Gov't-Backed Infrastructure Projects a Boon for State Construction Firms

Profits at state-owned construction firms soared early this year on the back of new contracts and ambitious infrastructure projects planned by the government all across the Indonesian archipelago. (Antara Photo/Teresia May)

By : Sarah Yuniarni | on 10:17 AM May 01, 2017
Category : Business, Corporate News

Jakarta. Profits at state-owned construction firms soared early this year on the back of new contracts and ambitious infrastructure projects planned by the government all across the Indonesian archipelago.

Waskita Karya booked Rp 450 billion in net income in the first quarter, almost four times the figure from the corresponding period last year of Rp 124 billion. Wijaya Karya posted Rp 245.07 billion in profit in the same period, more than triple the figure last year of Rp 71.67 billion.

Meanwhile, Jasa Marga — which specializes in constructing and operating toll roads — booked Rp 547.24 billion in net income, up 33.9 percent from Rp 408.52 billion last year.

Analysts said the companies' soaring net income is the result of signing off on new contracts in the beginning of this year. There is also the flow-on effect from the government's ambitious infrastructure plans.

Waskita secured Rp 11.65 trillion worth of new contracts in the first quarter this year, up Rp 2.8 trillion from the same period last year. The company is targeting a total of Rp 80 trillion in new contracts this year.

Wijaya Karya had booked Rp 16.63 trillion worth of new contracts by April — nearly forty percent of its new contract target for this year. The figure is 175.8 percent more than what it earned last year in the same period.

"Business diversification into a variety of sectors also played a major role in gaining more profit," MNC Sekuritas analyst Edwin Sebayang said on Friday (28/04).

Waskita Karya and Wijaya Karya are involved in construction, precast, toll road and property businesses. Jasa Marga sticks to constructing and operating toll roads.

Ambitious plans

Bintang Perbowo, president director of Wijaya Karya, is confident a positive trend in the construction sector will continue throughout the year, propped up by a series of government-backed infrastructure projects.

"We're grateful to be able to work on strategic projects planned by the government," Bintang said in a statement on Thursday.

Semesta Indovest analyst Aditya Perdana said a significant increase in the state infrastructure budget and plans to increase production capacity at their subsidiaries will also benefit state-owned firms.

Waskita Beton Precast, for example, will see its factory capacity boosted to 3.25 million tons by the end of this year from the existing capacity of 2.65 million tons.

Aditya also pointed out that Waskita Beton still has proceeds left from its initial public offering which can be used to pay for the expansion.

Waskita Beton Precast President Director Jarot Subana said earlier this year the company's capital expenditure will be paid for using the proceeds from its IPO last year.

The surge in infrastructure spending by the government is made necessary to complete projects nearing deadlines, including the light rail transit (LRT) project which is supposed to be completed prior to the 2018 Asian Games in Jakarta and Palembang. Wijaya Karya is the main contractor for this project.

Aditya said the state-owned construction firms have also received a much-needed shot in the arm from the government in the form of capital injection, known as PNM, to fund some of the projects.

Last year, Wijaya Karya received Rp 4 trillion and Jasa Marga Rp 1.25 trillion from the PNM scheme. Waskita Karya received Rp 3.5 trillion in 2015 from the same program.

More toll roads

Waskita Karya's toll road projects have been handled by Waskita Toll Road, a unit that holds its toll road concessions. Waskita expects to operate at least 300 kilometers of toll road this year.

The company has also acquired a 55 percent stake in the Cibitung-Cilincing toll road in North Jakarta worth a total of Rp 715 billion from MTD CTP Expressway, a subsidiary of Malaysian company MTD Capital. The remainder of the shares in the Cibitung-Cilincing toll road is held by state-owned operator Pelindo II.

"We just completed the acquisition last week," Waskita Karya president director M. Choliq told reporters on Thursday, adding that the total investment value in the Cibitung-Cilincing toll road is Rp 1.3 trillion.

Meanwhile, Jasa Marga started operating an eight-kilometer stretch on the Bangil-Rembang toll road in March — part of the first section of the new Gempol-Pasuruan toll road in East Java.

The 34.5-kilometer Gempol-Pasuruan toll road is in the company's plan of operating 210 kilometers of toll road by the end of this year, divided into six sections in Java and Sumatra.

Analyst Nafan Aji of Binaartha Sekuritas said one of the major challenges the companies are currently facing, and will still be facing in the near future, is land acquisition. He said difficulties in clearing up land will cause delays in the company's projects and prevent them from earning even more profit.

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