Darma Henwa (DEWA IJ)

Insourcing and Efficiency to Drive Robust FY25-27F Earnings Growth; Initiate Coverage with Buy Rating

• DEWA has executed plans to revamp its fleet of heavy equipment through a Rp2.6tr loan and a vendor-financing deal with XCMG.
• We project its earnings to grow by 54% CAGR over 25-27F driven by lower subcontractor exp. as it substitutes outsourced services with own fleet.
• We initiate coverage with a Buy rating and DCF-based TP of Rp300 from COGS efficiencies resulting in margin improvement.

Strategic overhaul and operational restructuring

In FY24, DEWA embarked on a broad-based transformation, starting with a leadership overhaul aimed at improving efficiency. This was followed by the securing of a Rp2.6 trillion syndicated loan from BCA to support fleet renewal, refinance costly legacy debt, and strengthen working capital. Concurrently, DEWA launched a cost rationalization program, including a c.50% workforce reduction by FY25 to streamline operations. DEWA’s mining services remain fully contracted to BUMI Group subsidiaries, KPC and Arutmin, where it is executing a phased insourcing strategy to reduce reliance on subcontractors and enhance margins. From 40Mbcm of in-house volume at KPC pre-FY23, DEWA is on track to expand capacity to 60Mbcm by 1Q25 and further to 90Mbcm by 4Q25 through a Rp942bn vendor-financing agreement with XCMG, while maintaining a 31.6Mbcm capacity at Arutmin. A final insourcing phase in FY27 will raise KPC in-house capacity to 116Mbcm, consolidating operational control and unlocking significant cost efficiencies across its core mining contracts.

Rapid earnings trajectory from efficiencies

We project a modest revenue CAGR of 0.95% over 2025–27F, as the company prioritizes fleet revitalization over volume expansion, limiting growth in materials moved. However, we expect the strategic insourcing of overburden removal, enabled by the arrival of new XCMG equipment by 4Q25, to drive a -3.6% CAGR in COGS, from Rp5.5tr in 2025F to Rp5.1tr in 2027F. This cost optimization underpins EBITDA margin expansion from 15% in 2024 to 24% in 2025F and 31% by 2027F, leading to a strong net profit CAGR of 54% over the forecast period and net margin growth to 4%/8%/10% for 2025–27F. DEWA’s net gearing stood at 0.33x in 2025F and is projected to decline in the following years as it starts to generate stronger cash flow. We believe this opens opportunities for DEWA to further expand its balance sheet in the future as the company explores securing new contracts.

Initiate with Buy rating with a DCF-based TP of Rp300

We initiate coverage with a Buy rating on robust earnings growth outlook from cost efficiencies through the gradual reduction of subcontractors. DEWA currently trades at 28x/14x 2025-26F PE, a premium compared to its peers, but we think this is justified given it is still in its growth phase. We employ a DCF valuation with a WACC of 12% and arrive at a valuation of Rp300/share. Our valuation has not considered potential projects outside of Bumi group, which could present upside should DEWA secure new mining contracts. Downside risks include: 1) lower contractor fees; 2) delays in project execution and heavy equipment deliveries.

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