Premier Insight : SOE players are now keen to tap into railway construction business
Thursday, May 16, 2019       09:20 WIB

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Infrastructure sector: SOE players are now keen to tap into railway construction business. Waskita Karya ( IJ; Rp1,760; Hold) is on its way joining the tender of LRT project in The Philippines. Adhi Karya ( IJ; Rp1,445; Hold) is concentrating on domestic LRT project, namely HSR Jakarta - Surabaya (est. Rp120tn) and Medan LRT (est. Rp12tn). (Kontan)
Comment: This is positive news for SOE contractors if all the stated projects come into realization. In the case of , Jakarta- Surabaya HSR projects are approximately valued Rp120tn which is able to significantly push down 's burn rate to 10.6% (from 31.9%). This implies a more sustained revenue growth for (OB/revenue: 9.4x post HSR inclusion vs. now: 3.1x) with the cost of revisiting a temporary cash flow problem as many of railway constructions are turnkey-based projects. Though, we have a reservation on 's capability to handle all Jakarta - Surabaya HSR project given its stretched B/S profile (FY19F equity: Rp7.1tn, D/E : 3.8x) In addition, Medan LRT project could boost this year's contract formation as we noted it forms 34% and 46% to 's guidance and our FY19F new contract, respectively.


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