WSKT has received proceeds totaled at IDR36.8tn in 2018, higher than its initial target of IDR15-20tn. Those including toll road payments, i.e. Batang-Semarang (IDR5.8tn), LRT Palembang (IDR3.9tn), Paspro (IDR2.1tn), Salatiga-Kartasura (IDR2.0tn), Terbanggi Besar-Kayu Agung (IDR2.0tn) and other projects totaled at IDR18.2tn, in addition to IDR2.8tn land bailout fund from LMAN.
WSKT targets IDR54tn of revenue, IDR4tn net profit before minority and IDR55tn new contract in FY19, with FY18 carryover totaled at IDR65tn.
Our Take
FY18 outlook: Higher cash conversion, but CFO still negative. With expected revenue of IDR55.2tn in FY18, IDR36.8tn cash proceeds is equivalent to cash receipt to revenue ratio of 66.7%. This pro forma ratio is better than last year’s achievement of 63.4%. Nevertheless, our back-of-envelope calculation reveals that WSKT will still recorded negative CFO in FY18, by assuming: 1) Cash paid to suppliers of IDR39tn, 2) Net financial income of IDR200bn and 3) Taxes payment of IDR2.1tn at the end of FY18. At this point we haven’t factored in those expectations to our model.
Toll road divestments and SCF A/R factoring to improve CFO. WSKT targets to divest 5 of its toll road in FY19, i.e. Kapal Betung and Becakayu (WTR direct ownership of 98% and 99.6%; WSKT owns 77.1% shares in WTR) and also Pejagan-Pemalang, Pasuruan-Probolinggo and Kanci-Pejagan (WTTR direct ownership of 99.9%, 99.9% and 77.7%; WTR owns 30% shares in WTTR). With total investment value of ~IDR27tn, assuming: 1) full divestment, 2) 30% equity portion and 3) proceeds of 1.5x P/BV, the divestment will result in proceed of IDR7-8tn. Recently, WSKT also has signed Supply Chain Financing (SCF) A/R factoring of IDR2tn with BRI. Currently we haven’t received the details of the scheme, but either way it will further improve its CFO position.
Weak net profit guidance towards FY19.. Assuming minority interest to profit before minority ratio of 17% (same as 9M18 figure), IDR4tn net profit before minority target is equivalent to IDR3.3tn net profit after minority, a 11.8% YoY decrease compared to FY18 net profit after minority target of IDR3.8tn. As previously mentioned in our last report, we expect potential interest drag from toll road commercial operations. Again, toll road divestments are the key to improve leverage as well as reducing interest expense. As of 9M18, WSKT gross and net gearing stood at 2.2x and 1.9x, respectively.
.. with unjustifiably optimistic FY19 new contract target. Assuming FY18 achievement of IDR35tn, WSKT target implies 57% new contract growth in FY19. That level of bullishness resembles FY15 situation in which new contract grew by 56.3% from IDR33tn to IDR52tn. However, current situation is completely different like it was, as WSKT still had healthy cash flow position (+IDR918bn CFO) and low level of leverage (gross and net gearing of 0.8x and 0.3x) in FY15, which enabled WSKT to pursue new contract aggressively. Furthermore, state infra budget growth was at its peak (63.2% in FY15), in contrast with current growth of 2.5%.
