WHAT’S BREWING?
We gather from a recent conversation with an Hexindo official that sales volume in September 2011 surged to an all-time high of 301 units (284 excavators and the remaining 17 units are mostly dump trucks, of which six are giant size dump trucks), higher by 37% m-o-m and 55% y-o-y, mainly on continued robust demand from the mining sector. The company has only just revised upward its FYE Mar12 revenue guidance to USD695m (prev: USD644m) on a higher sales target of 3,566 units (prev: 3,166 units), with the gross profit and net profit numbers accordingly upgraded to USD127m (prev: USD119) and USD62m (prev: USD54m), respectively. These imply gross and net profit margins of 18.2% and 8.9% respectively.
The company also indicated that it may book revenue of around USD300m for 1H12 (Apr-Sept ’11), more than double y-o-y despite sales volume only growing 12.3% to 1,267 units. Remember that HEXA’s monthly sales totaled less than 200 units post Japan’s earthquake during the Apr-Jun ’11 period before recovering to above 200 units from July-Sept ’11. Although the company has yet to provide details on the revenue split, we suspect that revenue from service and spare parts grew faster than revenue from unit sales in 1H12. Meanwhile, management hinted that gross profit would come in at around USD62m (+82% y-o-y), with net profit possibly expanding to above USD30m, up by more than two-fold from USD14.3m in 1H11. On quarterly basis, 2Q12 (Jul-Sep’11) revenue stood at USD174m, jumping 40% q-o-q mainly on a 48% surge in sales volume to 756 units compared with 1Q12 (Apr-Jun’11). Our back-of-envelop calculation reveals that the company generated gross margin of ~24% in 2Q12 versus ~22% in 1Q12.
OUR TAKE
Comparing the company’s FY12f guidance with our forecasts, our net profit target of USD63.9m is relatively in line although our gross profit assumption of USD150.9m is 18% above Hexindo’s target. This is because we expect the company to generate gross margin of 23.2% on the back of strong net commissions from its principal, Hitachi, for the installation of 236 units of huge machinery ordered by several big coal miners for 2011-2012 (see our 20 Sept report on HEXA). We believe our gross margin assumption is achievable judging from management’s 1H12 performance guidance, with gross and net margins possibly reaching 21% and 10% respectively. These should improve in 2H12 as the company sells more equipment and delivers more huge machinery, which will help boost margins as each giant-sized machinery fetches up to USD500k in net commissions (no COGS incurred).
Pending the release of Hexindo’s detailed financial performance for 1H12, we maintain our Buy rating on the stock, with a target price of IDR10,900, based on 13x its FY-March ‘13 earnings. HEXA is now trading at PER of 8.8x vs its close peer UNTR’s of 13.9x.
source: OSK dated 18 October 2011
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