20140505-Maybank_KERPL-1Q14_earnings_summary_11页_811kb

Construction Sector Summary

Core Content

The construction sector in Indonesia, Malaysia, and Thailand is analyzed in this report, with a focus on 1Q14 earnings, new contract awards, and valuation trends. The sector is maintained at OVERWEIGHT due to its structural benefits from growing infrastructure development. The report highlights that while 1Q14 earnings were seasonally low, they are expected to accelerate in the following quarters. New contract awards in 1Q14 were weak, attributed to timing issues rather than project cancellations, with the expectation of a surge in new awards post-election in 4Q14.

Main Points

Earnings Overview

• 1Q14 earnings were seasonally the lowest but broadly in line with forecasts.
• The sector recorded an average YoY earnings growth of 16% in 1Q14.
• ADHI and PTPP showed the strongest earnings growth, with ADHI at 37.5% and PTPP at 44.3% YoY.
• WIKA and WSKT had more modest growth, at 6.8% and 26% respectively.

New Contract Awards

• 1Q14 new contract awards fell 5.6% YoY, mainly due to timing issues, not cancellations.
• ADHI and WSKT had the largest declines in new contracts, at -21% and -15.5% respectively.
• WIKA and PTPP managed to secure new contracts, with WIKA at 2.3% and PTPP at flat.
• The report anticipates a bulk of sizeable contracts in the subsequent quarters, especially post-election.

Valuation & Target Prices

• The sector's valuation was rolled over to 2015, with target prices (TP) adjusted for all top picks.
• PTPP and ADHI are now the top picks due to their strongest carry over project growth and undemanding valuation.
• WIKA, WSKT, and ACST are maintained at BUY, with least potential upside.
• EV/EBITDA and P/E multiples have been adjusted based on 2015 forecasts.

Key Information

• Share prices rallied in 1Q14, with ADHI up 98% and WSKT up 85%.
• Despite the rally, current prices are still 23% lower than recent historical highs.
• The structural story of infrastructure development remains strong, supporting the sector's growth.
• Gross margin expanded across the sector, with ADHI showing the most improvement.
• Carry over projects are expected to support earnings growth throughout 2014.
• Election sentiment will influence share price re-rating in the coming months, with post-election likely to see further acceleration.

Sector Outlook

• The construction sector is expected to maintain a 21% YoY earnings growth for 2014.
• Further re-rating is anticipated post-election, as the new government is expected to continue infrastructure development.
• Valuation adjustments are made using 2015-based PE, with TP revised accordingly.

Summary Table

Analysts & Research Offices

• Pandu Anugrah and Wilianto Le are the analysts for the construction sector.
• The report includes contact details for research offices in various regions, including Indonesia, Malaysia, Thailand, Vietnam, and Singapore.
• These offices cover multiple sectors such as banking, consumer, technology, and infrastructure.

Conclusion

The construction sector remains a strong investment opportunity due to continued infrastructure development and carry over project growth. While 1Q14 earnings and new contract awards were seasonally weak, the outlook for the rest of the year is positive, with acceleration expected in the following quarters. The sector is maintained at OVERWEIGHT, with PTPP and ADHI as the top picks, and WIKA, WSKT, and ACST as BUY recommendations. The potential for further re-rating is expected to be post-election, and valuation adjustments have been made accordingly.