State-owned construction companies are estimated to rely on debt or other alternatives to reach 29 trillion IDR worth of capital expenditure in 2017. It is because the government reduced the allocation of state capital participation (PMN) for state-owned construction from 36,2 trillion IDR to 7,2 trillion IDR in 2016.
DBS Vickers Securities predicts Waskita Karya Tbk (WSKT), which has the largest capital expenditure (capex) among state-owned constructions, will rely on debt to fund the toll road projects that it will be working on. Other funding sources come from the divestment of toll road concession.
The subsidiaries’ IPO will also increase. PP Tbk (PTPP) will offer PP Precast, PP Energi, and PP Peralatan while Wijaya Karya Tbk (WIKA) will release WIKA Realty and WIKA Gedung.
State-owned construction companies will have a stronger capital after the rights issue and their subsidiaries’ IPO. Thus, they will have a bigger capacity to participate in auctions of infrastructure projects.
JP Morgan recommended Buy for WIKA with a target price of 3.700 IDR while UOB Kay Hian recommended Buy for PTPP with a target price of 4.800 IDR. (*)
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