Wijaya Karya Beton is one of Indonesia’s leading precast concrete producers. The company, which is a subsidiary of state-controlled construction company Wijaya Karya (Wika), manufactures a product line that includes pre-stressed concrete piles, bridge girder products, pipes, railway, and sleepers. After a bleak 2015 Wika Beton is expected to post rising net profit and revenue in the years ahead supported by a capital injection into its parent company.
How will Wijaya Karya Beton (Wika Beton) be affected by the plan of its parent company Wijaya Karya(Wika) to raise IDR 6.15 trillion (approx. USD $466 million) through a rights issue? Being a state-controlled company it means a capital injection from Indonesia’s state budget. Shareholders have already approved the plan that is expected to be completed in mid-October 2016.
With larger capital at hand it is easier for Wika to obtain new loans from financial institutions to finance the company’s projects. Being closely connected to the central government, Wika is engaged in various government-led infrastructure projects. One of the biggest projects is Terminal 3 of Soekarno-Hatta International Airport (with an investment value of IDR 5.7 trillion). Wika targets to collect a total of IDR 86 trillion (approx. USD $6.5 billion) in 2016, both new contracts and carry over contracts. Only fellow state-controlled construction firm Waskita Karya set a higher target this year.
Thus, with the capital injection and government connection, Wika is in a good position to increase its project portfolio. As these new projects require precast concrete, Wika Beton is in a great position to benefit from the rising activities of its parent company. This is in line with findings mentioned in a recent report released by UOB Kay Hian Securities. The report mentions that the contribution of Wika toward the revenue of Wika Beton has grown from 5 percent in 2013 to 14.5 percent in the first quarter of 2016. This figure is expected to rise further to 20 percent at the year-end.
One of the biggest projects, handled by Wika, that is set to start soon is the (controversial) Jakarta-Bandung high-speed train. This project will give rise to high demand for precast concrete (as Wika is not allowed to use the government’s financial injection for this project it will need to turn to bank loans). For Wika Beton the project could deliver up to IDR 8 trillion in new contracts. Another big project is the light rail transit (LRT) in Jakarta. Wika is one of the contractors and is expected to turn to its unit Wika Beton for the supply of concrete.
UOB Kay Hian set its target price for Wika Beton’s shares at IDR 1,300 a piece. On Wednesday (31/08) shares of Wika Beton surged 2.70 percent to IDR 950 per share. So far this year the company’s shares have climbed 15.15 percent.