Adhi Karya (ADHI IJ)

  O ^{c t- 1 7} _N ^{o v -1 7} _D ^{e c -1 7} _J ^{a n -1 8} _J ^{a n -1 8} _F ^{e b -1 8} _M ^{a r- 1 8} _M ^{a r- 1 8 A p r- 1 8} _M ^{a y -1 8} _M ^{a y -1 8} _J ^{u n -1 8 J u l- 1 8 J u l- 1 8} _A ^{u g -1 8} _S ^{e p -1 8 O c t- 1 8 O c t- 1 8} ADHI-Rebase JCI Index-Rebase

  2.3

  50.5

  27.2

  18.0 Net Gearing (%)

  16.7 73.6 111.5 110.8 103.1 PER (x)

  12.8

  7.8

  5.2

  4.1

  3.4 PBV (x)

  0.7

  0.7

  0.6

  0.6

  0.5 Dividend Yield (%)

  2.3

  8.6 Net Profit (RpBn) 313 515 776 987 1,165 EPS (Rp) 88 145 218 277 327 EPS Growth (%) (32.5)

  3.9

  5.8

  7.4 EV/EBITDA (x)

  7.3

  5.2

  6.7

  6.7

  6.7 Source: ADHI, IndoPremier Share Price Closing as of : 29-October-2018

  E q u it y | I n d o n e s ia | C o n s tr u c ti o n

  50

  60

  70

  80

  90 100 110 120

  64.4

  5.4

  Stock Data

  Latest EPS (Rp) 217.9 277.2 Vs. Prior EPS (%)

  Target price (Rp) Rp1,600

  Prior TP (Rp) Rp1,600

  Shareprice (Rp) Rp1,125

  Upside/downside (%) +42.2

  Sharesoutstanding (m) 3,561 Marketcap. (US$ m) 263 Free float (%)

  49.0 Avg. 6m dailyT/O (US$ m)

  0.8 Price Performance

  3M

  6M

  12M

  Absolute (%) -29.9 -37.8 -50.7 Relative to JCI (%) -25.7 -37.2 -45.8 52w high/low (Rp) 2,480 - 1,125

  Major Shareholders

  Government of Indonesia 51.0% Public 49.0%

  Estimate Change; Vs. Consensus 2018 2019

  6.7

  21.3

  9.0 Vs. Consensus (%) (2.1) (7.1)

  Source: Bloomberg Joey Faustian

  PT Indo Premier Sekuritas joey.faustian@ipc.co.id

  Strong 9M18 earnings, above expectation Earnings grew by 64% in 9M18, above market expectation. Record-high gross margin in 3Q18 of 16.9%. New contract grew by 23% yoy in 9M18, but below expectation. Maintain Buy with TP of Rp1,600.

  Company’s strongest 9M achievement ever. ADHI reported strong earnings of Rp336bn in 9M18 (+64% yoy), which came above expectation forming 46%/42% of our/consensus FY18F estimate, which was company’s strongest 9M achievement ever (5-years average: 34%). Top line was growing by 8.2% yoy in

  9M18, supported by robust growth in EPC and infrastructure segment of 110% and 92% yoy, respectively. In quarterly basis, ADHI booked earnings of Rp123bn in 3Q18 (+24% yoy, -12% qoq), forming 17% of consensus FY18 estimate.

  Better profitability due to EPC and property segment. Amid rising interest expense to Rp344bn in 9M18 (17% yoy), there were margin expansions all across the board supported by increase contribution from EPC and property segment to 7.5% and 6.2%, respectively (from: 3.9% and 5.0% in 9M17) which has better margin. In 3Q18, ADHI booked record-high gross margin at 16.9% which mainly supported by EPC and property segment which booked high margin at 17.2% and 19.5%, respectively. Going forward we believe ADHI to booked net margin of 4.3%/5.0% in FY18F/FY19F as ADHI take on more EPC and property projects.

  Low 9M18 new contract achievement. Adhi Karya reported new contract of Rp11.4tn in 9M18 (+37% yoy), forming 54%/50% of our/company’s FY18 target of Rp23tn/Rp21tn. The new contracts are mainly contributed from building projects by 65%, followed by Road and Bridge and Other Infrastructure with 20% and 15%, respectively. Despite sluggish 9M18 contract achievement, we still maintain our FY18F new contract target as we expect ADHI to book several major projects in 4Q18 from Dam project (38%), Bridges (31%) and others (31%). As of 9M18, ADHI has total orderbook of Rp26tn, which translate to orderbook-to- revenue ratio of 1.7x providing modest profitability in FY19F.

  Maintain Buy with unchanged TP of Rp1,600. We increase our FY18/FY19F forecast by 7%/9% as EPC segment started to book positive margin in 3Q18.

  However our DCF based TP is unchanged at Rp1,600/share, as we implement higher gearing of 1.3x for FY18F (1H18:1.1x). ADHI currently trades at single FY18F P/E of 5.2x, which is the second cheapest among its SOE contractor peers (only behind WSKT with 4.5x FY18F P/E). Key risk to our call might come from lower than expected contract achievement and another delay in turnkey project payment.

  Adhi Karya (ADHI IJ)

  30 October 2018 Results Note BUY (Unchanged)

  Year To 31 Dec 2016A 2017A 2018F 2019F 2020F

  Revenue (RpBn) 11,064 15,156 18,225 19,793 22,343 EBITDA (RpBn) 602 1,358 1,647 1,735 1,885 EBITDA Growth (%) 9.7 125.7

• 62 21 5793 1168

  Fig. 1: Revenue by segments Fig. 2: New contract trend Investment in infrastructure Real estates EPC Construction _{(Rp bn)}

  (Rp bn) New Contract LRT

  45,000

  25,000

  40,000 35,000

  20,000

  30,000 25,000

  15,000

  20,000 15,000

  10,000

  10,000 5,000

  5,000

• 2014A 2015A -

  2016A 2017A 2018F 2019F 2020F

  2014A 2015A 2016A 2017F 2018F 2019F Source: Company, IndoPremier Source: Company, IndoPremier

  Fig. 3: Increase contribution from EPC and Property segment Fig. 4: 9M18 Revenue segments Investment in Real Estates

  Construction EPC Property Investment in infrastructure

  infrastructure 6% 3%

  100% 6%

  7% 9% 8% 9% 8%

  10% 90%

  7% 9%

  4% 7% 6% 7%

  EPC

  10% 80%

  8%

  70% 60% 50%

  85% 85% 83% 83% 83% 83%

  40%

  78% Construction

  30%

  83%

  20% 10%

  0% 2014A 2015A 2016A 2017A 2018F 2019F 2020F

  Source: Company, IndoPremier Source: Company, IndoPremier Fig. 5: Expect better margin going forward Fig. 6: 9M new contract achievement

  Gross margin Operating margin Net margin New contract % of FY target (Non LRT)

  (Rp bn)

  68% 16.0%

  12,000.0 70%

  14.0% 65%

  10,000.0 12.0%

  60% 8,000.0

  54% 10.0%

  55% 8.0%

  6,000.0 50%

  6.0% 4,000.0

  43% 45%

  4.0% 2,000.0

  40% 2.0% 0.0%

  35% - 2014A 2015A 2016A 2017F 2018F 2019F 2020F

  9M16

  9M17

  9M18

  Source: Company, IndoPremier Source: Company, IndoPremier

  Fig. 7: 9M18 result (Rp bn)

   9M18

   9M17 YoY

   3Q18

   2Q18 QoQ % to Ours % to Cons

  Revenue 9,432 8,715 8.2% 3,349 2,941 13.9% 51% 50% Gross profit 1,489 1,012 47.1% 565 492 15.0% 62% 56% Operating profit 1,104 765 44.3% 431 363 18.6% 60% 58% Net income 336 205 63.6% 123 139 -11.9% 46% 42%

   Margins

  Gross margin 15.8% 11.6% 16.9% 16.7% Operating margin 11.7% 8.8% 12.9% 12.4% Net margin 3.6% 2.4% 3.7% 4.7%

   Source: Company, IndoPremier Fig. 8: Earnings change (Old) (New) (%) change (Rp bn) 2018F 2019F 2018F 2019F 2017F 2018F

  Revenue 18,434.0 20,344.3 18,225.5 19,793.1 -1.1% -2.7% Gross profit 2,399.9 2,667.0 2,684.9 2,892.7 11.9% 8.5% Operating profit 1,848.9 2,095.0 2,039.2 2,307.1 10.3% 10.1% Net income 727.4 905.2 776.0 987.1 6.7% 9.0%

   Margins

  Gross margin 13.0% 13.1% 14.7% 14.6% Operating margin 10.0% 10.3% 11.2% 11.7% Net margin 3.9% 4.4% 4.3% 5.0%

  Source: Company, IndoPremier

  Year To 31 Dec (RpBn) 2016A 2017A 2018F 2019F 2020F Income Statement

  Net Revenue 11,064 15,156 18,225 19,793 22,343 Cost of Sales (9,949) (13,098) (15,541) (16,900) (19,091) Gross Profit 1,115 2,058 2,685 2,893 3,252 SG&A Expenses (456) (581) (792) (780) (894) Operating Profit 659 1,477 1,893 2,112 2,358 Net Interest (95) (341) (449) (445) (480) Forex Gain (Loss)

  64

  7 Others-Net (15) (185) (137) (101) (63) Pre-Tax Income 613 957 1,307 1,567 1,815 Income Tax (298) (440) (529) (577) (647) Minorities (2) (2) (2) (3) (3) Net Income 313 515 776 987 1,165

  Balance Sheet

  3,365 4,131 4,650 4,140 4,155 Cash & Equivalent

  3,970 3,739 4,123 4,485 5,011 Receivable 131 3,683 3,562 3,712 3,979 Inventory

  9,368 13,264 14,918 16,620 18,487 Other Current Assets

  16,835 24,818 27,252 28,957 31,632 Total Current Assets

  1,814 1,876 3,677 4,850 5,434 Fixed Assets - Net Goodwill

  1,446 1,639 1,691 1,836 2,005 Non Current Assets

  20,095 28,333 32,621 35,643 39,071 Total Assets

  2,344 3,537 5,012 5,443 6,144 ST Loans

  8,373 11,611 13,362 15,141 Payable

  1,828 2,235 2,466 2,644 3,047 Other Payables 500 250 250 500 Current Portion of LT Loans

  13,044 17,633 19,302 21,950 24,332 Total Current Liab.

  1,428 4,665 6,612 6,208 6,364 Long Term Loans 180 164 214 237 258 Other LT Liab.

  14,653 22,463 26,129 28,395 30,954 Total Liabilities

  3,415 3,413 3,413 3,413 3,413 Equity

  1,997 2,446 3,052 3,807 4,675 Retained Earnings

  10

  11

  12

  13

  14 Minority Interest 5,422 5,869 6,477 7,232 8,102 Total SHE + Minority Int.

  Total Liabilities & Equity 20,075 28,332 32,606 35,627 39,056

  Source: ADHI, IndoPremier

  Year to 31 Dec 2016A 2017A 2018F 2019F 2020F Cash Flow

  315 517 778 990 1,168 Net Income (Excl.Extraordinary&Min.Int) 66 131 208 332 421 Depr. & Amortization

  2,074 191 (434) 1,268 1,057 Changes in Working Capital

  (301) (3,124) (3,425) (804) (997) Others

  2,154 (2,285) (2,872) 1,786 1,649 Cash Flow From Operating

  (1,257) (386) (2,062) (1,649) (1,175) Capital Expenditure 163 104 145 163 145 Others

  (1,094) (283) (1,917) (1,486) (1,030) Cash Flow From Investing

  1,153 4,181 3,422 277 357 Loans

  1 Equity (94) (94) (155) (233) (296)

  Dividends (195) (447) (560) (588) (613)

  Others 866 3,640 2,707 (544) (552) Cash Flow From Financing

  1,926 1,072 (2,083) (244)

  67 Changes in Cash

  Financial Ratios

  10.1

  13.6

  14.7

  14.6

  14.6 Gross Margin (%)

  6.0

  9.7

  10.4

  10.7

  10.6 Operating Margin (%)

  5.5

  6.3

  7.2

  7.9

  8.1 Pre-Tax Margin (%)

  2.8

  3.4

  4.3

  5.0

  5.2 Net Margin (%)

  1.7

  2.1

  2.5

  2.9

  3.1 ROA (%)

  5.9

  9.1

  12.6

  14.4

  15.2 ROE (%)

  5.2

  5.2

  5.6

  6.1

  6.6 ROIC (%)

  84.8

  70.2

  61.3

  61.4

  59.7 Acct. Receivables TO (days)

  35.4

  22.6

  17.5

  18.0

  17.9 Acct. Receivables - Other TO (days)

  67.8

  6.9

  4.3

  4.6

  5.0 Inventory TO (days) 272.6 278.4 272.3 269.3 272.5

  Payable TO (days)

  0.0

  0.0

  0.0

  0.0

  0.0 Acct. Payables - Other TO (days) 78.8 144.0 183.3 168.0 154.4

  Debt to Equity (%)

  0.4

  0.3

  0.3

  0.3

  0.3 Interest Coverage Ratio (x)

  16.7 73.6 111.5 110.8 103.1 Net Gearing (%)

  Source: ADHI, IndoPremier

  Head Office PT INDO PREMIER SEKURITAS Wisma GKBI 7/F Suite 718 Jl. Jend. Sudirman No.28 Jakarta 10210 - Indonesia p +62.21.5793.1168 f +62.21.5793.1167

INVESTMENT RATINGS

  BUY : Expected total return of 10% or more within a 12-month period HOLD : Expected total return between -10% and 10% within a 12-month period SELL : Expected total return of -10% or worse within a 12-month period ANALYSTS CERTIFICATION.

  The views expressed in this research report accurately reflect the analysts personal views about any and all of the subject securities or issuers; and no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in the report.

  DISCLAIMERS

  This research is based on information obtained from sources believed to be reliable, but we do not make any representation or warranty nor accept any responsibility or liability as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendations contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is not and should not be construed as an offer or a solicitation of an offer to purchase or subscribe or sell any securities. PT. Indo Premier Sekuritas or its affiliates may seek or will seek investment banking or other business relationships with the companies in this