Company update:
Arwana Citra Mulia (ARNA IJ, BUY, TP: IDR635),
Look Beyond FY16 Earnings
Arwana Citra Mulia (ARNA IJ, BUY, TP: IDR635),
Look Beyond FY16 Earnings
Despite
robust August data, we expect Arwana’s sales growth to continue, driven by:
1) Higher property sales
given lower financing costs and relaxedLTV;
2) Better sales mix
thanks to higher sales contribution from UNO tiles.
However,
we cut our earnings estimates as the delay in implementation of lower gas
tariff should offset improvements in property sales. We maintain our BUY call
with lower DCF-based TP of IDR635 (from IDR690, 11% upside). Upside catalyst
for the stock is if the gas tariff cut is more than our estimate (USD1/mmbtu).
♦
Higher
property sales. The
7-day repo rate was cut to 5% (from 5.25%) yesterday and we expect Bank
Indonesia to further reduce the rate– which is now the benchmarklending rate –
to 4.5% in 2017. This should trigger banks and financing companies to lower
mortgage rates. In addition, property loan-to-value (LTV) regulations have been
reduced by 5-15% for non-subsidised housing/apartments. We believe the lower
benchmark rates and relaxed LTV policies should make properties more
affordable. This should boost property salesand drive demand growth for Arwana
Citra Mulia (Arwana)’s ceramic tiles.
♦
Acceleration
in the development of low-cost housing.The government aims to reduce unnecessary
bureaucracy and costs imposed on obtaining construction permits to accelerate
the 1m low-cost houses program. This is an incentive for developers to build
more low-cost houses, which should increase demand for ceramics, especially
low-end ceramics – Arwana’s strongest segment. In 2015, the government cut LTV
for low-cost houses to 1% (from 5%) and extended the flat payment tenure up to
20 years.
♦
Better
sales mix.We
expect better sales mix to increase Arwana’s average selling price (ASP). The
company aims to reduce sales contribution of its lowest-end Best Buy
branded tiles to 50% (from 55% in June)and increaseits higher-end UNO brand
sales contribution to 30% (from 22% in June). This is manly driven by the
commencement of line-3 of its Mojokerto plant, which only produces UNObranded
products.
♦
Maintain
BUY but TP lowered. We
expect thedelay in lower gas tariff implementation to substantially offset
likely improvements in property sales. We have lowered our FY16/17F earning
estimates by 39%/38% to IDR121bn/187bn. Based on the revised forecasts, we have
assumed that the gas tariff would be reduced by USD1/mmbtu (c.10%) starting 2017.
While the government has yet to announce the quantum of gas tariff reduction,
the media has reported that gas tariff is expected to be cut by USD2-4/mmbtu
(c.20-40%).
♦ We rolled-over our valuations to FY17F and lowered our DCF-basedTP to IDR635 (from IDR690). Based onour scenario analysis, Arwana’s fair value should range from IDR635 – IDR927/share, assuming gas tariff cut ofUSD1-USD4/mmbtu starting 2017.Further upside catalyst for the stock is if the gas tariff cut is more than our estimates (USD1/mmbtu).
♦ We rolled-over our valuations to FY17F and lowered our DCF-basedTP to IDR635 (from IDR690). Based onour scenario analysis, Arwana’s fair value should range from IDR635 – IDR927/share, assuming gas tariff cut ofUSD1-USD4/mmbtu starting 2017.Further upside catalyst for the stock is if the gas tariff cut is more than our estimates (USD1/mmbtu).
Kindly click the following link for the full report: Arwana Citra Mulia : Look Beyond FY16 Earnings
Best regards,
Andrey Wijaya
Kindly click the following link for the full report: Arwana Citra Mulia : Look Beyond FY16 Earnings
Best regards,
Andrey Wijaya
Senior Vice President
Research Analyst – Auto,
Consumer, Cement
PT. RHB Securities
Indonesia
