An Opportunity from the Construction Sector
    Category: Column By : Teguh Hidayat Read : 650 Date : Wednesday, February 08, 2017 - 12:23:20

    The fun part of being a value investor is that we see what others can’t. What I mean is most investors only look at the latest news and latest stock prices. We, however, focus on company fundamentals, the fair value of the stocks, and observation and research, not just looking at “what’s happening” on social media and elsewhere. In short, we can see some missing but essential investment points.

    One missing point is related to infrastructure. Bear in mind, when President Joko “Jokowi” Widodo was sworn in as president in October 2014, a main focus (and promise) was to accelerate infrastruture development. Therefore, the media immediately found infrastructure “booming,” which caused construction stocks, especially the SOEs, rise significantly rise. However, the reality was much development hadn’t yet started.

    Now, after two years, there’s almost no talk about “infrastructure development.” Did accelerated infrastructure development happen? Yes, it has. In Jakarta, there is construction of toll roads, flyovers, light rail transit and mass rapid transit. Last December, I went to Berau, Samarinda and Balikpapan, all in East Kalimantan, and I found infrastructure development also being accelerated. In December 27, 2016, Jokowi inaugurated the construction of geothermal plants worth $500 million in Tompaso, North Sulawesi, one of several projects he visited that month alone—but this got little media attention.

    Politics may be distracting the media, with two big rallies in Jakarta last November and December over the “blasphemy” case against Jakarta Governor Basuki Tjahaja Purnama (aka Ahok). Meanwhile, with no news, traders sold down construction companies, especially in the second half of 2016. During 2016, the Jakarta Composite Index gained 15.3%, but property and construction firms only gained 5.4%. Several construction stocks even dropped to 12-month lows, such as Adhi Karya (ADHI).

    However, these companies have no fundamental problems. Their long term prospects are good with the acceleration of infrastructure develoment. Waskita Karya Beton (WSBP), for example, reported a 85% rise in net income in the third quarter 2016, and successfully booked Rp 12.2 trillion of new contracts until the end of 2016, far above its target of Rp 7.9 trillion.

    So it’s opportunity when quality stocks are at low prices. Remember: Hot issues in the news will eventually be forgotten and replaced by other news. Maybe infrastructure development will become “hot” again—and these stocks will rise. On the other hand, investors can’t ignore fundamentals forever, so sooner or later they see good  value in construction stocks. Now better to get an “early start” on these stocks, so profits could be bigger than usual. If you wait until talk of infrastructure development, it’s already too late.