Revenue and profit of Wijaya Karya (Wika), one of Indonesia's biggest construction companies, is partly dependent on developments surrounding the Jakarta-Bandung high-speed railway project. Earlier this month, Indonesian President Joko Widodo ordered an evaluation of this railway project, which saw groundbreaking in 2016 but has shown limited progress ever since.
Coordinating Minister for Maritime Affairs Luhut Pandjaitan is tasked to perform the evaluation. In the next couple of weeks Pandjaitan, together with Minister of State-Owned Enterprises Rini Soemarno, and Investment Coordinating Board (BKPM) Chairman Thomas Lembong will investigate the obstacles that have been encountered in the construction of the Jakarta-Bandung high-speed train project.
Although progress is limited, Soemarno said construction of four train tunnels is currently underway and added that the land acquisition process (required for a tunnel at Halim in East Jakarta) was concluded last week. This should mean that part of the total USD $4.5 billion loan from the China Development Bank (CDB) can be disbursed soon. The CDB had set a requirement that the land acquisition process has to be completed first before funds can be disbursed. One of the biggest obstacles in Indonesia's investment climate is the difficulty of purchasing land for infrastructure or property projects.
Wijaya Karya is one of the seven companies that have formed a consortium called Kereta Cepat Indonesia China (KCIC), which includes China Railway International Co Ltd. This consortium is tasked to build the project. Within the consortium, Wijaya Karya holds a 30 percent stake, implying it holds contracts worth at least USD $1.29 billion related to the Jakarta-Bandung high-speed railway.
However, Bintang Perbowo, President Director of Wijaya Karya, said progress with the project is now only at 5 percent, hence the company decided to set a moderate growth target in 2018. Perbowo emphasized that Wijaya Karya's financial position remains strong and continues to be optimistic that part of the CDB loan can be disbursed before the end of January 2018.
Stock Quote Wijaya Karya - WIKA:
Being the main local contractor for the project, Wijaya Karya's financial performance is to a high degree related to progress with the Jakarta-Bandung railway project. In Q3-2017 Wijaya Karya's net margin stood at 3.85 percent, up from 3.4 percent in the preceding quarter. However, this margin is bound to decline in case there is limited progress in developing the project.
Future Forecast Wijaya Karya's Financial Highlights:
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in trillion IDR rupiah unless otherwise stated
Source: Sinarmas Sekuritas (15/01/2018)