Currently, Waskita Karya, an Indonesian general contractor that is engaged in a wide range of construction activities, is already working on 11 toll road projects with a total investment value of IDR 51.5 trillion (approx. USD $3.9 billion), indicating that the company is increasingly focused on the toll road industry. It should be the right moment for the company to focus on toll road development because the Indonesian government is eager to push for infrastructure development, including toll road development. Government support is highly welcome in infrastructure projects because land acquisition remains the main obstacle to such projects. Landowners tend to ask very high prices when they know that their land is envisaged to become part of an infrastructure project.

Several key projects, delayed by land acquisition troubles, have seen the kick off of construction supported by government support. For example the USD $4 billion controversial Batang power plant project in Central Java. Indonesian President Joko Widodo witnessed the groundbreaking ceremony (a sign of support) even though about a dozen of farmers were reluctant to sell their land (Indonesia's Supreme Court later decided that these farmers had to sell the land based on the Land Acquisition Act).

Read more: Batang Plant, Test Case for Indonesia's Land Acquisition Act

Another example is the Balikpapan-Samarinda toll road in Kalimantan, also under construction currently. This project was halted for five years due to land acquisition trouble. Recently Widodo visited the construction site and informed the press that construction of the road can continue as land acquisition problems are being cleared.

Read more: Infrastructure Development Indonesia: Balikpapan-Samarinda Toll Road Project

These examples show the commitment of the government - and in particular Widodo - to support infrastructure development. Considering that Waskita Karya is a state-controlled entity it should be able to count on government support when land acquisition problems occur.

The Indonesian government targets to see the development of 1,000 kilometers of additional toll road in the 2015-2019 period (the key toll road projects include the Trans-Sumatra, Trans-Java, the Manado-Bitung toll road, and the Balikpapan-Samarinda toll road). Currently, Indonesia's toll road network stretches for 950 kilometers, implying the government wants to (nearly) double the length of the nation's toll road network in the next few years, an ambitious target that can be jeopardized by the country's notorious land acquisition troubles.

Besides earning its bucks through the construction of six sections of the Trans-Java toll road (a multi-year project), Waskita Karya can also deliver raw materials for the project through its subsidiary Waskita Beton Precast, a precast concrete producer that has several factories located in West Java. The company's annual precast concrete production capacity is estimated at slightly over 2 million tons.

Trimegah Securities estimates that Waskita Karya's order book is set to rise to IDR 76.9 trillion (approx. USD $5.8 billion) this year, from last year's realization of IDR 51.1 trillion, while the order book for precast concrete is estimated to rise to IDR 5.58 trillion in 2016 from 5.5 trillion last year.

Although Waskita Karya's investment in the toll road sector is expected to be profitable, it will also require funds. The debt ratio of Waskita Karya is therefore likely to rise to slightly above 100 percent (from 85.5 percent in 2015). Despite this higher debt burden Trimegah Securities advises investors to purchase shares of Waskita Karya. It set the target price for Waskita's shares at IDR 2,500 a piece. On Tuesday (19/04), shares of Waskita Karya rose 1.36 percent to IDR 2,230 per share. So far this year, the company's shares have risen a whopping 33.53 percent.

Future Projection Waskita Karya's Financial Highlights:

      2014    2015F    2016F    2017F    2018F
Revenues  10,286.8  14,153.0  19,876.0  26,616.0  31,951.0
Net Income     501.2   1,048.0   1,403.0   1,758.0   2,135.0
P/E Ratio (x)      38.7      21.6      19.3      15.4      12.7
PBV (x)       1.1       0.3       1.6       0.6       0.6

in billion IDR rupiah unless otherwise stated
Source: Trimegah Securities (19/04/2016)