Good Morning,
We recently travelled across Java
to see how various banks are progressing. Buoyed by resilient local GDP growth,
most banks expect loans growth across the island to remain robust this year.
While Bank Tabungan Negara grapples with contracting NIMs, rising NPL and a
shortfall in resources, Bank Mandiri’s aggressive micro loans growth may
warrant caution. We are impressed by the progress of Bank Rakyat Indonesia’s
micro business.
Dropping in
on Java. During our Java excursion, we visited Bandung,
Semarang, DI Yogyakarta and Surabaya,
and were given the opportunity to meet representatives from Bank Mandiri, Bank
Rakyat Indonesia, Bank
Tabungan, Bank BJB and Bank Negara Indonesia. Bank Mandiri and Bank
Negara Indonesia provided
comprehensive overviews on their regional businesses while our visits to Bank
Rakyat Indonesia
and Bank Tabungan Negara focused on the banks’ micro and housing segments
respectively.
Optimism on
local business to support loans growth. Despite the variance in provincial
profiles, Java has proven to be resilient, booking GDP growth that is stronger
than the nationwide numbers. For 2014, most bank representatives said their
loans growth targets in Java are higher than their nationwide projections, as
business loans growth is expected to remain resilient. However, consumer loans
growth is expected to moderate. Bank Negara Indonesia expects credit growth
across Java to exceed 20% y-o-y. Bank Mandiri and Bank Rakyat Indonesia aim
to maintain strong micro loans growth, although we are more comfortable with
the latter’s credit quality prospects. Meanwhile, Bank BJB’s consolidation of
its micro business is underway although we expect growth to remain muted. As
for Bank Tabungan Negara, loans growth looks set to slow down on inferior
pricing, a shortage of housing supply and a shortfall in resources.
Liquidity
remains tight. The major banks have a formidable low-cost customer deposit
base in Java whereas Bank BJB and Bank Tabungan Negara face challenges in
growing customer deposits. We gather that the special time-deposit (TD) rates
offered by banks that are not the top four players remain elevated, and the
banks’ indication of customer deposit growth for 2014 suggest still-intense
competition for funding.
OVERWEIGHT. We still prefer
big banks over small ones. Our top BUYs are Bank Rakyat Indonesia and
Bank BJB among the big- and small-cap banking counters respectively. (Rocky
Indrawan)
On the Platter
Ace Hardware (ACES IJ, BUY, TP
IDR925) Results Review: So Far So Good
Low seasonality during 1Q14 has
led ACES to book revenue of IDR1.07trn (-2.9% q-o-q) and net profit IDR136.7bn
(12.7% q-o-q). However, despite lower sales, operational expense during the
quarter remains constant which led to margin compression. Going forward, the
company has revised its expansion strategy from initially 10 stores to 15
stores this year. We maintain our forecast with BUY and unchanged TP of IDR925
derived from DCF valuation.
Low sales
during 1Q14 led to margin squeeze. The revenue of IDR IDR1.07trn (-2.9%
q-o-q) and net profit IDR136.7bn (12.7% q-o-q) were in line with our forecast
as it took account of 22.7% and 25.4% of our FY14 estimates. Company’s aggressive
expansion strategy of opening 5 new stores coupled with low seasonality during
the quarter led to margin pressure. EBIT margin declined to 15.3% from 17.4%
while net profit 11.3% from 13.6% for 1Q14 and 4Q13 period respectively.
Adding more
stores to the plan. Looking at the store opening phase in 1Q14 of which had
achieved 50% of the FY14 target of 10 new stores, management decided to revised
the new stores target to 15 by year end. The company has opened stores in 2
stores in Medan, and 1 in Samarinda, Makassar
and Surabaya
respectively. Ace’s budgeted capex for the year remains unchanged ranging
IDR120bn-IDR150bn and per store cost assumption of IDR8bn-IDR10bn.
Execution is
the key. Adding new stores to the portfolio does not necessarily being positive
catalyst for company. In our view, the aggressive expansion might led to lower
SSSG especially during the 2H period of the year, once significant number of
new stores have been opened. New stores might lead to cannibalization and in
short term could cause a drag down in Ace’s same store growth. Thus, the
management will need to consider the location carefully to minimize the
cannibalization impact
Maintain BUY with TP IDR925.
We maintain our forecast and BUY call on the company with TP of IDR925 from DCF
valuation, implying 29.5x FY14 PE.
Adaro Energy (ADRO IJ, NEUTRAL,
TP IDR1,250) Results Review: Most Cost-Efficient Coal Miner In Town
Adaro should deliver steady 3.5%
volume CAGR in 2013-16F, which excludes new project contributions. Rising India demand
should ensure that it avoids disproportionate price discounts for its low-rank
coal. Its vertically-integrated business model, which ensures a more stable
cost structure across coal price cycles, should enable it to maintain
EBITDA/tonne above USD14.00 amidst weak coal prices. Maintain NEUTRAL with
adjusted IDR1,250 TP.
Steady
output growth. Adaro Energy (Adaro)’s 1Q14 coal output increased 23% y-o-y
to 14m tonnes. While it aims to achieve an annual volume of 80m tonnes in the
medium term, we expect a steady 3.5% output CAGR to 58m tonnes by 2016. The
Kelanis terminal’s annual capacity expansion to 60m tonnes gives Adaro enough
room to grow output at its existing mine. We exclude contribution from the
Balangan project, which should start in 2014.
Industry-leading
margins despite unsustainable 1Q14 margin. Adaro reduced 1Q14 cash cost by
16% y-o-y to USD31.0/tonne, aided by a 11% lower strip ratio, lower freight
handling and lower fuel costs. 1Q14 EBITDA/tonne increased 34% y-o-y to
USD23.0. While the low strip ratio was seasonal and is expected to rise over
the next few years, the out-of-pit overburden crusher and conveyer, 2 x 30MW
power plants and its fuel hedges should keep costs low and EBITDA/tonne above
USD14.0 over 2014-2016. Peer average EBITDA/tonne is estimated at USD10.0.
Debt levels
to fall gradually. As at end-1Q14, Adaro had a total debt of USD2.2bn,
including USD790m senior notes with a 7.6%-interest rate (due 2019). A 100bps
rise in the interest rate for non-senior note debt should result in a 2% drop
in 2014F-15F profit. It should generate USD450-700m of free cash flow over
2014F-2016F despite weak coal prices. With the capex cycle for infrastructure
development expected to end in the next 2-3 years, Adaro should gradually pare
down its debt.
Lower EPS,
maintain NEUTRAL. We lower 2014F-2015F earnings by 19-22% to account for
lower coal price assumptions. The stock is trading close to its historical
average multiples, which is fair, as it captures Adaro’s long-term earnings
growth potential and its ability to remain profitable across cycles. Adjust TP
to IDR1,250 (from IDR1,020).
AKR Corporindo (AKRA IJ, BUY, TP
IDR5,650) Results Review: Lower Than Expected
AKR Corporindo’s 1Q14 earnings
reached IDR180bn (+46.3% q-o-q; +14.4% y-o-y), ie below our 20% to FY14
bottomline. This was mainly on lower than expected petroleum sales volume.
Thus, we cut 2014/2015 earnings by 11.3%/6.1% as we incorporate the 1Q14
figure. Despite this, we suggest that the company still has protected upside at
our lower SOTP-based IDR5,650 TP. Maintain BUY.
1Q14
highlights. 1Q14 revenue declined 8.7% q-o-q to IDR5.6trn. This was mainly
driven by lower petroleum revenue (-8.9% q-o-q) on lower demand from key
customers like Freeport due to the stoppage of mining activities as a result of
the laws banning the export of ore minerals. Given the company’s strong cost
and operational controls, 1Q14 operating margins were relatively stable at 4.0%
vs 4.1% in 4Q13. Quarterly interest expense fell 66.9% q-o-q to USD23m, as net
gearing fell to 82.2% in 1Q14 vs 90.6% in 2013. AKR Corporindo also experienced
a IDR13bn forex gain in 1Q14 vs a IDR68bn forex loss in 4Q13. This forex gain
and lower interest expense brought 1Q14 pre-tax profit to IDR225bn (+63.5%
q-o-q).
Decline in
petroleum sales volume. 1Q14 petroleum sales volume declined 11.5% q-o-q to
437,600 kilo litres (kl) while a slight pickup in ASPs, benchmarked to Mean of
Platts Singapore (MOPS) prices, was able to keep petroleum revenue declining by
only 8.9% q-o-q.
Outlook. Indonesia’s
logistics business is expected to increase 14.7% y-o-y to IDR1,816trn this
year. We believe AKR Corporindo is among the very few integrated distribution
and logistics companies capable of riding on the country’s logistics growth.
Valuation. We lower our
SOTP-based TP to IDR5,650 (from IDR6,000), as we cut earnings by 11.3% (2014)
and 6.1% (2015) mainly on the lower than expected petroleum sales volume in
1Q14. Yet, we maintain our BUY call as the stock still provides attractive
upside. Our BUY call is premised on the company’s strong infrastructure and
logistics advantage as well as premium industrial asset quality.
Bank Bukopin (BBKP IJ, NEUTRAL,
TP IDR700) Results Review: Largely Unexciting
Although Bank Bukopin’s 1Q14 net
earnings fell within expectations, the overall tone of the results remains
unexciting, in our view. The earnings were supported by non-existent impairment
and low operating costs growth but NIM remained below par and credit growth was
tepid. Bank Bukopin’s multiples are undemanding however poor earnings outlook
and modest lackluster growth cap our excitement.
1Q14
supported by benign provision and lower costs. Bank Bukopin booked IDR246bn
of net earnings in 1Q14 (25% q-o-q; 10% y-o-y), supported by: 1) IDR22bn of
impairment reversal which fully offset its quarterly credit costs; and 2) lower
operating costs (-15% q-o-q; 5% y-o-y) which drove cost-to-income ratio (CIR)
down to 62% (FY13: 67%). 1Q14 net profit represents 26% and 28% of consensus’ and
our full year estimates respectively. We view overall 1Q14 earnings as
unexciting as net interest margin (NIM) remains below par while loans growth is
lackluster. We maintain our Neutral rating and our earnings estimates.
Lackluster
NIM display. The progress on NIM remained unexciting as net interest income
growth was flat q-o-q (7% y-o-y), keeping 1Q14 NIM subdued at 4.0% (FY13:
4.1%). Annualized asset yields of 10.5% in 1Q14 inched up a mere 6bps q-o-q or
58bps higher than FY13 level but cost of funds (CoF) rose to 6.6%, 26bps higher
q-o-q or 81bps higher than FY13 level. Loans growth was tepid at 1% q-o-q; 3%
y-o-y while deposit growth rose 6% q-o-q but contracted 4% on y-o-y basis.
Current and savings (CASA) ratio fell to 38% (4Q13: 42%). Asset quality was
relatively stable with gross NPL ratio at 2.6% and ex-Bulog gross NPL ratio at
2.8%. Tier-1 and CAR ratio sat at 12.7% and 16.2% respectively.
Maintain Neutral. PT Bosowa
Corporindo plans to increase its stake in Bank Bukopin from 18.6% to 30.0% by
acquiring shares from the Bank’s current largest shareholder, Kopelindo. The
acquisition is expected to be completed in 3Q14. The emergence of PT Bosowa as
the Bank’s majority holder opens up new opportunities but the strategic goals
of PT Bosowa remains unclear. Bank Bukopin is trading at undemanding valuation
however poor earnings outlook lackluster growth cap our excitement.
Bank BJB (BJBR IJ, BUY, TP
IDR1,300) Results Review: Earnings Dive As NIM Contracts
Bank BJB’s 1Q14 results were
poor, in our view. The focus was on decreasing asset quality as NPL ratios hit
a new high for micro, commercial and mortgage loans. Management is overhauling
lending model and reducing risk appetite. NIM decreased sequentially as asset yields
contracted and CoF rose sharply. However, cost management and impairment
reversals provided some cushion to the weak earnings.
Earnings
weak on NIM contraction. Bank BJB’s 1Q14 net profit of IDR325bn (17% q-o-q,
-12% y-o-y) represents 23% of our and consensus’ full year estimates. Net
interest income dropped by 11% q-o-q (-6% y-o-y) and while its net interest
margin (NIM) took a 94bps q-o-q dive to 6.7%, as cost of funds (CoF) spiked
70bps q-o-q while asset yields contracted 34bps q-o-q. An impairment reversal
of IDR264bn offset the sharp rise in credit costs (IDR367bn or an annualised
300bps over gross loans) while costs were managed (-14% q-o-q, -2% y-o-y).
The
spotlight is still on falling asset quality. Credit growth moderated
sharply to 20% y-o-y (4Q13: 28% y-o-y) as micro, commercial and mortgage loans
growth slowed significantly on rising non-performing loans (NPL). Gross NPL
ratios soared to a new high of 3.8% (4Q13: 2.8%) as micro, commercial and
mortgage NPL ratios jumped to 16.4%, 11.1% and 4.1% respectively. Special
mention loans growth of 16% y-o-y suggest that the buildup in NPL has yet to
ease. Changes to the loan approval model in its micro segment are underway,
while the bank is reducing its risk appetite by focusing on large corporations
and decreasing exposure to commercial loans of IDR5bn-100bn where risks are
higher. We expect to see NPL peaking before 4Q14.
Volatile
deposit growth on TD flows. Customer deposits jumped 22% q-o-q or 26% y-o-y
as time deposits (TD) surged by 64% q-o-q (38% y-o-y). The sharp inflow of TD
was above the bank’s expectations and management intends to reduce its maximum
TD rate to around 10% in 2Q14 from 11.5%. Its current and savings (CASA) mix
fell to 42% and its loan-to-deposit ratio (LDR) eased to 80%.
Our BUY rating is supported by
the stock’s undemanding valuation.
Bukit Asam (PTBA IJ, BUY, TP
IDR11,200) Results Review: Best Long-Term Growth Story
Bukit Asam’s relatively small
coal volume, large CV coal reserves, low mining costs – aided by low life of
mine strip ratio (SR) – and significant domestic market exposure offer the best
long-term growth story among Indonesian peers. Its 13% y-o-y output growth for
1Q14 and a 14% y-o-y rise in EBITDA – underpinned by resilient margins despite
lower coal prices, validate our investment case. Stay BUY, with a IDR11,200 TP
(vs IDR13,600).
Industry-leading
volume growth. 1Q14 output of 3m tonnes accounted for 20% of 2014F
estimate. As output is expected to increase as the year progresses, we leave
estimates unchanged. Indonesia’s
domestic coal demand should grow faster than exports, aided by the
commissioning of domestic coal-fired power plants and slower coal imports by China from Indonesia. Its 50% domestic sales
should enable it to deliver 10% volume CAGR over 2013-16F, while its peers look
to restrict growth.
Our
estimates remain below guidance. Bukit Asam plans to more than double its
coal sales to 44.6m tonnes in 2017 vs 17.8 m tonnes in 2013. Instead, we
estimate coal sales to increase only to 25m tonnes in 2017. While ongoing
infrastructure capacity expansions, commissioning of new power plants, and
diversification out of Indonesia
should enable Bukit Asam to register strong volume growth, we remain wary of
such growth amid the current weak coal price outlook.
Highest net margin among peers. Bukit
Asam’s seasonally high 1Q14 net margin of 17% was unchanged from last year,
despite the 38% rise in SR to 4.4x. The company has optimised its mine plan to
maintain SR of 4.5x. Lack of railway capacity, which led to elevated transport
cost in the past, would expand faster than output growth in 2014. These
measures, plus high realisation from high-calorific value (CV) coal sales,
should enable Bukit Asam to earn net margin of 12% in 2014F vs peers’ average
of 7%.
Lower EPS; maintain BUY. We
cut 2014F-15F earnings estimates by 19-23% to account for lower thermal coal
price assumptions. The stock is trading tad below its average multiples, which
we think fails to capture Bukit Asam’s strong volume growth, high net margin
and defensive earnings nature. Stay BUY, TP IDR11,200 (earlier IDR13,600).
Cardig Aero Services (CASS IJ,
BUY, TP IDR1,100) Results Review: Cruising Smoothly Ahead
Cardig’s 1Q14 results were in
line, with revenue of IDR356.9bn (+0.5% q-o-q) and a core profit of IDR34.5bn
(+36.9% q-o-q) making up 22% and 27% of FY14F revenue and core profit
respectively. It will continue strengthening its core business in aviation
support and food solutions as well as expanding its new facility management
arm. Our forecasts and TP of IDR1,100 (15x FY14 P/E) remain unchanged. BUY
A consistent
performance. Cardig Aero Services (Cardig) booked revenue of IDR356.9bn
(+0.5% q-o-q) and a core profit of IDR34.5bn (+36.9% q-o-q) in 1Q14. During the
period, the aviation support services provider managed to perform well despite
the low season for airlines. Its EBIT margin dipped to 22% from 23.5% due to
additional depreciation costs, while its net margin improved to 9.7% in 1Q14
from 7.1% in 4Q13 from lower interest expenses.
Continuously
strengthening and expanding. Cardig is continuously strengthening its core
business in aviation support services, ahead of the Asean open skies policy,
which is expected to be implemented in 2015.. The company recently established
Kulinair, an in-flight catering subsidiary based in Bali which will provide
catering services for clients such as AirAsia X (AIRA MK, SELL, TP: MYR0.70),
which is setting up a flight hub in Bali. In addition, it is also expanding its
facility management unit to include cleaning and parking management services.
Current clients are including Novotel, Holcim (SMCB IJ, NR), Siloam Hospital
(SILO IJ, NR) and Agung Sedayu Group.
Maintain BUY with a TP of
IDR1,100. We believe the outlook for Cardig will remain robust in the
future, in light of the implementation of the Asean open sky policy by 2015. We
maintain our forecasts and BUY call on the stock. Our unchanged TP of IDR1,100
reflects a 15x FY14 P/E.
Gudang Garam (GGRM IJ; NEUTRAL;
TP IDR56,000): 1Q14 results review - In Line But No Catalyst For Further Rally
1Q14 net profit reached
IDR1.4trn (+29.9% q-o-q), in line, accounting for 27%/28% of our/consensus
estimates. This was mainly on lower costs, which pushed 1Q14 operating margin
to 12.2% from 4Q13’s 10.2%. We opine that there are no catalysts for further
share price rally and its current 21x 2014 P/E is already at 6% premium to its
3-year historical forward P/E. Hence, downgrade to NEUTRAL but maintain the
IDR56,000 TP.
1Q14
highlights. Revenue increased by 1.6% q-o-q, driven by its sigaret kretek
mesin (SKM) mild products volume growth. Gudang Garam has embarked on a
significant investment drive to sustain its long-term prospects in this
segment. Gross margin improved to 20.8% in 1Q14 from 4Q13’s 19.1% yet its core
cost of goods sold (COGS) components (excise tax + raw materials) increased by
20.8% q-o-q. Given lower 1Q14 opex to sales at 7.0% vs 4Q13’s 7.2%, coupled
with tamed interest expense, pre-tax profit managed to increase by 22.4% y-o-y
to IDR1.9trn (+22.4% q-o-q). Quarterly capex stood at IDR1.6trn while net
gearing declined to 35% vs 40% in 4Q13.
Outlook. Gudang
Garam’s market share has been relatively stable at 20.1-20.6% over the last
couple of years (2011-2013). We expect that its mild products, eg GG Surya Pro
Mild and GG Mild, to be its anchor for long-term sustainable growth. We have
reinforced this in our past investment thesis. In the short-run, we suggest a
predictable excise tax hike this year (a flat 10% regional tax across all
products), as well as strong sales volume in 2014, as the drivers for
short-term, ie 2014, growth. We opine that the Government’s plan to implement
pictorial warning signs this June should not be detrimental to Gudang Garam’s
fundamentals, at least in the short- to mid-term period. We see cigarette
pricing as the most sensitive factor to consumer purchases.
Valuation. Gudang Garam is
currently trading at 21x and 18x 2014-2015 P/E, which is trading at a 6%
premium to its 3-year historical forward P/E. We suggest that election euphoria
has been long priced in and no further catalysts should make this stock rally
further. Given our in line earnings, we maintain our TP of IDR56,000, yet
downgrade our call to NEUTRAL (from Buy).
Harum Energy (HRUM IJ, NEUTRAL,
TP IDR2,290) Results Review: Growth Remains At Risk Without High Dividends
Harum’s falling coal output,
declining revenue and its associate’s inability to continue overburden removal
at its mine highlight the difficulties of operating high cost mine amidst weak
coal prices. A rise in 1Q14 margin is supported only by an unsustainable low
strip ratio and lower mining contractor rates. A fall in profit and the need
for cash to expand coal reserves will limit its dividend payout ratio. Maintain
NEUTRAL, with a lower IDR2,290 TP.
Volume
growth is at risk. Harum Energy (Harum)’s 1Q14 volume fell 10% q-o-q and
31% y-o-y to 2.2m tonnes. 2014 coal output could fall by 24% to 8.8m tonnes as
the company has lowered its monthly output to 650,000 tonnes. In addition,
Harum’s associate, Santan Batubara, has suspended overburden removal since
March and has shelved plans to open new mine pits. Output growth should recover
by 29% in 2015F albeit with downside risks, as 40% of growth will come from new
mines, where production could be delayed if coal prices remain weak.
Margins not
sustainable. Harum reported a 55% y-o-y rise in 1Q14 profit to USD11m,
despite a 43% y-o-y drop in revenue. Margins expanded 290-530bps, aided by an
unsustainable low strip ratio (6.7x) and lower mining contractor rates. We
believe the current low strip ratio will rise as output increases from 2015, as
its long-term strip ratio is estimated at 11x and a sustained low strip ratio
will further reduce its already low mine life. We expect the strip ratio to
gradually rise to 9x in 2014F from 6.9x in 2013.
No high-dividend yield. Harum
reported strong net cash position of USD190m at end-1Q14. Its inability to
expand margins due to gradually rising costs and weak coal prices will limit
the growth of its cash balance. Falling coal output amidst fast depleting
reserve will force the company to start new mines or acquire coal reserves,
which will require it to conserve cash. Despite a track record of significantly
higher dividend payouts, we expect future dividend payouts to remain at 50%.
Lower EPS; retain NEUTRAL. Accounting
for lower thermal coal price assumptions and reduced coal volume, we cut
2014-15F EPS forecasts by 34-37%. The stock is trading at 1SD below its
historical forward P/E and EV/EBITDA, which is fair. We lower our TP to
IDR2,290 from IDR2,720.
Indofood CBP (ICBP IJ, BUY, TP:
IDR10,050) Results Review: Noodles Boosted 1Q14 Earnings
1Q14 earnings came in line with
our expectation, reaching IDR689bn (+84.7% q-o-q) thanks to noodles’ earnings
recovery, while dairy, snacks and beverages’ earnings declined, driven by
higher cost of raw materials and advertising & promotion expenses. We
maintain NEUTRAL with a IDR10,050 TP based on 21.5x-19.1x FY14-15F P/Es.
A better quarter. 1Q14
earnings grew 84.7% q-o-q to IDR689bn, accounting for 25.2%/26.7% of
our/consensus full-year forecasts – thanks to noodles’ earnings recovery.
However, dairy, snacks, and beverages booked negative EBIT, driven by higher
cost of raw materials and also advertising and promotion expenses. On a
consolidated basis, 1Q14 earnings¬ were boosted by lower opex, which declined
11.2% q-o-q to IDR1,005bn. On the flip side, sales increased 18.3% q-o-q to
IDR7,355bn, driving EBIT to widen to 11.5% in 1Q14 from 6.2% in 4Q13.
Robust recovery on noodles’
sales volume. 1Q14 noodles’ sales volume surged to 3.47bn packets (+23.5%
q-o-q) after declining to 2.81bn packets (-13.3% q-o-q), following an increase
in selling price in 4Q13. Furthermore, EBIT margin widened to 16.5% in 1Q14
(from 9.5% in 4Q13), increasing 1Q14 noodles’ EBIT to IDR861bn (+116% q-o-q).
Dairy and beverages booked
losses. Higher raw material costs were the main driver of dairy’s operating
loss widening to IDR5bn in 1Q14 from IDR2bn in 4Q13. Indofood’s condensed milk
market share declined to 34% in 1Q14 (from 39% in 4Q13), while its skimmed milk
market share declined to 15% from 18% previously. On beverage products,
operating loss declined to IDR27bn in 1Q14 from IDR29bn in 4Q13, thanks to
higher sales volume which lowered promotional costs per unit.
Maintain NEUTRAL. We
maintain NEUTRAL with a IDR10,050 TP based on 21.5x-19.1x FY14-15F P/Es.
Despite disappointing dairy and beverages’ earnings, we believe the company’s
outlook is still promising. We expect the selling price of its dairy to go up
as its major competitor Ultra Jaya (ULTJ IJ, NR) has also increased its selling
price recently. Meanwhile, beverages are estimated to book a profit, driven by
lower fixed-cost per unit, which is in line with higher sales volume.
Indofood Sukses Makmur (INDF IJ,
NEUTRAL, TP: IDR7,200) Results Review: Good on Noodles and Flour
1Q14 core-profit was in line
with our/consensus expectation, came in at IDR925bn (+15.7% q-o-q) on the back
of higher noodles and flour earnings. Indofood Sukses booked IDR729bn foreign
exchange gain which caused the company booked net-financing income of IDR445bn
(from net-financing expense of IDR572bn in 4Q13). We maintain Neutral with
target price IDR7,200 based on 14.9x-12.4x FY14-15F P/Es.
Within
expectation 1Q14 earnings. 1Q14 core-profit came in at IDR925bn (+15.7%
q-o-q), in line with our/consensus expectation, achieved at 21.8%/22.3% of
our/consensus full-year forecasts. On operating level, 1Q14 EBIT was flat at
IDR1,962bn (+0.5% q-o-q) as lower agribusiness and cultivation & processed
vegetable EBITs were offset by higher Consumer Branded Products (CBP) and flour
(Bogasari) EBITs. While, reported 1Q14 net profit jumped to IDR1,373bn (+135.4%
q-o-q) which was driven by IDR729bn gain on foreign exchange from financing
activities.
Rising
competition in flour. Bogasari aims to maintain its market shares at
minimum 51% in the domestic flour market, for comparison its market share was
53% in FY13. In national flour industry, five new flour mills are ready to
commence its operation, adding total national flour mills to 29 mills in 2014.
This will add domestic flour mills annual capacity to 9.7m tons (from 7.0m
tons), also it will increase domestic flour annual production to 7.5m tons
(from 5.4m tons). We see that the additional new mills will increase
competition in the domestic flour industry. Furthermore, import-duty and import
quota may not be effective as imported flour still flooded the domestic market.
Noodles to remain robust. We
see that Indofood Sukses will still be benefit from its robust position in
noodles market thanks to its strong brand name. Indofood Sukses’ noodles sales
growth has recovered in 1Q14, after aggressive average sales price (ASP)
increase at end 2013. We maintain our Neutral call with target price IDR7,200
based on 14.9x-12.4x FY14-15F P/Es.
Mitra Adiperkasa (MAPI IJ,
NEUTRAL, TP IDR6,350) Results Review: Still a Challenge
Mitra Adiperkasa recorded
IDR2.7trn (-5% q-o-q) and IDR45.5bn (-54.6% q-o-q) in revenue and earnings
respectively. The former was in line with our FY14 estimates while the latter
was below, at 23.4% and 9.7% respectively. Forex fluctuations and high
operational expenses led to a poor 1Q14 performance. We maintain our forecasts,
given that there is still time for it to recover. Maintain NEUTRAL and TP
IDR6,300 TP, which reflects 22.5x FY14F P/E.
High opex
led to below estimate profits. Although, on a q-o-q basis, Mitra
Adiperkasa’s revenue only declined by 5% to IDR2.7trn, net profit dropped
substantially by 54.6% to IDR45.5bn. This was the result of high opex. Furthermore,
the fluctuating IDR also contributed to the company’s poor 1Q14 performance. As
a result, 1Q14/4Q13 margins deteriorated across the board, with gross margins
at 46.5%/50.8%, EBIT margins at 4.6%/8.3% and net profit margins at 1.7%/3.6%.
Still enough time to recover.
Considering that it is still the 1Q14 period, which is seasonally the lowest
season of the year for Mitra Adiperkasa, we believe there is still time for a
recovery in the company’s performance to meet its FY14 targets. However, Mitra
Adiperkasa may face another opex challenge in the middle of 2014, which is when
the Government should start adjusting electricity prices for businesses. In our
view, it is crucial for the company to preserve its margins going forward by
either improving its overall operational efficiency or starting to increase its
ASPs gradually in response to the rising costs.
Maintain NEUTRAL and IDR6,300
TP. Despite the opex and currency fluctuation challenges, Mitra Adiperkasa
still has time to stage a performance recovery. On such grounds, we still
maintain our forecast and NEUTRAL call with an unchanged IDR6300 TP that
reflects 22.5x FY14 P/E.
Mitrabahtera Segara Sejati (MBSS
IJ, NEUTRAL, TP IDR1,000) Results Review: In Line But Facing a Challenging Year
Mitrabahtera Segara’s 1Q14
earnings hit USD9m (-7.9% q-o-q; -11.5% y-o-y), or 24% of our FY14 net profit
estimate. We see it facing a challenging year as we see no signs of a
structural recovery in the coal sector. We applaud management’s efforts to
maintain survivability in the coal support industry. We maintain our NEUTRAL
call and IDR1,000 TP. We see no earnings growth this year, yet it remains a
dividend play.
1Q14
highlights. Mitrabahtera Segara Sejati (Mitrabahtera Segara)’s 1Q14 revenue
declined 2.1% q-o-q, dragged down mainly by its floating crane (FC) segment.
However, gross margin improved to 38.7% vs 37.0% in 4Q13, partly on lower
employee-/crew-related costs as part of its operational efficiency attempts.
1Q14 opex spiked 70.1% q-o-q, mainly dragged by large general and
administrative (G&A) employee costs that impacted operating margin to 29.5%
in 1Q14 from 4Q13’s 31.7%.
Flat total
barging and FC volumes. Mitrabahtera Segara’s 1Q14 barging segment volume
declined 8.9% q-o-q to 9.2m tonnes while the FC business’ volume increased
15.4% q-o-q to 6.0m tonnes. 1Q14 barging average rates increased 9.4% q-o-q to
USD3.00/tonne while FC segment average rates declined 18.9% q-o-q. 1Q14 barging
and FC revenue reached USD28m (-0.3% q-o-q) and USD11m (-6.4% q-o-q)
respectively.
Outlook. Mitrabahtera
Segara’s 1Q14 cash position stood at USD46m, arising from a positive operating
cash flow with barely any expansion capex allocated since the start of 2013 to
1Q14. This was because it was caught in the coal industry’s downturn cycle. In
order to have upside risk for growth, Mitrabahtera Segara has undertaken
strategic initiatives to optimise its fleet utilisation by: i) allocating the
fleet to projects that contribute better profitability, ii) managing a third
party’s fleet, and iii) area operation diversification and better fleet
maintenance scheduling. Hence, we estimate capex of around USD30m for this
year.
Maintain NEUTRAL. Mitrabahtera
Segara is trading at a cheap 4-3.9x 2014-15 P/E with a 7.5% 2014 dividend
yield. Despite the cheap valuation, it is hard to justify a positive call if
the short- and long-term growth factors are not in place.
London Sumatera (LSIP IJ, NEUTRAL,
TP IDR2,372) Results Review: Better Than Expected 1Q
London
Sumatra (Lonsum)’s 1QFY14 results were better
than expected on recovery in palm business and unusually low tax rates. Rubber
business remained weak and seed sale is still plunging. We tweaked up our palm
segment earnings forecast but cut seed and rubber earnings forecast, resulting
in 8.6% higher overall earnings. Our FV is raised to IDR2,372 based on
unchanged 16x CY14 EPS. Maintain Neutral.
Better than
expected results. Lonsum’s 1Q core earnings were better than expected,
making up 24% of our full year forecast and consensus. There was a significant
recovery in the palm business from a very poor 1QFY13, which was impacted by
adverse weather and social issues at its South Sumatra
estates. Rubber business continued to remain poor on weak prices while seed
sale continued to deteriorate on slow new planting in Indonesia.
Effective tax rate was unusually low at 9.9%. Net profit would have been 11%
lower at IDR198.6bn had tax rate been normal at 20%.
FFB
production growth. Lonsum’s FFB grew by 13.8% in the 1Q from a very low
1QFY13, which was impacted by adverse weather. We raise our FFB production
assumption to a 2.4% growth from a negative growth of 3.4%. We are keeping our
expectation conservative in light of its sizeable exposure to South
Sumatra, which is more prone to dryness. Lonsum has 39.7k of its
mature area in South Sumatra out of a total of
91.9k ha mature area.
Rubber &
seed. Rubber production and sale were stable in the quarter at 3,569 tonnes
and 3,266 tonnes respectively, suggesting some drawdown from inventory. Prices
however, remained depressed. Seed sale on the other hand continued to
deteriorate to 1.087m pieces, down 61.5% q-o-q and 76.4% y-o-y, indicating that
new planting rate in Indonesia
has continued to slow. We have trimmed our full year seed sale number to 13.5m
from 18.3m before.
Forecast change. We have
raised our FY14 forecast by 8.6% to IDR1,011bn and FY15 forecast by 13.3% to
IDR1,170bn due to adjustment in FFB production. Maintain Neutral on Lonsum.
Logindo Samudramakmur (LEAD IJ,
BUY, TP IDR4,900) Results Review: 1Q14 In Line
1Q14 net profit rose to USD6m
(+9.6% q-o-q, +62.2% y-o-y), accounting for 25% of our FY14 estimate. Looking
ahead, we expect more contributions from other customers besides Total E&P.
Logindo has signed a two-year long-term contract with Pertamina Hulu Energi – a
sign of better fleet contracts earnings quality. We raise our TP to IDR4,900
with a 12x FY14 target P/E, premised on the sector’s strong growth and better
industry visibility.
1Q14
highlights. 1Q14 revenue reached USD18m, up 6.5% q-o-q, driven by its own
vessel revenue. Gross profit margin fell to 52.2% vs 56.6% in 4Q13, given the
lag time between vessel purchases and the operating time. This causes a slight
increase in depreciation and crew cost, as well as higher fuel cost component,
given its slight exposure to spot charters. However, given the advantage of
economies of scale arising from its vessel expansion to higher-tier vessels,
its opex to sales ratio fell to 9.3% in 1Q14 from 13.7% in 4Q13, bringing
operating margin to 42.8% in 1Q14 from 43.0% in 4Q13.
Most
projects coming beyond Total E&P. We could see that Logindo
Samudramakur (Logindo) is spreading its wings to other oil and gas (O&G)
contractors besides Total E&P. One such significant customer is Pertamina
Hulu Energi (PHE), evidenced by revenue from the same rising 159.0% y-o-y in
1Q14.
Arrival of two new vessels. Logindo
has purchased two anchor handling tug supply (AHTS) vessels YTD. Both are 8,000
horsepower (hp), serving Total E&P and Pertamina Hulu Energi, with capex
for both vessels worth USD40m. We expect two other vessels to arrive later in
mid-2014, bringing its total capex for this year to USD80m.
Upgrade TP to IDR4,900; BUY. We
raise our TP to IDR4,900 (from IDR3,850) with a 12x FY14 target P/E (vs 9.4x),
which is on par with Wintermar Offshore Marine (WINS IJ, BUY, TP: IDR1,200)
premised on the sector's strong growth (a multi-year boom) and better industry
visibility. We believe that domestic investors’ knowledge regarding the high potential
of Indonesia’s
offshore supply vessel (OSV) industry has increased compared with the previous
years, hence we believe that liquidity on these stocks could improve.
Semen Indonesia (SMGR IJ, BUY, TP
IDR18,000) Results Review: A Good Start
1Q14 earnings came in at
IDR1,303bn (-12.7% q-o-q), in line with our/consensus expectation. Cement sales
cyclicality was the main reason of 1Q14 earning lower than that of in 4Q13.
Semen Indonesia’s
shares in lucrative Java market rose to 41.1% in 1Q14 (from 39.6% in 4Q13). We
raised TP to IDR18,000 implies to 17.2x-14.1x FY14-15F P/Es.
Expected
1Q14 earnings. Semen Indonesia’s
1Q14 earnings reached IDR1,303bn (-12.7% q-o-q), achieved at 21.0%/22.2% of
our/consensus full-year forecasts, in line with our/consensus expectation.
Sales volume declined to 6.8m tons (-14.7% q-o-q), due to seasonality because
of slow construction activities during early years. Blended average selling
price (ASP) slightly increased to IDR907k/ton (+1.9% q-o-q), while COGS per ton
and operating expenses per ton increased faster to IDR514k/ton (+2.5% q-o-q)
and IDR152k/ton (+3.2% q-o-q), respectively. These narrowed EBIT margin to
26.5% in 1Q14 (from 27.1% in 4Q13). However, narrowed EBIT margin was offset by
lower financing expenses which declined to IDR80bn (-26.2% q-o-q).
Higher
market share in lucrative Java market. Despite Semen Indonesia
market share stable at 43.8% in domestic cement market, its market shares in
lucrative Java market raised to 41.1% in 1Q14 from 4Q13. This was mainly driver
by higher market shares in Banten. Strengthened market position in Banten eases
the company to benefit robust housing construction in the area, especially in South Tangerang.
Raised TP. We upgraded our
target price to IDR18,000 (from IDR16,700) as we lowered our weighted average
costs of capital (WACC) to 10.4% (from previously 10.8%) which is in line with
lower risk-free rate which declined to 8% (from 8%). Our target price implies
17.2x-14.1x FY14-15F P/Es.
Express Transindo Utama (TAXI
IJ, BUY, TP IDR1,800) Results Review: On The Right Track
The revenue of Express Transindo
Utama (Express) during the quarter was relatively constant at IDR182bn (+0.8%
q-o-q), while core net profit jumped to IDR28.7bn (+41.5% q-o-q). Core net
profit improved as the cost of new cars was accrued in 4Q13, leading to a
better performance in 1Q14. Maintain BUY on the stock and IDR1,800 TP, derived
from DCF valuation which implies 25.6x FY14 P/E
New cars
finally hit the road. After three months delay, Express finally operated
its new taxis in March 2014. The delayed taxi operation impacted the company’s
revenue, which was relatively constant at IDR182bn (+0.8% q-o-q), while core
net profit jumped to IDR28.7bn (+41.5% q-o-q). Margins improved during the
quarter under review as the bulk of the cost of new cars was incurred during
the previous quarter. EBITDA margin improved to 60.5% from 43.2%, EBIT margin
inched up to 31.9% from 31.6%, while core net profit was boosted up to 15.8%
and 11.2% for 1Q14 and 4Q13 respectively.
Delivery
timing is crucial. We believe that the company’s growth plan will remain
intact with an expansion of 1,500 new cars this year, plus an additional 500
cars carried forward from last year, reflecting a total of 12,000 cars by
year-end. We believe the delivery timing for new cars is crucial for Express’
financial performance. The sooner the cars are being delivered, the better for
the company as it can generate revenue earlier. However, based on the
historical pattern in car deliveries and an interview with the management, we
assume that car deliveries will be higher in 2HFY14. We expect around 700 cars
to be delivered in 3Q14 while the remaining will take place in the last
quarter.
Maintain BUY, TP IDR1,800. We
are maintaining our forecast and BUY call on the stock. Our TP IDR1,800 is
derived from DCF valuation, implying 25.6x FY14 P/E.
Wintermar Offshore Marine (WINS
IJ, BUY, TP IDR1,200) Results Review: 1Q14 In Line – Bright Years Ahead
1Q14 earnings reached USD8m
(-12.9% q-o-q; +30.5% y-o-y), in line with our expectations (22% of our FY14
estimate). We believe the company should be rated against its regional peers,
which benefit from the cabotage, or local content ruling. We increase our TP to
IDR1,200 with a target PER of 12x (previously 9.4x), premised on the sector’s
strong growth (multi-year boom) and better industry visibility. Maintain BUY.
1Q14
highlight. Wintermar Offshore Marine’s 1Q14 revenue reached USD46m, down
18.6% q-o-q mainly due to lower revenue from its own vessels (-12.7% q-o-q) and
lower 3rd party chartered vessels (-27.0% y-o-y). As it added more higher-tier
vessels (giving higher margin) to its fleet portfolio, 1Q14 own vessel margin
improved to 57.5% from 54.3% in 4Q13. Meanwhile, its 1Q14 3rd party chartered
vessel gross margin improved to 8.8%, from 7.8%, bringing gross profit 1.8%
higher q-o-q to USD17m. In 1Q14, total assets increased to USD466m, from
USD422m in 2013. Net gearing increased to 76.2% in 1Q14, vs 59.3% in 4Q13.
Three additional
vessels YTD. On a year-to-date period, Wintermar Offshore Marine has
already acquired three new vessels, which are a mix of mid- to high-tier
vessels. We expect it to acquire another two mid-tier vessels to come in in
2H14, with total FY14 vessel expansion capex of USD60m.
More big
O&G projects post-election period. We expect several major oil and gas
projects, which need government approval, to be delayed in 1H14 - given the
focus on the election. However, we expect continuous exploration project activities,
as well as more oil and gas activities post the election period.
Upgrade TP to IDR1,200; BUY.
We believe Wintermar Offshore Marine should be rated against its peers in
Southeast Asia that benefit from the cabotage or local content ruling, as these
companies enjoy higher vessel charter rates, stronger fleet utilisation,
favourable reinvestment opportunities and higher earnings visibility. We raise
our TP to IDR1,200 (from IDR1,000) with a target PER of 12x (vs 9.4x), premised
on the sector’s strong growth (multi-year boom) and better industry visibility.
Media Highlights
Indocement’s 1Q14 earning was
flat at IDR1,129bn (-1.5% y-o-y)
Indocement (INTP IJ, BUY, TP:
IDR24,000) reported 1Q14 revenue increased to IDR4,500bn (+6.7% y-o-y), while
1Q14 net profit flat at IDR1,129bn (-1.5% y-o-y). (Company)
Comment: 1Q14 earning
achieved at 19.4%/20.3% of our/consensus full-year forecast, within
our/consensus expectation. Notably, Indonesia cement companies’ 1Q14
earnings were cyclically low in the first quarter due to sales seasonality
which are low during the quarter. On quarterly basis, INTP’s 1Q14 sales volume
declined to 4.2m tons (-15.2% q-o-q), while average sales price (ASP) was flat
at IDR1,067k/ton. While, cash cost per ton increased to IDR723k/ton which drove
EBIT margin narrowed to 27.5% in 1Q14 (from 30.5% in 4Q13). These were main
driven of bottom-line earning declined 17.3% q-o-q to IDR1,129bn.
The government looks to changing
Palm Oil Export Tax Structure
The industry ministry is
considering changes to the palm oil export tax system, as the top producers and
exporters of the edible oil look to further promote downstream industries. The
director general of agricultural industries said that the the government is
assessing and evaluating the existing palm oil export tax structure, If the
assessment is finished in May, the next step is to discuss it with other
ministries, like the trade and finance ministries. Hence, the new export tax
structure of palm oil and palm oil base products is expected be imposed by next
year at the latest. (Jakarta
Globe)
Government prepares power
wheeling scheme
The Ministry of Energy &
Resources is currently preparing a new regulation regarding electricity or
power provider through a scheme called Power Wheeling that is estimated to be
effective in 2015. The scheme will open two options for any business owners: 1)
businesses can buy electricity from PLN or 2) businesses can build their own
power plant and distribute the power for their internal use. This scheme is set
up as a start to erase electricity subsidy for industrial sector that currently
amounts to 40%-45%. (Bisnis Indonesia)
IPERINDO enforces the government
to erase several tax constraints in new vessel production in Indonesia
The Shipyard Industry Entrepreneur
Association (IPERINDO) enforces the government to erase several tax constraints
in new vessel production in Indonesia
such as value added tax (VAT) and 15% import duties for vessel components.
These tax constraints will hamper the national shipyard industry growth which
is starting to grow according to the Head of IPERINDO, Tjahjono Roesdianto. (Bisnis
Indonesia)
The Government Seeks Economic
Growth at 5.5 -6.3% in 2015
Considering the global economic
condition, the Government indicates the economic target at 5.5% - 6.3% in 2015.
In addition, they also consider the situation in China,
especially in the aftermath of China’s
new policy. In accordance, the state expenditure allocation for 2015 will
likely to be set lower, due to the transition process from old government to
new government. This is not because of some austerity view from the government,
but mainly to give the new government the liberty on setting their own budget
via the state budget revision (APBN-P). (Investor Daily)
Source: RHB dated 2 May 2014
