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Adhi Karya seeks 20% contract growth in 2021
By November, the construction firm had booked Rp 18.6 trillion (US$1.32 billion) in new contracts, about 67 percent of its 2020 target.
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An LRT station under construction on Jl. Rasuna Said in South Jakarta in June. (JP/R. Berto Wedhatama)
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tate-owned construction company PT Adhi Karya is seeking an increase in the value of its new contracts next year amid economic recovery expectations and a higher government infrastructure budget for 2021.
President director Entus Asnawi said on Tuesday that the company was aiming for 20 percent growth in its new contract value next year.
“We are optimistic we can grow because we expect the COVID-19 vaccines to be widely available, while the government will continue with the national economic recovery program next year,” he said during an online press briefing.
By November, the company had booked Rp 18.6 trillion (US$1.32 billion) in new contracts, about 67 percent of its 2020 target.
Shares of the company, traded on the Indonesia Stock Exchange (IDX) under the code ADHI, were up 1.17 percent at 12:17 p.m. Jakarta time on Wednesday as the exchange’s main gauge, the Jakarta Composite Index (JCI), was up 1.47 percent. ADHI’s share price has increased 10.21 percent this year.
Entus hoped the higher infrastructure budget for next year would support the company’s efforts to win new projects.
The government has earmarked Rp 414 trillion for construction and infrastructure projects in the 2021 state budget. The figure is 47.2 percent higher than this year’s allocation of Rp 281.1 trillion.
The additional funds are intended for the completion of infrastructure projects that have stalled because of the COVID-19 pandemic, in support of the nation’s economic recovery.
Adhi Karya expects to carry over some of this year’s contracts into next year following disruptions caused by the coronavirus outbreak.
“We expect the carry over contracts from this year worth around Rp 30 trillion,” Adhi Karya finance director Agung Darmawan told The Jakarta Post via text message on Tuesday.
He declined to go into detail about the company’s top- and bottom-line projections for 2021. As for this year, the company would try to maintain a positive bottom line despite the challenges of the pandemic.
Read also: Private sector infrastructure funding needs boost as SOEs overleveraged: World Bank
As of September, the company’s revenue had declined 5.41 percent year-on-year (yoy) to Rp 8.46 trillion as income from construction services, which accounts for 75 percent of the firm’s top line, fell 10.71 percent yoy. As a result, the company’s net profit nosedived by 95.62 percent yoy to Rp 15.38 billion in the first nine months of the year.
Next year, the company plans to raise its capital expenditure (capex) allocation from the Rp 1.4 trillion set aside for this year.
“Our capex guidance for 2021 is around Rp 2 trillion to Rp 3 trillion,” Agung said, without detailing the funding source or what the funds would be used for.
During Tuesday’s briefing, Entus reiterated the company’s plan to take its property development subsidiary, PT Adhi Commuter Properti (ACP), public.
He did not specify the timing, as the company was still waiting for the government to set the operation date for the LRT, which is being developed by ACP. It was also looking for the right opportunity and favorable market conditions to take the subsidiary public.
Adhi Karya has been planning to take ACP and its building construction subsidiary, Adhi Persada Gedung (APG), public since 2019.
“However, we’ve decided to push the plan back to find the right time to do it, since market conditions have not been so favorable,” said Entus.
MNC Sekuritas equity trading head Frankie Wijoyo told the Post that he was confident that Adhi Karya could achieve its new contract growth target next year. He expected an improvement in the economic situation stemming from widely administered COVID-19 vaccines.
The passage of the Job Creation Law in October would also further boost the infrastructure sector, he added.
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“The law may attract foreign investors to participate in various strategic national projects, which will help construction companies, especially state-owned ones, achieve larger new contracts next year,” he wrote in a text message on Tuesday.
Ratings agency Fitch Ratings echoed the sentiment, saying that it believed state-owned contractors were well-positioned to win new orders and restore operating and financial performance gradually after the pandemic.
This was because of their market-leading positions, strong operating records and a government preference for domestic sourcing, Fitch wrote in a research note on Nov. 15.
However, the higher infrastructure budget would not result directly in improvement in construction companies’ credit profiles and liquidity.
“The contractors have limited headroom, and their recovery from elevated leverage, tighter liquidity and higher financing risks following the pandemic will require at least 12 to 24 months,” Fitch wrote in the note.
