Company update:
Arwana Citra Mulia (ARNA IJ, BUY, TP: IDR690),
Mojokerto Plant a New Growth Engine
Arwana Citra Mulia (ARNA IJ, BUY, TP: IDR690),
Mojokerto Plant a New Growth Engine
During
our site visit to Arwana’s new Mojokerto plant – which fully produces UNO ceramic
tiles – we noticed that the company is ready to increase the production
of its medium-end ceramic-tiles. It aims to increase UNO – the products
have higher selling prices and EBIT margins – sales’ contribution to 27% of
total sales at end-2016, from 17% in 2015. In addition, the Mojokerto plant’s
gas tariff is lower than that of its other plants. Maintain BUY, with a
DCF-based TP of IDR690 (19% upside, 26x-17x FY16F-17F P/Es).
¨ New growth engines. Arwana Citra Mulia’s
(Arwana) Mojokerto plant (P5) has a production capacity of 8m sq m pa, and has
lifted total capacity by c.16%. It is equipped with the latest European
manufacturing technology and features 10-15% lower gas consumption, as well as
improved waste management, eg dust reduction and water treatment. In addition,
the gas tariff for the Mojokerto unit is lower than that of other Arwana
plants. P5 produces only UNO ceramic tiles, which have higher selling
prices and EBIT margins. With the additional production of UNO tiles
from P5, we expect the contribution of UNO sales to rise to 27% of
revenue in the second half of the year (1Q16: ~20%).
¨ Lines 1&2 are
running at close to maximum capacity. P5 has three production lines, each with a
c.2.7m sq m pa capacity. Line-1 and Line-2 at the new plant began running in January
and April respectively, while Line-3 will begin production in July. Management
said that the demand for its ceramic tiles – especially UNO products –
is robust although production capacity is limited, hence Line-1 and Line-2 are
running at close to their maximum capacity. We are optimistic that when Line-3
kicks off, the utilisation rate of the new plant will likely achieve close to
its maximum capacity.
¨ In 2Q16, expect lower
gas costs – but its sales volume may likely also lower due to seasonal factors. The Government is
expected to lower gas tariffs in June or July. A new federal law has set the
maximum upstream gas tariff at USD6/million British thermal unit (mmbtu). In
addition to toll fees, the new industrial gas price should not be above
USD8/mmbtu. Note that Arwana currently purchases gas at USD8.40-9.50/mmbtu.
Ceramic producers in other countries purchase gas at around USD6/mmbtu. Since
gas accounts for 40% of production costs, lower gas tariffs should help the
local ceramic tiles industry, which is facing significant financial
difficulties due to high gas tariffs.
¨ In term of sales
volume, on a QoQ basis, 2Q16 sales volume is likely to be slightly lower than
that of in 1Q16, which should be driven by low sales season during the 2-week
holiday near Lebaran. YoY, however, we think its 2Q16 sales volume is
likely to be much higher than that of 2Q15.
¨ Maintain BUY with a IDR690 TP
(19% upside, 26x-17x FY16F-17F P/Es). Key risks to our call include a weakening
of the IDR and rising competition.
Kindly click the following link for the full report: Arwana Citra Mulia : Mojokerto Plant a New Growth Engine
Best regards,
Andrey Wijaya
Senior Vice President
Research Analyst – Auto,
Consumer, Cement
PT. RHB Securities
Indonesia
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