SINGAPORE (Nov 3): NRA Capital is confident Moya Holdings Asia will continue to have a leadership position in the Indonesia water industry which it can leverage on to obtain more projects.
Moya’s share price recently corrected from $0.118 on Oct 12 to a low of $0.098 on Oct 24. Currently it trades at $0.103. The trigger appears to be an Indonesian supreme court decision that apparently ordered the government to restore public water services to residents in Jakarta. Media reports suggested that private sector suppliers have failed to provide the city’s poor with access to water.
Moya is one of the leading private players in Indonesia’s water treatment industry with a total water treatment capacity of 13,935 litres per second. In June, it had completed the acquisition of Acuatico whose subsidiaries are in the business of clean water supply to parts of Jakarta.
In a Friday report, analyst Liu Jinshu says the supreme court ruling was in relation to the city-owned water operator PT PAM Jaya and its partners PT PAM Lyonnaise Jaya and PT Aetra Air Jakarta, which happens to be a subsidiary of Acuatico.
To date, Moya has updated that the subsidiary involved in the supreme court suit PT Aetra Air Jakarta has not been ordered into any direct action or to pay any penalties except for its proportionate share of costs of about IDR500,000 ($50.46).
Over the longer term, Liu argues the potential of Moya remains intact despite the decision.
Many Indonesians continue to suffer from irregular access to water and the government aims for all Indonesians to have access to clean water by 2019, which will require more than IDR660 trillion ($67 billion) of investments. However, the Indonesian government has so far only allocated IDR16 trillion for both waste water treatment and clean water infrastructure in 2018. Private sector involvement, such as in the construction of water treatment plants, will help to accelerate development.
However, it is unlikely for the government to take over the entire value chain of activities in the supply of clean water. But it is relatively common for governments to involve the private sector through build-operate-own or build-operate-transfer agreements where the private sector will invest capital in constructing the infrastructure in exchange for the right to sell the processed water over a concession period.
According to Liu, Acuatico’s water supply agreements are extensive, covering from the processing of source water into clean water to the supply of water at the tap.
“There is the unlikely scenarios that the existing agreements remain unchanged or that the agreements are deemed void and Moya’s assets are nationalised. More likely, the government will take over the downstream distribution of water and purchase the water from the treatment plant,” says Liu.
If this scenario pans out, selling prices will likely drop, but sales volume will increase. Margins may to contrary remain flat or increase as collection risk drops. Currently, Acuatico is also involved in the collection of payments from end users.
Based on expected earnings of $22.8 million per annum and applying a P/E multiple of 15x to 20x, Liu derives an indicative valuation of $342.2 million to $456.3 million or $0.122 to $0.163 per share. This translates to upside of 18.4% to 58.3% from the current share price of $0.103.
“We do not think a P/E multiple of 15x to 20x is high as it will be reflective of the length of concession agreements,” says Liu.
