Jakarta. Government spending on infrastructure in Indonesia is expected to accelerate in the second half of the year, boosting considerably the performance of major state-controlled construction companies on the stock market, said a report from Danareksa Sekuritas, a state-owned brokerage firm.

The report, published earlier this week, said the brokerage firm maintained its “buy” and “overweight” recommendations for four state-controlled construction companies, Wijaya Karya (Wika), Pembangunan Perumahan (PP), Waskita Karya and Adhi Karya.

Overweight means the brokerage firm expects the stock returns to be higher than the average return of the overall industry 8 months to 12 months from now.

Danareksa has set the target price for Wika at Rp 4,000 per share, compared with a target price of Rp 2,600 per share at the close of business on Tuesday, meaning a 54 percent potential gain for investors.

The brokerage also set the target price for PP at Rp 4,600, which would mean a 41 percent gain from Tuesday’s closing. Additionally, Danareksa has set the target price at Rp 2,150 for Waskita, which is an upside of 35 percent and Rp 3,700 for Adhi, a boost of 85 percent.

Danareksa said that based on its research, the total worth of new contracts awarded from January to May reached up to Rp 24.6 trillion, an increase of 17 percent from the same period last year, led by PP and Adhi Karya.

“Private projects continued to dominate since government disbursement will be skewed toward the second half of the year,” Danareksa analyst Joko Sogie said in the report.

“Interestingly, the state contractors have mentioned that they have several sizable unsigned lowest-bid government projects in the pipeline. Thus, the monthly new contracts in June and August may potentially provide the first indication of the government’s infrastructure spending,” he said.

Indonesian government spending is typically slow in the first half of the year. In the second half, spending is usually accelerated after the revised state budget is approved and because the government is in a rush to disburse the allocated budget before the end of the year.

Danareksa’s report cites the budget absorption rate from the Public Works Ministry, which in April stood at 4 percent and at 8.2 percent in May. It is projected to increase to 15 percent to 20 percent in June.

“Budget absorption will still be skewed to the second half of the year as the potential influx of government projects will be started in either June or August. To recall, for this year, the Public Works Ministry has a total budget of Rp 118.5 trillion, an increase of 66 percent from last year, of which around Rp 94.6 trillion will be allocated for project capital expenditure,” the Danareksa analyst added.

Improvements in Indonesia's infrastructure sector have been expected by investors to help spur the country’s economy, which is currently slowing as it is being dragged down by weak exports and deteriorating household spending.

GlobeAsia