Live Chat Software
Berita Dan Riset Terbaru
Trading Ideas
The infrastructure story is ON!
January 21, 2015 09:19

Indonesia’s infrastructure story is on a firmer footing now that the new government has published more details on the draft of the revised 2015 state budget (RAPBN-P) since it provides greater clarity on budget allocations. With the significantly reduced of fuel subsidies, the government has freed up some room to undertake more productive spending, especially on infrastructure and social-welfare. This can be seen in the substantial increases in the 2015 budgets for the Ministry of Public Works and the Transportation Ministry at Rp119tn (+41%) and Rp65tn (+45%), respectively. Furthermore, the government’s intention to inject capital into a number of state-owned companies also underscores its commitment toward accelerating its programs as well. Thus, if the government can deliver on its promises, we believe that the state-contractors stand to enjoy multi-year expansion growth. Maintain OVERWEIGHT on the sector with blanket BUYs on the four state-contractors. PTPP and WSKT are our Top Picks.

The Public Works and the Transportation Ministry get the biggest increases

The new government’s commitment toward accelerating infrastructure development is clearly reflected in its draft of the revised 2015 state budget (RAPBN-P) which will be deliberated by parliament. With fuel subsidies reduction, the government has freed up some room to reallocate the savings toward more productive spending in the budgets of its ministries. Two ministries that are directly responsible for the nation’s infrastructure program – the Ministry of Public Works and the Transportation Ministry – enjoyed the largest budget increases. From only an average of 6.2% of total expenditures during the MP3EI period, the government’s budget allocation to these two ministries has been increased to 9.2% for FY15F. Compared to the initial 2015 state budget, the budget of the Ministry of Public Works has been increased by 41% to Rp119tn while the budget of the Transportation Ministry is up 45% to Rp65tn. These budget increases are consistent with the new government’s plans to bolster much-needed infrastructure development. More specifically, the government plans to undertake more spending on several priority programs, such as: 1) irrigation, dams, and flood control, 2) roads, 3) new seaports at 77 locations, and 4) railroad infrastructure.

 

WSKT and ADHI to receive capital injections

Besides setting larger budgets for infrastructure development, the new government also aims to accelerate growth by injecting capital into a number of state-owned companies. Among the 42 companies slated to receive capital injections are three state-contractors, namely Hutama Karya (Rp3.6tn), Waskita Karya (Rp3.5tn), and Adhi Karya (Rp1.4tn). Both Hutama and Waskita will use the proceed into the toll road projects, while Adhi will use it for its long-halted monorail projects. In our view, these capital injections should act as a positive catalyst for growth given that the additional equity will provide more room for the companies to gear up and get more large-scale projects as infrastructure spending accelerates.

 

Substantial new contracts to be awarded in 2Q15 at the soonest

Our view is that a further rerating of the sector can happen once realization of the government budget takes place. This will be in the form of new contract achievements for the state-contractors. In terms of timing, the government plans to commence the tender process for projects once the revised state budget gets parliamentary approval in February 2015. Hence, we will start to see some sizeable new contracts being awarded from the government’s budget in April 2015 at the soonest. This should provide the state-contractors with plenty of projects to keep the multi-year growth story on track. For this year, we estimate that total new contracts will grow a robust 20% to Rp83tn from the four listed state-contractors. Maintain OVERWEIGHT on the sector with blanket BUYs on the four state-contractors. PTPP and WSKT are our Top Picks