Company
Update
Arwana
Citramulia (ARNA IJ, TP IDR1,100): On Track For Growth
While PGAS
has raised its gas selling price in 2H12, ARNA expects its gas unit costs to
decline due to its penalty exemption from the gas distributor. In addition, it
is seeing higher sales contribution from UNO ceramic tiles,
which command higher profit margin. The combination of lower gas
costs and better sales mix is set to improve its gross profit margin. In
addition, the company expects the higher production capacity from the completion
of its new South Sumatra plant to drive its earnings growth. We revised up our
earnings estimates to IDR127bn-163bn (+8.4%-9.1%) in FY12-13f, driven mainly by
lower gas costs. We also raised our TP to IDR1,100, which is derived from
15.8x-12.4x FY12-13f PE based on DCF.
Benefiting
from lower gas costs. In the past,
ARNA’s gas cost per unit had been higher than Perusahaan Gas’s (PGAS) selling
price, due to the penalty it received from PGAS for over-quota gas consumption.
In addition, ARNA sometimes had to buy high-cost CNG because of PGAS’s limited
gas supply. It is worth noting that starting July, PGAS has allotted a higher
gas quota for ARNA’s Western Java plants and abolished the penalty for its plant
in East Java, where gas supply is now higher than demand. Hence, the company
expects its gas costs per unit to decline despite a hike in gas selling prices
initiated by PGAS in 2H12.
Higher ASP
from better product-mix. UNO
ceramic tiles, which were launched in end-2011 targeting at higher market
segment, now account for around 10%-12% of the company’s total sales. This led
to a rise in the average selling price to IDR27,775/sq m in 2Q12 from
IDR25,819/sq m in 1Q12. Sales of UNO are expected to remain strong in
2H12, thus improving profit margin.
New South
Sumatra plant on track. The
construction of the new South Sumatra ceramic tiles plant - slated to commence
operation in 1Q13 - is on schedule. With the existing plants nearing their full
capacity, the new South Sumatra plant – which has the capacity of 8m sq m, (eq.
19.3% of its current capacity) – is set to be the next earnings growth driver.
The new capacity will mainly cater to the Sumatra region, where sales are
estimated at 7m sq m in 2012.
Raised
earnings estimates, TP. We revised
up our earnings estimates to IDR127bn-163bn (+8.4%-9.1%) in FY12-13f, driven
mainly by lower gas costs. We also raised our target price to IDR1,100, which is
derived from 15.8x-12.4x FY12-13f PE based on DCF.
source: OSK dated 12 September 2012
