WIKA Beton IPO kicks off
§ Maintain BUY with TP of IDR2,500 as WIKA Beton’s IDR1t- IDR1.3t
IPO set to raise WIKA’s margin profile and support 21% earnings CAGR in
2014F-2015F.
§ Positive interest in the IPO will likely result in a mid-high
end valuation range of 16.5x-18x (2014 PE) or 8-16% discount to WIKA’s current
PE of 19.9x.
§ WIKA Beton main beneficiary of Indonesia’s growing construction
works.
What’s new
WIKA Beton, WIKA’s precast
concrete subsidiary, has opened its IPO with price range of IDR470-IDR630 per
share, translating to 14x- 18.8x 2014 PE. WIKA Beton will issue 2.1b new shares
representing 23.47% of share capital. WIKA Beton is currently the largest domestic
precast manufacturer with total installed capacity of 2m tons. From 2010-2013
it had robust 31% earnings CAGR. With total proceeds of around IDR1t-IDR1.3t,
WIKA Beton plans to expand its
existing capacity by 30% to 2.6m
tons by 2015F. Recall that WIKA Beton has a higher gross margin of 13%-15%
compared to 10-11% in general construction services segment.
What’s our view
Given the high interest in WIKA
Beton’s IPO, valuation is likely to be in the mid-high end range of 16.5x-18x
2014 PE. This translates to 8%-16% discount to WIKA’s current valuation of
19.9x. While there could be a potential switch from WIKA to WIKA Beton on lower
valuation and higher margin profile, we believe that the impact to WIKA’s share
price will be temporary. This is partially
due to strong demand in the IPO
which could result in competitive allocations to investors, causing further
accumulation on WIKA for exposure to WIKA Beton. Overall, WIKA Beton’s
expansion plans (40% contribution to WIKA’s earnings) should remain supportive
on our estimated 21% earnings CAGR in 2014F-2015F. Maintain BUY with unchanged
TP of IDR2,500, pegged 2014 PE of 22x.
source: MayBank Kimeng dated
March 5, 2014
