Adhi Karya (ADHI)

- Margins keep getting better. Margins improved significantly in 9M07: gross margin rose to
10.5% from 8.6% in 9M06, while operating margin grew to 7.1% from 5.2% a year ago. The
better margins were boosted by higher-margin projects clinched in FY06-07 (e.g. Doha City
Center Project and Tangguh LNG Project), and lower interest expenses due to refinancing in
July 2007.
- Beneficiary of upcoming government projects. As a state-owned company, government
infrastructure projects remain Adhi Karya’s main revenue source, as almost 50% of the
company’s projects in FY06-07 were government-linked projects. We expect Adhi Will
benefit from accelerated government infrastructure projects in 2008.
- Rights issue plan – a key catalyst. Adhi Karya expects to secure regulatory approval for its
proposed rights issue in the first quarter of 2008. Proceeds from the rights issue will
strengthen its balance sheet, which would give it room to raise debt to finance its future
projects.
- Expect strong rebound this year. Our target price is Rp1,800. Given promising growth in
FY08 and beyond and the firm margins, we have set our target price at Rp1,800, equivalent to
17.6x FY08 PE and 9.5x FY08 EV/EBITDA. ADHI is currently trading at 10.4x FY08 PE
and 6.5x FY08 EV/EBITDA.