Conservative internal profit target. During a recent public meeting, HEXA’s management disclosed that its net profit came in at USD17m (+38% y-o-y) for the Apr-Jul’11 period. This was on heavy equipment sales of 746 units and higher sales price, which propelled revenue and gross profit to USD173m and USD37m, respectively. Management also announced a new sales target of 3,166 units (it initially considered revising downwards its target to 2,800 units following the Japan earthquake in March but changed its mind owing to strong demand and speedy recovery at Hitachi’s Japan plants) and net profit guidance for fiscal year ending Mar-2012 of USD54m. We deem the net profit target conservative compared with that booked in Apr-Jul’11, assuming the revenue split remains the same (67% from unit sales, 20% from spare parts sales and 13% from maintenance services). We understand that historically, the company has always erred on the low side in setting its profit targets. The management also disclosed that there 220 units were sold in August (lower than 235 units in July due to the long holiday) while its current order book stands at 1,200 units (including 236 units of above 100-tonne large mining machines). The company expects monthly volume of above 300 units for Sep’11-Mar’12.
Big order of ultra large equipment from KPC. According to a press release from Hitachi Japan (HEXA’s principal), 50 Hitachi EH5000 (500-tonne class) dump trucks and six 360-tonnes giant excavators (at ~USD5m each) are bound for Indonesia following a large order by mining company Kaltim Prima Coal (KPC). KPC already has a fleet of 99 giant-sized Hitachi machines at its mines. The new Hitachi fleet is needed to meet the demands of significant growth in KPC’s production capacity to 80m tonnes in the next 3 years. KPC is very satisfied with Hitachi’s highly reliable machines and after sales services (HEXA employs 300 people on KPC site to provide support). Meanwhile, the last original excavator on site, an EX3500, was replaced recently after a total of 118,000 working hours. HEXA expects to book a net commission of 10% for delivery and installation of these machines, which should support its earnings from 2011-2012. The company is also finalizing a big order for 98 giant-sized mining machines from another big coal mining company. These orders are clearly contrary to views that coal mining will in future engage the use of smaller equipment due to the depth of the mine area.
Further expansion in eastern Indonesia. HEXA plans to expand around eastern Indonesia to take advantage of the region’s growing nickel mining industry, agricultural estates and forestry expansion. The region, including Sulawesi, Maluku and Papua (eastern part of Indonesia), currently accounts for about 15% of HEXA’s annual sales. We understand that government may approve more industrial forest expansion in Papua rather than in the heavily exploited forests in Sumatera and Kalimantan islands (West Indonesia).
New target price of IDR10,900; maintain Buy rating. We lift our 12-month target price for HEXA from IDR8,900 to IDR10,900 as we roll over our PER-based TP to FY-Mar ‘13 earnings. We believe the large orders from the big coal mines mentioned above will support our conservative earnings growth forecast of 24% for the next two years. Our TP implies a PER for HEXA of 13.0x, which is cheaper than UNTR’s 18.1x. Buy Maintained
source: OSK Nusadana dated 20 September 2011
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