocated Rp290tr to infrastructuredevelopment in 2015, almost double the infrastructurespending in 2014. The viability of such an aggressive
infrastructure spending has been questioned. Most of theconcerns stem from the risk of shortfall in thegovernment’s target revenue. Under our base-casescenario, we estimate that FY15 state revenue will missits target by Rp250tr. This is likely to lead to a governmentspending cut of Rp105tr, which would translate into anFY15 infrastructure budget cut of Rp185tr. Nonetheless,the revised FY15 infrastructure budget of Rp185trrepresents a 23% yoy increase.
YTD new contract progress breedsconfidenceThe aggregate 9M15 new contracts of Rp61tr represents62% of the FY15 aggregate new contract target, which wedeem in line with the historical average 9M achievementof 64% in the past five years. On an aggregate basis, theRp98tr FY15 new contracts signify a 39% yoy increase.This is much higher than the historical 3-years CAGR of14% (in FY11-14).
Balance sheets are supportiveThe aggregate equity for the four listed state -ownedcontractors at end-1H15 stood at Rp15.3tr (US$1bn),which implies that their investments in the next threeyears could constitute 60% of their equity base. Thecapital injected by the government should fortify the state -owned contractors’ balance sheets, enabling them topursue even larger projects in the future.
Valuation at a premium for good reason Indonesian contractors are trading at 13x CY16 P/E with18% 3-year EPS CAGR, which is cheaper than theirregional peers but with more potential earnings upside.
SOURCE: CIMB, COMPANY REPORTS
FY14 infra
spending
FY15F infra
spending
Cut in infra
spending
yoy growth
(%)
150 290 - 93%
20% c ut in infra spending 150 232 58 55%
25% cut in infra spending 150 218 73 45%
30% c ut in infra spending 150 203 87 35%
35% c ut in infra spending 150 189 102 26%
40% c ut in infra spending 150 174 116 16%
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Figure 2: Sector Comparisons
SOURCES: CIMB, COMPANY REPORTS
Price Target Price
(local curr) (local curr) CY2015 CY2016 CY2015 CY2016 CY2015 CY2016 CY2015 CY2016 CY2015 CY2016
Adhi Karya ADHI IJ Add 2,075 2,500 260 10.3 11.2 41.1% 2.0 2.7 23.3% 27.3% 3.9 3.3 0.8% 0.6%
Nusa Raya Cipta NRCA IJ Add 675.0 950.0 117 7.9 9.7 -14.4% 1.5 1.3 21.1% 14.4% 8.9 9.7 4.2% 3.2%
Pembangunan Perumahan PTPP IJ Add 3,400 4,500 1,145 24.2 16.4 28.3% 5.6 4.3 27.1% 29.7% 8.6 6.9 0.7% 0.9%
Total Bangun Persada TOTL IJ Add 660.0 1,120 157 11.6 8.9 17.7% 2.5 2.2 24.1% 26.5% 5.6 4.5 4.4% 5.2%Wijaya Karya WIKA IJ Hold 2,710 2,900 1,159 28.7 20.2 17.2% 3.8 3.3 14.8% 17.5% 12.4 8.8 1.1% 1.0%
Waskita Karya WSKT IJ Add 1,610 2,100 1,520 23.2 16.8 40.3% 2.4 2.2 14.4% 13.8% 6.3 4.5 0.7% 1.1%
Indonesia 16.5 13.3 18.0% 3.1 2.8 22.1% 23.1% 7.9 6.6 2.2% 2.2%
Sino-Thai Eng & Construction STEC TB Reduce 25.00 18.40 1,072 27.3 25.8 0.7% 4.2 3.8 16.6% 15.6% 16.3 15.7 1.8% 1.6%
CH. Karnchang CK TB Hold 26.75 25.00 1,274 24.1 20.3 -1.6% 2.1 1.9 9.5% 9.9% 18.1 17.3 1.9% 1.9%
Italian-Thai Development ITD TB Reduce 8.45 5.10 1,255 59.9 46.5 36.4% 3.2 3.0 5.3% 6.6% 18.2 18.3 0.6% 0.6%
Thailand 32.0 27.6 4.7% 2.8 2.7 9.5% 10.0% 17.8 17.4 1.4% 1.3%
ACC Limited ACC IN Add 1,375 1,827 3,885 18.4 12.6 28.2% 3.0 2.7 16.4% 22.4% 9.9 6.6 3.0% 4.3%
Hindustan Construction HCC IN Add 17.60 44.80 206 na 19.9 na 0.8 0.7 -1.3% 3.7% 8.2 5.8 1.2% 1.5%
NCC Limited NJCC IN Add 66.40 91.30 555 15.3 9.8 na 1.1 1.0 7.5% 10.5% 5.0 3.9 1.4% 2.0%
India 19.0 12.4 28.2% 2.2 2.0 12.2% 17.1% 8.5 5.9 2.7% 3.9%
Gamuda GAM MK Add 4.63 6.04 2,654 13.8 13.5 na 1.6 1.6 11.9% 12.0% 12.8 12.7 2.5% 2.5%
IJM Corp Bhd IJM MK Add 3.41 3.82 2,903 19.5 17.6 4.5% 1.7 1.7 8.7% 9.7% 13.5 13.8 2.4% 2.6%
Malaysian Resources Corp MRC MK Add 1.14 1.17 485 21.2 15.6 23.0% 1.1 1.2 6.1% 7.3% 17.3 15.9 2.6% 2.6%
Mudajaya Group MDJ MK Hold 1.12 1.13 144 41.0 21.1 na 0.6 0.6 1.5% 2.7% 16.1 17.9 3.6% 4.0%
Sunway Bhd SWB MK Add 3.50 3.95 1,471 9.9 9.5 -5.8% 1.1 1.0 11.5% 11.0% 13.4 13.2 10.6% 3.4%
WCT Holdings WCTHG MK Hold 1.35 1.23 390 13.7 12.1 1.3% 0.7 0.7 5.6% 5.8% 12.3 13.2 2.9% 3.3%
Malaysia 14.8 13.7 5.8% 1.3 1.4 9.5% 9.9% 13.6 13.6 3.8% 2.8%
Average (all) 18.5 15.1 15.5% 1.9 1.9 11.0% 12.6% 11.4 9.7 2.6% 2.4%
P/BV (x ) Re curring ROE (%) EV/EBITDA (x ) Divide nd Yield (%)Company Bloomberg Ticker Recom.
Market Cap
(US$ m)
Core P/E (x) 3-year EPS
CAGR (%)
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Shifting into high gear
On the road to infrastructure buildoutDoes the Indonesian government have enough dough?
On paper, the government has allocated Rp290tr (US$21bn) to infrastructuredevelopment in 2015, almost double the infrastructure spending in 2014. Thistranslates into c.2.6% of Indonesia’s GDP in 2015.
Figure 3: Energy subsidies Figure 4: Infrastructure spending
SOURCES: CIMB, COMPANY REPORTS SOURCES: CIMB, COMPANY REPORTS
The viability of such an aggressive infrastructure spending has beenquestioned. Most of the concerns stem from the risk of shortfall ingovernment’s target revenue. On the revenue front, the key risk comes fromthe aggressive tax collection rate (estimated 12.5% of GDP in 2015), up fromthe estimated 10.9% in 2014 (missing the budgeted tax ratio of 12.4% of GDP).YTD revenue achievement stood at 44% of the government’s FY15 target ofRp1,761.6tr. This lends credence to concerns about the risk of Indonesia’sFY15 state revenue falling short of the government’s target. One key area thatseems to be dragging government revenue is the 7M15 VAT collection ofRp206tr, which represents 36% of the government’s FY15 VAT target ofRp577tr (vs. historical 3-year average of 52%). As VAT represented 33% of
consolidated state revenue in 7M15, any shortfall may result in spending cuts.On a more positive note, 7M15 tax collection of Rp618tr was flat yoy (vs.Rp614tr in 7M14). Considering the fact that Indonesia’s tax collection has never contracted (even during the economic slowdown in 2009), we believethat FY15 tax revenue will flatline yoy.
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Figure 5: State revenue breakdown (Rp tr)
SOURCES: CIMB, COMPANY REPORTS
Figure 6: Government spending breakdown (Rp tr)
SOURCES: CIMB, COMPANY REPORTS
We expect 2015 government spending to increase by 10% yoy or Rp200tr toRp1,984tr. The 10% increase in FY15 government spending is at risk from
revenue falling short of expectations. If history repeats itself and 2015 revenueunderperforms its target, the government is likely to cut infrastructure spending.We have tried to determine the size of the infrastructure spending cut thatwould correspond with the possible government revenue shortfall. In our worst-case scenario where FY15 state revenue misses its target by Rp300tr, weestimate that the government will cut spending by Rp155tr. If we assume thatthe spending cut will come mainly from the infrastructure spending budget ofRp290tr, the government is likely to slash the FY15 infrastructure budget toRp135tr (10% decline from FY14 realised infrastructure spending). In our base-case scenario where FY15 state revenue misses its target by Rp250tr,government spending is likely to be cut by Rp105tr. This would translate intothe FY15 infrastructure budget being slashed by Rp185tr. Nevertheless, therevised FY15 infrastructure budget of Rp185tr represents a 23% yoy increasefrom FY14 realised infrastructure spending of Rp150tr.
Even with a 40% infrastructure spending cut (or Rp116tr), we think that thegrowth prospects for the construction industry are still favourable in 2015, giventhe low base in 2014.
2014-A 2015-F yoy (%) 7M15 Realized (%)
Revenue and grant 1,550.6 1,761.6 13.6 771.4 43.8
Tax revenue 1,140.5 1,477.5 29.5 618.0 41.8
Domestic income tax 546.1 679.4 24.4 325.5 47.9
Oil and gas 87.4 49.5 (43.3) 31.4 63.4
Non-oil and gas 458.7 629.8 37.3 294.1 46.7
Value Added Tax 409.2 576.5 40.9 205.7 35.7
Land and Building Tax 23.5 26.7 13.6 0.6 2.2
Excise duties 118.1 145.7 23.4 66.7 45.8
International trade tax 43.6 49.3 13.0 19.5 39.6
Import duties 32.3 37.2 15.2 17.2 46.2
Export taxes 11.3 12.1 6.7 2.3 19.1
Non-tax revenue 398.6 269.1 (32.5) 150.2 55.8
Natural resources 242.4 118.9 (50.9) 66.3 55.8
Oil and gas 216.9 81.4 (62.5) 50.4 61.9
Non-oil and gas 25.5 37.6 47.1 15.9 42.3
Profit from SOE 40.3 37.0 (8.3) 29.4 79.6
Other non-tax revenue 86.2 90.1 4.5 41.6 46.2
Revenue from public service 29.6 23.1 (22.0) 12.9 55.9
Others 11.5 15.0 30.5 3.2 21.3
Revenue breakdown
2014-A 2015-F yoy (%) 7M15 Realized (%)
State expenditure 1,770.6 1,984.1 12.1 913.5 46.0
Central govt expenditure 1,197.0 1,319.5 10.2 524.1 39.7
Energy subsidies 341.8 137.8 (59.7) 74.4 54.0
Fuel subsidies 240.0 64.7 (73.0) 42.5 65.7
Electricity subsidies 101.8 73.1 (28.2) 31.9 43.6 Non-energy subsidies 50.2 74.3 48.0 31.5 42.4
Interest payment 133.4 155.7 16.7 89.4 57.4
Regional transfer 573.7 664.6 15.8 389.3 58.6
Overall balance (220.0) (222.5) 1.2 (142.1) 63.9
% deficit to GDP 2.1% 2.0%
Financing 246.6 222.5 (9.8) 207.5 93.3
Domestic financing 262.2 242.5 (7.5) 234.4 96.7
Net foreign financing (15.6) (20.0) 28.2 (26.9) 134.5
Spending breakdown
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Figure 7: Tolerable government revenue shortfall
SOURCES: CIMB, COMPANY REPORTS
Figure 8: Possible cuts in FY15 infrastructure spending
SOURCES: CIMB, COMPANY REPORTS
YTD new contract achievement
The companies that hoped for tenders to be awarded earlier this year weredisappointed, as the consolidation pains and lengthy administration paperworkhindered the tender process.
However, we are encouraged by the increase in positive newsflow oninfrastructure-related projects such as the groundbreaking of Jakarta’s long-awaited light trail transit (LRT). We also saw that new contract signings for thecontractors under our coverage started to pick up in Aug, as shown below.
Waskita Karya (WSKT IJ). WSKT bagged c.Rp11tr of new contracts (+3%yoy) in 8M15 or 44% of its FY15 target of Rp25tr. This was below itshistorical average 8M achievement of 61% in the past five years. On 8 Sep2015, Jasa Marga (the majority shareholder of the Solo-Ngawi and Ngawi-
Kertosono toll road sections) announced the winner of the construction jobs.WSKT won c.Rp5.5tr in construction jobs for the two toll road sections. Thisshould raise its YTD new contracts to Rp16.5tr or 66% of its FY15 target ofRp25tr, broadly in line with its historical 9M average of 71% in the past fiveyears.
Realized
State Budget
2014
Revised
State Budget
2015
Revenue shortfalls scena rios 100 150 200 250 300
Total revenue 1,551 1,762 1,662 1,612 1,562 1,512 1,462
Total spending 1,771 1,984 1,984 1,984 1,984 1,984 1,984
Central govt spending 1,197 1,320 1,320 1,320 1,320 1,320 1,320
CG - non subsidies & interest 672 952 952 952 952 952 952
Local government transfer 574 665 665 665 665 665 665
Deficit (220) (223) (323) (373) (423) (473) (523)
Additional deficit created (100) (150) (200) (250) (300)
Additional deficit to meet 2.5% max deficit (50) (50) (50) (50) (50)
Central government spending cut (50) (100) (150) (200) (250)
Natural unspent CG (10% of non subsidy & int CG) 95 95 95 95 95
Additional spending cut needed (5) (55) (105) (155)
Scenarios for 2015 State Budget Revisions
FY14 infra spendingFY15F infra
spending
Cut in infra
spendingyoy growth (%)
Initial proposal 150 290 - 93%
20% cut in infra spending 150 232 58 55%
25% cut in infra spending 150 218 73 45%
30% cut in infra spending 150 203 87 35%
35% cut in infra spending 150 189 102 26%
40% cut in infra spending 150 174 116 16%
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Figure 9: WSKT’s 8M15 new contracts achievement Figure 10: WSKT’s YTD new contract achievement as % of itsFY15 target
SOURCES: CIMB, COMPANY REPORTS SOURCES: CIMB, COMPANY REPORTS
Adhi Karya (ADHI IJ). ADHI recorded c.Rp7.8tr of new contracts (+73% yoy)in 8M15 or 51% of its FY15 target of Rp15.2tr. We deem this in line with itshistorical 8M average achievement of 49% in the past five years. Apresidential decree was signed in the first week of Sep 15, directlyappointing ADHI as the contractor for the 24km-long LRT track, with anintercity route. Our discussions with the company revealed that the contractvalue may be worth up to Rp5tr. The LRT project should bring ADHI’s YTDnew contracts signed to Rp12.8tr or 84% of its FY15 target. We deem thisabove its historical 9M average achievement of 58% in the past five years.
Figure 11: ADHI's YTD new contracts signed (Rp bn) Figure 12: ADHI’s YTD new contract achievement as % of itsFY15 target
SOURCES: CIMB, COMPANY REPORTS SOURCES: CIMB, COMPANY REPORTS
Pembangunan Perumahan (PTPP IJ). PTPP signed c.Rp16tr of newcontracts (+47% yoy) in 8M15 or 59% of its FY15 target of Rp27tr. Wedeem this in line with historical 8M average of 56% in the past five years.
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Figure 13: PTPP’s 8M15 new contracts signed (Rp bn) Figure 14: PTPP’s YTD achievement as % of its FY15 target
SOURCES: CIMB, COMPANY REPORTS SOURCES: CIMB, COMPANY REPORTS
Wijaya Karya (WIKA IJ). WIKA bagged c.Rp12.9tr of new contracts (+49%yoy) in 8M15 or 42% of its FY15 target of Rp30.6tr. We deem this below itshistorical 8M average achievement of 54% in the past five years. Our recentdiscussions with the company revealed that it is waiting for theannouncement on the winner of the construction jobs for a 2GW powerplant located in Java. The company stated that the construction value of the2GW power plant is worth up to Rp11tr. It is still unclear whether the Rp11trwill be handed out to a single contractor or to a consortium.
Figure 15: WIKA’s 8M15 new contracts signed (Rp bn) Figure 16: WIKA YTD achievement as % of its FY15 target
SOURCES: CIMB, COMPANY REPORTS SOURCES: CIMB, COMPANY REPORTS
The four state-owned contractors bagged new contracts of c.Rp48tr (+37% yoy)in 8M15 or 47% of their combined FY15 new contracts target. We deem thisslightly below its historical 8M average achievement of 55% in the past fiveyears. The recent newsflow and our checks with the contractors in our universebuoy our confidence in the sector, as Sep promises to be a much better monthfor job awards than Aug. Note that WSKT won Rp5.5tr in contracts for the Solo-Kertosono toll road and ADHI won Rp1.5tr in contracts for the same toll road.The approved LRT project promises to bring c.Rp5tr new contracts for ADHI.Our rough estimates reveal that the aggregate 9M15 new contracts for the four
state-owned contractors may amount to Rp61tr (+47% yoy), as we factor in thetoll road, LRT project and similar new contract wins of Rp1.5tr each in Sep forWIKA and PTPP. The estimated aggregate 9M15 new contracts of Rp61trrepresents 60% of their FY15 combined new contract targets, which we deemin line with their historical 9M average achievement of 64% in the past fiveyears.
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Figure 17: Aggregate monthly new contracts for ADHI, PTPP,WIKA and WSKT
Figure 18: Aggregate 9M15 new contract achievement as % ofFY15 target
SOURCES: CIMB, COMPANY REPORTS SOURCES: CIMB, COMPANY REPORTS
We are confident that the contractors will meet their 2015 new contract targets,which would translate into 12-76% yoy new contract growth. On aggregatebasis, the estimated Rp98tr new contracts in 2015 signify 39% yoy growth. Thisis much higher than the historical 3-year CAGR of 14%.
Figure 19: New contract signing 2011-15
SOURCES: CIMB, COMPANY REPORTS
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2011
2012
2013
2014
2015
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
0.0
20.0
40.0
60.0
80.0
100.0
120.0
2011 2012 2013 2014 2015
New contract YoY growth
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2016 and beyond
What to expect from the government in 2016?
The government is sticking to its guns in 2016 by making infrastructure the toppriority. It has committed to spending up to Rp314tr on infrastructuredevelopment in 2016 (8% yoy increase from 2015 infrastructure budget). While
the 8% yoy increase does not seem impressive, we think that the government’sinfrastructure budget growth in 2016 may surprise on the upside, as therealised infrastructure spending in 2015 may fall short of expectations.
Figure 20: Infrastructure spending breakdown
SOURCES: CIMB, COMPANY REPORTS
Figure 21: Energy subsidies to take a backseat to infrastructure spending in FY16
SOURCES: CIMB, COMPANY REPORTS
The 2016 state budget unveiled in August 17th
underlines the currentadministration’s determination to spend at least 2.5% of GDP on infrastructure.We applaud the current administration’s commitment to infrastructuredevelopment, an area that sadly took a backseat during the previousadministration. The government projects that the construction industry will
2015F 2016F y-y (%)
Infrastructure 290 314 8
Central government spending 194 165 (15)
Ministry of Public Works and Housing 118 108 (8)
Ministry of Transportation 59 47 (20)
Ministry of Agriculture 9 6 (30)
Ministry of Energy and Mineral Resources 8 4 (56)
Non-central government spending 6 5 (11) Viabili ty gap fund 1 1 (8)
Grant 5 4 (11)
Local government transfer 38 76 100
Special allocation fund 30 57 93
Village funds for infrastructure 8 19 127
Financing 34 49 46
Government inves tment 5 9 80
State capital injection 29 40 40
Social infrastructure 7 7 2
Ministry of Education and Culture 4 6 39
Ministry of Religion 2 1 (76)
Supporting infrastructure 2 2 11
Ministry of Defense 1 2 23
Ministry of Industry 1 1 (17)
Others 10 9 (9)
Rp tr
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
0.0
50.0
100.0
150.0
200.0
250.0
300.0
350.0
400.0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015F 2016F
Energy subsidies Infrastructure spending
energy subsidy as % to GDP infra spending as % to GDP
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expand by 7% p.a. in FY15/16 or 1.2x/1.3x national GDP growth. As thegovernment ramps up infrastructure spending, we think that the constructionindustry will expand at a faster growth rate than the projected 7% p.a. inFY15/16.
Figure 22: Construction spending/GDP multiplier may breach
the 2004-14 average, as government ramps up infrastructurespending
Figure 23: The state-owned contractors’ revenue rose at a
faster pace than the construction industry as a whole
SOURCES: CIMB, COMPANY REPORTS SOURCES: CIMB, COMPANY REPORTS
We compared the four state-owned contractors’ revenue growth to industrygrowth in 2008-14. We found that the revenue of the four state-ownedcontractors rose at a faster pace than the construction industry average in2011-13. We believe that market share accretion was the reason for therevenue growth spurt in 2011-13. The game changer for the state-owned
contractors was the previous administration’s introduction of a long-term roadmap for Indonesia’s infrastructure development, the Government AccelerationInfrastructure Programme (MP3EI), in 2010. Before the launch of MP3EI,infrastructure development was slow due to the lack of clear guidance from thegovernment. The road map provided the contractors with multi-yearinfrastructure projects. Regrettably, there was minimal improvement ininfrastructure buildout, as the previous administration struggled in execution.This was evidenced by the lack of political will to push for the land bill and themisguided focus on energy subsidies, rather than infrastructure spending.
We have reason to believe that the four state-owned contractors under ourcoverage will continue to gain market share in the near-to-medium term. Evenif they maintain status quo, the contractors should enjoy robust revenue growth,
as the industry expands as a result of the current administration’s greatercommitment and will to follow through. The capital injections into the statecompanies that aim to enhance the role of various state-owned enterprises(SOE) in speeding up economic development are a key highlight thatdifferentiates the current administration from the previous one. Around half ofthe proposed FY16 state capital injections are allocated to SOEs, withinfrastructure development mandates. We were gratified to see that anotherRp10tr will be injected into PT PLN, the national electricity producer. This isdouble the Rp5tr state capital allocation in the FY15 budget. This underlinesthe government’s urgency in efforts to accelerate the development of 35GWpower plant projects in rural areas. Further scrutiny of the full list of the statecapital injection plan revealed that the government has decided to injectRp1.3tr into PT Jasa Marga, the state-owned toll road operator and the biggest
toll road concession owner in the nation. The government has also allocatedanother Rp3tr to Hutama Karya in FY16 (vs. Rp3.6tr in FY15). Note thatHutama Karya, the unlisted state-owned contractor, has been designated bythe government to build toll roads on the outer islands of Indonesia. Toll roadson the outer islands allegedly yield lower internal rates of return (IRR) than thetoll roads located on the main island such as the Trans-Java toll road.
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
1.6
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Construction growth/GDP growth Average multiple of construction/GDP
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
2009 2010 2011 2012 2013 2014
Aggregate SOE contractors revenue growth/construction GDP growth
Average multiple of SOE revenue/Construction GDP
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Figure 24: State-owned contractors’ revenue have expanded at faster clip than theindustry, as they gained market share
SOURCES: CIMB, COMPANY REPORTS
Figure 25: State capital Injection breakdown Figure 26: FY16 state capital breakdown
SOURCES: CIMB, COMPANY REPORTS SOURCES: CIMB, COMPANY REPORTS
3.8% 4.5% 5.1%6.5% 5.8%
2.9%4.2%
5.3%
7.8% 8.3%
2.7%
3.5%
4.4%
5.3% 5.6%
3.9%
4.8%
5.9%
6.5% 6.9%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
2010 2011 2012 2013 2014
ADHI Market Share PTPP Market Share WIKA Market Share WSKT Market Share
(Rp bn) 2014 2015 2016
State capital 3,000.0 64,883.9 39,420.7
Food sovereignty program - 8,170.0 3,221.9
Infrastructure and Martime Development Program 1,000.0 41,506.6 19,082.3
Energy Sovereignty Program - 5,607.3 11,160.0
Strategic Industry Development Program - 2,600.0 3,956.5
Nat ional Economic Independence Program 2,000.0 7,000.0 1,500.0
Financial Strengthening Program - - 500.0
8%
49%
28%
10%
4%
1%
Food sovereignty program
Infrastructure and MartimeDevelopment Program
Energy SovereigntyProgram
Strategic IndustryDevelopment Program
National EconomicIndependence Program
Financial St rengtheningProgram
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Figure 27: State capital injections
SOURCES: CIMB, COMPANY REPORTS
2014
APBNP APBN RAPBNP
Cash Non-Cash Cash Non-Cash
Food sovereignty program - - 8,450.0 8,170.0 - 2,500.0 721.9
Perum Bulog - - 3,000.0 3,000.0 - 2,000.0 -
PT Perikanan Nusantara - - 200.0 200.0 - - 29.4
PT Rajawali Nusantara Indonesia - - 280.0 - - - 692.5
PT Perusahaan Perdagangan Indonesia - - - - 500.0 -
PT Pertani - - 470.0 470.0 - - -
PT Sang Hyang Seri - - 400.0 400.0 - - -
Perum Perikanan Indonesia - - 300.0 300.0 - - -
PT Garam - - 300.0 300.0 - - -
PTPN III - - 3,150.0 3,150.0 - - -
PTPN VII - - 17.5 17.5 - - -
PTPN IX - - 100.0 100.0 - - -
PTPN X - - 97.5 97.5 - - -
PTPN XI - - 65.0 65.0 - - -
PTPN XII - - 70.0 70.0 - - -
Infrastructure and Martime Developme nt Program 1,000.0 3,000.0 44,256.6 23,150.0 18,356.6 18,250.0 832.3
PT Sarana Multi Infrastrukt ur - 2,000.0 20,356.6 2,000.0 18,356.6 5,000.0 -
PT Sarana Multigriya Finansial 1,000.0 1,000.0 1,000.0 1,000.0 - 1,000.0 -
PT Penjaminan Infrastrukt ur Indonesia - - 1,500.0 1,500.0 - 1,000.0 -
PT Hutama Karya - - 3,600.0 3,600.0 - 3,000.0 -
PT Wijaya Karya - - - - - 3,000.0 -
PT Pembangunan Perumahan - - - - - 2,000.0 -
Perum Perumnas - - 2,000.0 1,000.0 - - 235.4
PT Angkasa Pura II - - 3,000.0 2,000.0 - 2,000.0 -
PT Jasa Marga - - - - - 1,250.0 -
PT Pelayaran Nasional Indonesia - - 500.0 500.0 - - 564.8
PT Amarta Karya - - - - - - 32.1
PT Waskita Karya Tbk - - 3,500.0 3,500.0 - - -
PT Adhi Karya Tbk - - 1,400.0 1,400.0 - - -
PT Kereta Api Indonesia - - 2,750.0 2,000.0 - - -
PT Djakarta Lloyd - - 350.0 350.0 - - -
PT Pelindo IV - - 2,000.0 2,000.0 - - -
PT Angkutan Sungai, Danau dan Penyeberangan - - 1,000.0 1,000.0 - - -
PT Dok dan Perkapalan Surabaya - - 200.0 200.0 - - -
PT Dok dan Perkapalan Kodja Bahari - - 900.0 900.0 - - -
PT Industri Kapal Indonesia - - 200.0 200.0 - - -
Energy Sovereignty Program - 607.3 607.3 5,607.3 - 11,160.0 -
PT Perusahaan List rik Negara - - - 5,000.0 - 10,000.0 -
PT Geo Dipa Energi - 607.3 607.3 607.3 - 1,160.0 -
Strategic Industry Developme nt Program - 1,500.0 3,556.5 2,600.0 - 3,000.0 956.5
PT Krakatau Steel - - 956.5 - - 1,500.0 956.5
PT Industri Kereta Api - - - - - 1,000.0 -
PT Barata Indonesia - - - - - 500.0 -
PT Pindad - - 700.0 700.0 - - -
PT Dirgantara Indonesia - - 400.0 400.0 - - - PT PAL Indonesia - 1,500.0 1,500.0 1,500.0 - - -
National Economic Independence Program 2,000.0 - 10,500.0 6,750.0 250.0 1,500.0 -
PT Bahana Pembinaan Usaha Indonesia (BPUI) - - 250.0 - 250.0 500.0 -
PT Askrindo 700.0 - - 500.0 - 500.0 -
Perum Jakrindo (d.h PT Sarana Pengembangan Usaha) 1,300.0 - - 500.0 - 500.0 -
PT Permodalan Nasional Madani - - 1,000.0 1,000.0 - - -
PT Perusahaan Pengelola Aset - - 2,000.0 1,000.0 - - -
PT Pengembangan Pariwisat a Indonesia - - 250.0 250.0 - - -
PT Antam - - 7,000.0 3,500.0 - - -
Financial Strengthening Program - - - - - 500.0 -
PT Reasuransi Indonesia Utama - - - - - 500.0 -
Total 3,000.0 5,107.3 67,370.4 46,277.3 18,606.6 36,910.0 2,510.7
SOE receiving state capital budget2015 2016
APBNP APBN
64,883.9 39,420.7
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Power projects in the pipeline
Indonesia has made some progress in the development of electricitygeneration capacity, with around 17GW of capacity added over the past fiveyears (8.4% CAGR). However, the current electrification ratio of 82% is stillbelow the government’s target and reflects under-capacity in several areas(mainly beyond the islands of Java and Bali). This stems from the delays in the
completion of the power plant programme under the previous governments.
The current electrification ratio makes it imperative for electricity capacitydevelopment to continue. Indonesia’s electricity consumption has grown at 7%CAGR over the past five years and, based on PLN’s (the state-ownedelectricity producer) projections on customer demand, it is likely to expand by8% p.a. in 2016-22.
PLN’s demand growth forecasts translate into the need for additional installedcapacity of 59GW by 2022. The current government’s plan aims to install35GW of additional capacity by 2019. This plan includes the continuation ofprojects under the previous government’s fast-track programme (FTP), withtotal installed capacity target of 17.5GW (none of which has completedconstruction). While there is low likelihood of the government delivering the35GW target by the end of 2019, the current progress suggests that 60% of thetarget could be achieved by end-2019. This assumes that the contracts for the21GW of projects would be awarded by the end of 2015 and these projectswould secure financing in the following 12 months.
Our energy analyst met with a senior official in charge of electricity supply inthe Ministry of Mining and Mineral resources. The meeting revealed that therehave been positive developments towards meeting the government’s 5-year35GW power plant target. There are currently 134 projects that have enteredthe “procurement” stage, which could translate into contracts for up to 21GW ofprojects being awarded by end-2015. The 21GW of projects are likely toinclude large contracts such as Java-I (2,000MW), Java-V (2,000MW), Java-VII(2,000MW), South Sumatra-VI (600MW), South Sumatra-IX (1,200MW) and
South Sumatra-X (600MW). Even more good news- 112 of the projects havecompleted the land-clearing phase, which is usually the main hurdle to aproject moving forward. For more details, please refer to our energy analystErindra Krishnawan’s note titled “Power progress” published on 30 Jun 2015.
We project that around 50% of the 35GW of additional power capacity willcome from coal-fired power plants. Our channel checks revealed that theinvestment cost for a coal-fired power plant is up to US$1.5m per MW, whichtranslates into total investment cost of US$53bn. If we assume thatconstruction cost makes up c.40% of total investment cost, this would translateinto jobs worth up to US$21bn. Even if we take a more conservative view andassume that only 60% of the planned 35GW power plant projects will beawarded by end-2019, we would still see 21GW of power plants built in thenext five years. Using the same assumption that 50% of the 21GW powerplants will be coal-fired power plants, the construction industry should see jobsworth US$6.3bn for the coal-fired power plants alone. To put it in perspective,the aggregate FY14 new contract achievement by the four listed state-ownedcontractors amounted to US$5bn. The government’s stronger commitment andbetter execution on-the-ground should easily translate into ample jobs for thecontractors going forward.
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Figure 28: 35GW power plant projects Figure 29: Number of 35GW projectsbased on ownership scheme
Figure 30: 35GW project breakdownbased on ownership scheme (MW)
SOURCES: CIMB, COMPANY REPORTS SOURCES: CIMB, COMPANY REPORTS SOURCES: CIMB, COMPANY REPORTS
Toll road projects in the pipeline
Toll road development in Indonesia stalled after the 1998 Asian Financial Crisis(AFC). Nearly all the toll roads in Indonesia or 575.8km of the total 762km(75%) were built before the 1998 AFC. Growth sputtered before picking upagain in 2005, when annual toll road construction (total km) in Indonesia
jumped to 8.9% from a mere 1.1% in 1999-2005. The spike in new toll roadconstruction was a reflection of the government’s commitment to providing afriendly regulatory environment for toll road investment projects. In 2004, RoadLaw No.38/2004 provided a platform for future public-private partnershipschemes and effectively guaranteed minimum IRR for new toll road projects.
Road Law No.38/2004 introduced the following key reforms:
The establishment of the Indonesian Toll Road Authority (BPJT),ending Jasa Marga’s dual role as commercial toll road operator andregulator of private sector toll roads. This ensures fairness during thetender of new projects.
Toll road investments were opened to both SOE and privatecompanies, ending Jasa Marga’s sole right to develop toll roads.
Public-private partnership schemes were introduced for toll roadinvestment.
Initial tariffs were set based on investment return calculations.
Land acquisition became the government’s responsibility.
2008 was another defining year for the Indonesian toll road regulatoryenvironment, as a revolving land fund was made available to private investorswith funds capped at 110% of the initial project cost estimate. This created amore conducive environment for investors, as land acquisition could drag onand put a strain on the investors’ balance sheets.
2014 was another game-changing year, as presidential decree No.71/2012limited the land acquisition process to 583 days and this applied to all projects-both existing and new. The signed decree was passed in 2012 and stated thatthe deadline would only apply to new projects that have not been tendered andcould not be applied retroactively to existing projects until the end of 2014. This
was successfully applied to the South Sumatra project (Trans-Sumatra toll road,Palembang-Indralaya section).
Ownership
scheme
PLN 102 48% 9,945 0.28
IPP 110 52% 25,584 0.72
212 35,529
# of projects MW
102
110
PLN IPP
9,945
25,584
PLN IPP
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Figure 31: Evolution of toll road regulation
SOURCES: CIMB, COMPANY REPORTS
Of late, we have started to see a breakthrough in the toll road industry withmore groundbreaking for stalled toll road projects. In Apr, the presidentattended a groundbreaking ceremony for the 140km-long Bakauheni-TerbanggiBesar toll road. In Sep, we witnessed the contract award for the 177km-longSol-Kertosono toll road and 59km-long Cileunyi-Sumedang-Dawuan toll road.
Jasa Marga currently has 13 new toll roads under development with total lengthof 460km. Some of the projects are in the initial stages of construction and
some are in the land-clearing process. We estimate the cost of building a tollroad at Rp70bn per km. Assuming that these toll roads will be built in the nextfive years, construction jobs from Jasa Marga alone could amount to Rp32.2tr(US$2.3bn).
Fortified balance sheets
Capital enhancement from the government
The state-owned contractors have a history of investing in infrastructureprojects that they are interested in bidding for as part of the so-called “paying-for-getting” strategy. This move aimed to boost the contractors’ win rate, asminority equity ownership gives them a certain right-to-match offer that comes
in handy during the tender process.
While this strategy may help the contractor boost its win rate, there areconcerns about the investment possibly leading to a heavier balance sheet.This is a legitimate concern, as a construction business has high workingcapital needs and this is especially true for the state-owned contractors.Sometimes, government-related project owners would not provide anydownpayment at the beginning of construction work and thus, force thecontractor to put up the initial working capital needed. If the contractor has itsfunds tied up in too many minority investments, this would hamper its ability tosecure new jobs. The capital injections by the government provide thecontractors with the means to employ the “paying-for-getting” strategy withoutputting too much strain on their balance sheets.
The aggregate equity for the four listed state-owned contractors at end-1H15stood at Rp15.3tr (US$1bn), which implies that their investments in the nextthree years could constitute 60% of their equity base. Capital injection from thegovernment should then fortified their balance sheet in pursuit of larger jobs.
Time Toll road regulation
1980 Road Law No. 13/1980 assigns sole right to build, operate, and manage toll roads to Jasa Marga
New road law No.38/2004 replaced old road law, new legal framework providing more certainty on investment in the sector and ends JM's dual role
Establishes BPJT
Presidential decree No.36/2005 empowers toll road operators to seize land for toll road purposes at a calculated price based on average of market and tax land price
Presidential decree No. 67/2005 public private partnership regulation
Kepmenpu No.374/KPTS/M/2005 regulation about toll road tariff classification per vehicle and once in every two years tariff increase based on inflation
First tariff hike
2006 Presidential decree No.65/2006 further elucidates issues like independent party appraiser appointment and land price settlement
PERMEN PU No.12/PRT/M/2008 signifies government commitment in toll road projects by:
1) providing land revolving fund
2) land cap of 110% (investors are to pay up to 110% of initial investment cost, excess will be foot by government
Establishment of Sarana Multi Infrastruktur (SMI), a holding entity of Indonesia Infrastructure Finance operating under Indonesia Ministry of Finance
Acts more as an intermediary between project owners (both government and private) and banks
2010 Indonesia Infrastructure Finance launched. Initial capital of Rp600bn and loan options of up to Rp2tr from World Bank and Asian Development Bank
Presidential decree No.56/2011 clarifies PD No.67/2005
1) allowing transfer of shares between investors during the construction phase as long as its below 25%
2) government assistance in the form of fiscal help or land or construction
3) simplification of tender process
Presidential decree No.71/2012 clarification of land acquisition time line set at 583 days.
The land acqusition time line will only apply to new projects while ongoing projects adhere to old rule until end-2014
2004
2005
2008
2009
2011
2012
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Premium valuation is warranted
Convergence of positives
Poised for a re-rating. The sector had a good share price run in 2014 andcommands a premium valuation relative to other sectors. We think that thepremium valuation is warranted due to the convergence of positive factors like:
1) the government’s longstanding commitment to infrastructure buildout, asreflected in the public spending boost, 2) full implementation of the land-clearing law and removal of bottlenecks for most infrastructure projects, and 3)fortified balance sheets from state capital injection.
Set to outperform in FY16. Overall, YTD new contract achievement has beenon track and the government’s continued commitment to infrastructure buildoutpaints a buoyant picture for the contractors in FY16. All in all, the whole sectoris set to Outperform once again in 2016.
Public over private. A near-term sector driver would be the public sector,given the government’s proclamation to realize the aggressive spending onpublic infrastructure. As some preferential treatment is invariably given to state-related companies in terms of contract award, state contractors may have
better growth prospects.
Indonesian contractors are trading at 13x CY16 P/E with 18% 3-year EPSCAGR (CY15-17), cheaper than regional peers but with more potentialearnings upside.
Figure 32: Comparison of company operations
SOURCES: CIMB, COMPANY REPORTS
2014 2015F 2016F 2014 2015F 2016F 2014 2015F 2016F 2014F 2015F 2016FFinancial statement (Rp bn)
Revenue 8,653.6 14,306.9 18,743.4 12,427.4 16,093.9 21,497.5 12,463.2 13,419.6 19,075.9 10,286.8 15,461.3 21,802.0
Gross profit (before JO) 998.2 1,644.3 2,263.6 1,532.7 2,041.2 2,736.1 1,424.6 1,279.7 1,865.7 1,108.9 1,718.5 2,481.7
Operating profit 655.4 1,047.5 1,425.2 1,327.7 1,688.8 2,248.7 1,400.9 1,293.2 1,813.1 943.0 1,365.9 1,984.3
Core profit 253.9 424.3 665.0 531.0 681.5 1,003.5 616.5 579.6 824.0 504.0 795.1 1,276.1
Growth
Revenue -11.7% 65.3% 31.0% 6.6% 29.5% 33.6% 4.9% 7.7% 42.2% 6.2% 50.3% 41.0%
Core profit -21.1% 67.1% 56.7% 24.3% 28.3% 47.2% 4.6% -6.0% 42.2% 42.5% 57.8% 60.5%
Profitability metrics
Gross margin 11.5% 11.5% 12.1% 12.3% 12.7% 12.7% 11.4% 9.5% 9.8% 10.8% 11.1% 11.4%
Operating margin 7.6% 7.3% 7.6% 10.7% 10.5% 10.5% 11.2% 9.6% 9.5% 9.2% 8.8% 9.1%
Core profit margin 2.9% 3.0% 3.5% 4.3% 4.2% 4.7% 4.9% 4.3% 4.3% 4.9% 5.1% 5.9%
Gearing position
Total debt 2,019.1 2,019.2 2,439.7 2,595.0 2,945.0 3,295.0 3,014.7 3,016.2 4,368.8 3,162.8 4,512.8 4,512.8
Net debt (cash) 1,207.7 (1,766.9) (1,342.9) (15.6) (525.4) (426.3) 1,017.0 1,664.7 2,637.2 1,487.5 (4,908.8) (4,807.8)
Debt to Equity (x) 1.2 0.4 0.4 1.1 1.0 0.9 0.8 0.7 0.9 1.1 0.5 0.5
Net gearing (x) 0.7 (0.4) (0.2) (0.0) (0.2) (0.1) 0.3 0.4 0.6 0.5 (0.6) (0.5)
Working capital comparisons
Receivable days 110.9 110.9 110.9 212.8 218.7 210.0 116.0 117.7 118.0 229.1 228.8 228.4
Payable days 191.8 191.8 191.8 235.2 215.0 215.0 97.1 97.1 97.1 96.7 96.4 95.8
Inventory days 7.0 7.0 7.0 10.0 10.0 10.0 39.0 39.0 39.0 17.8 16.2 14.9
Driver
New contract, ex-JO (Rp bn) 9,200.0 18,800.0 22,560.0 19,976.0 25,968.8 33,759.4 14,105.6 18,337.2 24,755.2 22,610.0 22,789.3 27,670.8
Backlog (Rp bn) 11,316.6 11,863.0 16,356.2 26,901.9 36,216.4 49,011.2 13,569.3 15,211.7 20,129.3 12,830.0 26,489.1 35,501.5
ADHI PTPP WIKA WSKT
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Thailand: This report is issued and distributed by CIMB Securities (Thailand) Company Limited (“CIMBS”) based upon sources believed to bereliable (but their accuracy, completeness or correctness is not guaranteed). The statements or expressions of opinion herein were arrived atafter due and careful consideration for use as information for investment. Such opinions are subject to change without notice and CIMBS has no
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AAV, ADVANC, AMATA, ANAN, AOT, AP, ASP, BA, BANPU, BBL, BCH, BCP, BDMS, BEAUTY, BEC, BECL, BH, BJCHI, BLAND, BMCL, BTS,CBG, CENTEL, CK, CPALL, CPF, CPN, DELTA, DEMCO, DTAC, EARTH, EGCO, ERW, GFPT, GLOBAL, GLOW, GUNKUL, HANA, HMPRO,ICHI, INTUCH, IRPC, ITD, IVL, JAS, KBANK, KCE, KKP, KTB, KTC, LH, LHBANK, LOXLEY, LPN, M, MAJOR, MC, MINT, MONO, NOK, PACE,PS, PSL, PTT, PTTEP, PTTGC, QH, RATCH, RCL, ROBINS, RS, S, SAMART, SAPPE, SAWAD, SCB, SCC, SF, SGP, SIRI, SOLAR, SPALI,SPCG, STEC, STPI, SVI, TCAP, THAI, THCOM, TICON, TISCO, TMB, TOP, TPIPL, TRC, TRUE, TTA, TTCL, TTW, TUF, U, UNIQ, UV, VGI,WHA
Corporate Governance Report:
The disclosure of the survey result of the Thai Institute of Directors Association (“IOD”) regarding corporate governance is made pursuant to thepolicy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on theStock Exchange of Thailand and the Market for Alternative Investment disclosed to the public and able to be accessed by a general publicinvestor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information.
The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey result maybe changed after that date. CIMBS does not confirm nor certify the accuracy of such survey result.
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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United Kingdom: In the United Kingdom and European Economic Area, this report is being disseminated by CIMB Securities (UK) Limited
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(“CIMB UK”). CIMB UK is authorized and regulated by the Financial Conduct Authority and its registered office is at 27 Knight sbridge, London,SW1X7YB. This report is for distribution only to, and is solely directed at, selected persons on the basis that those persons: (a) are eligiblecounterparties and professional clients of CIMB UK; (b) have professional experience in matters relating to investments falling within Article 19(5)of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the “Order”), (c) fall within Article 49(2)(a) to (d)(“high net worth companies, unincorporated associations etc”) of the Order; (d) are outside the United Kingdom, or (e) are pe rsons to whom aninvitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000) in
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Where this report is labelled as non-independent, it does not provide an impartial or objective assessment of the subject matter and does notconstitute independent “investment research” under the applicable rules of the Financial Conduct Authority in the UK. Consequently, any suchnon-independent report will not have been prepared in accordance with legal requirements designed to promote the independence of investmentresearch and will not subject to any prohibition on dealing ahead of the dissemination of investment research. Any such non-independent reportmust be considered as a marketing communication.
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ordinary business activities involve investing in shares, bonds, and associated securities and/or derivative securities and who have professionalexperience in such investments. Any person who is not a U.S. Institutional Investor or Major Institutional Investor must not rely on thiscommunication. The delivery of this research report to any person in the United States of America is not a recommendation to effect anytransactions in the securities discussed herein, or an endorsement of any opinion expressed herein. CIMB Securities (USA) Inc, is a FINRA/SIPCmember and takes responsibility for the content of this report. For further information or to place an order in any of the above-mentionedsecurities please contact a registered representative of CIMB Securities (USA) Inc.
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Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (Thai IOD) in 2014.
AAV – Very Good, ADVANC – Very Good, AEONTS – not available, AMATA - Good, ANAN – Very Good, AOT – Very Good, AP - Good, ASK – Very Good, ASP – Very Good, BANPU – Very Good , BAY – Very Good , BBL – Very Good, BCH – not available, BCP - Excellent, BEAUTY – Good, BEC - Good, BECL – Very Good, BGH - not available, BH - Good, BIGC - Very Good, BJC – Good, BLA – Very Good, BMCL - Very Good, BTS - Excellent, CCET – Good, CENTEL
– Very Good, CHG – not available, CK – Very Good, CPALL – not available, CPF – Very Good, CPN - Excellent, DELTA - Very Good, DEMCO – Good, DTAC – Very Good, EA - Good, ECL – not available, EGCO - Excellent, GFPT - Very Good, GLOBAL - Good, GLOW - Good, GRAMMY - Excellent, HANA - Excellent,HEMRAJ – Very Good, HMPRO - Very Good, ICHI - not available, INTUCH - Excellent, ITD – Good, IVL - Excellent, JAS – not available, JUBILE – notavailable, KAMART – not available, KBANK - Excellent, KCE - Very Good, KGI – Good, KKP – Excellent, KTB - Excellent, KTC – Good, LH - Very Good, LPN
– Very Good, M - not available, MAJOR - Good, MAKRO – Good, MBKET – Good, MC – Very Good, MCOT – Very Good, MEGA – Good, MINT - Excellent,OFM – Very Good, OISHI – Good, PS – Very Good, PSL - Excellent, PTT - Excellent, PTTEP - Excellent, PTTGC - Excellent, QH – Very Good, RATCH – Very
Good, ROBINS – Very Good, RS – Very Good, SAMART - Excellent, SAPPE - not available, SAT – Excellent, SAWAD – not available, SC – Excellent, SCB -Excellent, SCBLIF – Good, SCC – Very Good, SCCC - Good, SIM - Excellent, SIRI - Good, SPALI - Excellent, STA – Very Good, STEC - Good, SVI – VeryGood, TASCO – Good, TCAP – Very Good, THAI – Very Good, THANI – Very Good, THCOM – Very Good, THRE – not available, THREL – Good, TICON – Good, TISCO - Excellent, TK – Very Good, TMB - Excellent, TOP - Excellent, TRUE – Very Good, TTW – Very Good, TUF - Good, VGI – Very Good, WORK – not available.
Rating Distribution (%) Investment Banking clients (%)
Add 56.5% 6.7%Hold 30.7% 4.5%
Reduce 12.6% 1.7%
Distribution of stock ratings and investment banking clients for quarter ended on 30 June 2015
1508 companies under coverage for quarter ended on 30 June 2015
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CIMB Recommendation Framework
Stock Ratings Definition:
Add The stock’s total return is expected to exceed 10% over the next 12 months.
Hold The stock’s total return is expected to be between 0% and positive 10% over the next 12 months.
Reduce The stock’s 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 forwardnet 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.
*Prior to December 2013 CIMB recommendation framework for stocks listed on the Singapore Stock Exchange, Bursa Malaysia, Stock Exchange of Thailand,Jakarta Stock Exchange, Australian Securities Exchange, Taiwan Stock Exchange and National Stock Exchange of India/Bombay Stock Exchange were
based on a stock’s total return relative to the relevant benchmarks total return. Outperform: expected to exce ed by 5% or more over the next 12 months.Neutral: expected to be within +/-5% over the next 12 months. Underperform: expected to be below by 5% or more over the next 12 months. Trading Buy:expected to exceed by 3% or more over the next 3 months. Trading Sell: expected to be below by 3% or more over the next 3 months. For stocks listed onKorea Exchange, Hong Kong Stock Exchange and China listings on the Singapore Stock Exchange. Outperform: Expected positive total returns of 10% ormore over the next 12 months. Neutral: Expected total returns of between -10% and +10% over the next 12 months. Underperform: Expected negative totalreturns of 10% or more over the next 12 months. Trading Buy: Expected positive total returns of 10% or more over the next 3 months. Trading Sell: Expectednegative total returns of 10% or more over the next 3 months.
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