Equity Research Report by Vincent Tjoe vctjoe88@gmail.
com
9/28/2022
Recommendation:
Neutral
Ticker Symbol: NRCA
Current Stock Price: IDR 310
Target: IDR 526
Exchange: IDX
Sector: Industrials
Industry: Heavy
Constructions & Engineering
Market Capitalization:
IDR 773.8 Bn
Major Share Holder:
• PT. Surya Semesta
Internusa Tbk (P)-63.35%
• PT. Saratoga Investama
Sedaya Tbk (SRTG)-6.97%
• Hadiwinarto C. – 2.46%
• Eddy P. W. – 2.46%
• David S. – 1.84%
• PT Nusira Putera – 1.6%
• PT Anindita Rahadian
Perkasa – 0.21%
• PT Hadinusa Tirta –
0.21%
• PT Anugerah Andita
Suryadi – 0.16%
• Johannes Suriadjaja –
0.15%
• Treasury Shares - 3.17%
• Public – 17.41%
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Nusa Raya Cipta Tbk. (NRCA)
Undervalued Company with favorable Short-Term
Prospect and Unfavorable Medium-Term Prospects
Recommendation:
We recommend not buying NRCA in the short term as U.S. are still
raising interest rate aggressively to curb inflation. This will affect
borrowing cost as Indonesian government will also follows to raise
IDR Interest rates to maintain currency’s stability.
We suggest avoiding an industry that relies heavily on debt, and in
this case, a construction company customer. With increasing
overdue receivables in recent years, we might see this trend
continues as more customers will struggle in getting cheap financing.
And might force the company to experience cash flow problems.
We suggest buying NRCA when the economy changes and there’s
no major effects on the financial strength of the company, (It means
waiting until Fed Rate Hike finished and wait until Indonesian
Government has adjusted the interest rate).
We do not recommend buying NRCA although there is a high
chance for the stock to increase in price to around IDR 490/share
(valuation using precious P/E multiple) in the next or yearly
earnings report because of increasing sales and earnings in the
second quarter of 2022 (76% increase in sales and 4x increase in
earnings compared to last year second quarter). Although it seems
lucrative to have a chance to gain 55% of return with current share
price, we do not recommend buying NRCA as there is an impending
economy risk that might affects NRCA greatly which might cause a
permanent capital loss.
We do not recommend holding to NRCA when SRTG has ceased to
become a major shareholder. The reason being, in an industry
where there is no clear competitive advantage, we rely on
connections, thus it is easy for SRTG to introduce new project to the
company to increase earnings in short period and exit the company
after pocketing sizeable profits. However, we also predict that SRTG
won’t sell NRCA before it reaches fair valuation of around IDR
526/share to IDR 617/share. The key point that makes NRCA
lucrative is their high dividend payout ratio of around 40% in which
the low ROE do not have a really huge impact on their valuation. A
business with low ROE and high payout ratio might be lucrative for
short term investment.
Equity Research Report by Vincent Tjoe vctjoe88@gmail.com
9/28/2022

Business Description
• Brief Introduction of NRCA:
o NRCA is one of the leading private construction companies in Indonesia with more than
53 years of experience in the construction sector
o NRCA engaged in the construction of commercial and industrial buildings as well as in the
field of infrastructure construction
o NRCA also cooperates and collaborates with local contractor partners or international
contractors to carry out a project in a joint operation
o (Source: Company Website)
• Economics of NRCA
o Construction of a building, road, etc. takes a long time, thus in accounting we will first
book the revenue and record it as receivable, only until the project has reached a certain
milestone, customer will have to pay certain amounts of the money
o This kind of business model entails some risk when the customer fails to pay back the
business within the designated period
▪ If the company do not have a strong cashflow management, this will become a
problem when all customers suddenly fail to pay at the same time
o Construction company has low Net Profit Margin as each construction company with
great track record do not have huge competitive advantage compared to others
• This is also accompanied by huge interest rate that construction company need to
pay to the bank in case they have cashflow problems from their customers and need
to borrow some money

Industry Overview
• Indonesia's government increased its infrastructure investment needs by USD 429.7 billion in
2020-2024, up 20% from USD 359.2 billion in 2015-2019. (Source: Mordor Intelligence)
• Major Players
1. PT. ACSET INDONUSA Tbk
2. PT. ADHI KARYA (PERSERO) Tbk
3. PT. BRANTAS ABIPRAYA (PERSERO)
4. PT. HUTAMA KARYA (PERSERO)
5. PT. INDONESIA PONDASI RAYA Tbk
• Although there are some major players in the construction industry, construction industry in
Indonesia is a fragmented industry as the 5 major players above do not dominate the market
• With expanding infrastructure investments in Indonesia, there will always be a share of the
market for each construction company if their capacity could accommodate the projects

Competitive Positioning
• Although Nusa Raya Cipta Tbk. is not a major player of construction industry in Indonesia, but
because of expanding infrastructure investments in Indonesia, the possibility of having no new
contract is highly unlikely
• As the competitive advantage for construction company is the quality of past works, it is highly
fragmented market as beyond a certain level of quality, any increase in quality has no huge impact
on the company’s advantage. Thus, no one construction company could have a huge competitive

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 Equity Research Report by Vincent Tjoe vctjoe88@gmail.com
9/28/2022

advantage over other company other than their balance sheet strength, and capacity of new
projects

Valuation & Financial Analysis

Valuation
Current Share Price
As of 09/28/2022 IDR 314.00
DCF Valuation Fair Value/Share Margin Of Safety
Conservative Scenario (ROE 4% - 6%) IDR 526.00 40%
Base Scenario (ROE: 7% - 4% ) IDR 617.00 49%
Bullish Scenario (ROE 7% - 8% ) IDR 802.00 61%
Key Financial Ratios
Forward P/E (X) 8.83
PBV(X) 0.65
Debt/Equity 1.07
EV/EBITDA 8.62
• Our Conservative Scenario:
o Accounting for period of financial pressure in future years caused by higher borrowing
cost and financial contraction in many countries. As fear of financial recession to
depression looms.
o This scenario does NOT account for financial depression scenario and cash flow trouble
in the future
▪ When the two scenarios above occur, there is a high chance in which the stock
might default
• Our Base Scenario:
o Accounting for the stagnation of ROE caused by expansion of balance sheet
• Our Bullish Scenario:
o Assuming there will be reversion to pre-Covid financial strength

Income Statement *All numbers in full IDR

Financial Year 2018A 2019A 2020A 2021A 6M 2022
SALES 2,456,969,219,251 2,617,754,376,513 2,085,740,129,302 1,669,713,392,168 1,157,917,097,135
Cost of sales and revenue (2,205,848,044,327) (2,343,744,198,023) (1,857,042,778,667) (1,479,623,674,599) (1,030,822,523,206)
GROSS PROFIT 251,121,174,924 274,010,178,490 228,697,350,635 190,089,717,569 127,094,573,929
Selling, General, and Administrative
Expenses (125,722,852,333) (129,779,392,504) (106,742,702,497) (86,859,188,989) (48,931,891,151)
OPERATING INCOME 125,398,322,591 144,230,785,986 121,954,648,138 103,230,528,580 78,162,682,778
Finance Cost (92,841,775) (4,029,184,726) (14,948,277,325) (16,373,046,737) (8,296,376,322)
Shares of net income (loss) in associates
and joint venture 27,032,964,663 (884,314,079) (6,296,734,944) (14,505,934,797) (7,816,234)
Other Income 41,903,435,388 40,092,199,760 33,822,468,123 36,088,073,608 7,858,494,272
Other expenses (3,738,805,759) (11,865,391,339) (21,341,172,847) (11,292,241,793) (1,858,960,569)
PROFITS BEFORE INCOME TAX 190,503,075,108 167,544,095,602 113,190,931,145 97,147,378,861 75,858,023,925
Tax Benefit (Expenses) (72,535,124,887) (66,389,084,056) (58,068,079,674) (45,499,277,616) (31,981,751,116)
PROFITS FOR THE YEAR 117,967,950,221 101,155,011,546 55,122,851,471 51,648,101,245 43,876,272,809

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9/28/2022

• In the second quarter of 2022, we could see that NRCA has succeeded in increasing their sales and
slight improvement in their S, G, &A margin thus quadrupling their profits compared to second
quarter last year

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9/28/2022

Ratio Analysis
2018A 2019A 2020A 2021A
Balance Sheet
Receivables in percentage of Total Receivables (Trade +
Retention+ Unbilled) 2018A 2019A 2020A 2021A
Trade Receivables 25% 28% 17% 28%
Not Yet Due 44% 41% 35% 58%
Past Due 56% 59% 65% 42%
1-30 Hari 28% 23% 4% 8%
31-60 Hari 8% 3% 8% 1%
61-90 Hari 0% 7% 2% 6%
91-120 Hari 0% 5% 1% 3%
>120 Hari 20% 20% 50% 24%
Retention Receivables 22% 23% 31% 25%
Unbilled Receivables 53% 49% 52% 47%
Ratio Analysis 2018A 2019A 2020A 2021A
Current Liabilities/Cash 1.3 1.7 1.7 1.8
Receivables/ Total Current Assets 60% 67% 70% 72%
Receivables/Total Assets 53% 60% 62% 65%
Income Statement
Growth 2018A 2019A 2020A 2021A
SALES Growth 7% -20% -20%
COST OF GOODS SOLD Growth 6% -21% -20%
GROSS PROFIT Growth 9% -17% -17%
Selling, General, and Administrative Expenses Growth 3% -18% -19%
PROFITS FOR THE YEAR Growth -14% -46% -6%
Margin 2018A 2019A 2020A 2021A
COST OF GOODS SOLD Margin -90% -90% -89% -89%
GROSS PROFIT Margin 10% 10% 11% 11%
Selling, General, and Administrative Expenses Margin -5% -5% -5% -5%
PROFITS FOR THE YEAR Margin 5% 4% 3% 3%
Cash Flow Statement
Ratio Analysis 2018A 2019A 2020A 2021A
Net Income/Operating Cash Flow -1.51 -1.48 -0.39 0.39
Investing cashflow / Operating cash flow -3.15 0.09 -0.11 -0.03
Financial Ratios
ROE 10% 8% 5% 4%
Owners Earning ROE 11% 9% 5% 5%
Accounts Receivable Turnover 2.05 1.78 1.51 1.19
Days of Account Receivable 177.92 204.63 241.67 305.99
• Receivables:
o one of the characteristics of construction company is high receivables, thus whether the
company could collect the receivables due become important

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9/28/2022

o When the pandemic hits the world, a lot of NRCA customer fails to pay receivables in time,
we could see this from 2020 past due receivables of 65%
▪ In 2021, we could see that the company succeed in decreasing overdue
receivables
o If we see the accounts receivable turnover over the year, NRCA only turnover their
receivable 1.19x – 2.05x which is quite slow compared to its peers ADHI.Tbk in which they
have turnover of around 3x-4.02x
▪ This might contribute to future cashflows problem and higher borrowing cost
• Although one might argue, NRCA might also make their payables overdue
which will netted out receivables overdue. However, it is not a
recommended strategy as the company image might get tarnished if they
do not pay on time
o We could also see that receivables are a huge part of the company’s asset, this means
that when the receivables fail to be liquidated in time, the company will have cashflow
problem as the current cash in the company is not enough to pay the current liabilities
• Sales Growth
o Sales Growth decrease substantially because of the pandemic
o We also predict that sales growth will slowdown in future years as the Fed is doing rate
hike to curb inflation, thus increase borrowing cost, people will be more conservative in
doing investment that require huge debt to avoid high interest cost
• Gross Profit Margin & Net Profit Margin:
o The Gross profit margin for NRCA is considered low compared to ADHI (15%), however,
NRCA has better Net Profit Margin compared to its peers
o In low margin and highly competitive industry, the only way to increase the bottom line
is to increase revenue and becoming more efficient in managing expenses. The player in
this industry do not have much pricing power
• Operating Cashflow:
o From Net Income/Operating Cashflow ratio we know that NRCA has trouble on converting
profit to cash
o This encourages NRCA to borrow money from the bank to avoid cashflow problem when
it occurs in the future, which might substantially reduce net earnings

Investment Risks
• The biggest risk will come when there is a financial depression caused by Fed Rate Hike.
o This will cause investor to reduce investment and business in construction project as
borrowing cost rises
o Which might cause cash flow problem to the company because customers could not pay
the receivable in time
o Thus, forcing NRCA to borrow money from the bank at high interest rate, which will
exponentially reduce bottom-line

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