Company
update:
Hexindo
Adiperkasa (HEXA IJ, BUY, TP: IDR3,500)
Refurbishment Cycle To Boost Spare Parts Revenue
Refurbishment Cycle To Boost Spare Parts Revenue
We
estimate Hexindo to book an earnings CAGR of 35.6% (FY16-19F) due to an
increase in spare parts sales stemming from the refurbishment cycle, a recovery
in its heavy equipment sales and its heavy equipment unit’s gross margin
turning positive again. We think its share price retracement in the last
several days (from the impact of its ex-dividend) is over. Now, the share price
movement should reflect its improving fundamentals. Its ROAE should improve
post its extraordinary dividend, too. BUY, with an unchanged DCF-based TP of
IDR3,500 (23% upside).
¨ Refurbishment cycle
should boost FY18F (Mar) spare parts revenue. We think the key
driver of Hexindo Adiperkasa’s (Hexindo) earnings growth over the next three
years could be the growth of its spare parts sales. The substantial amount of
heavy equipment (930 units) sold to the mining sector in FY12 should enter a
refurbishment cycle, which should boost its spare parts sales revenue from FY18
onwards. Hexindo’s spare parts sales generate a generous gross profit margin of
38%, much higher than the 5% gross profit margin eked from selling its heavy
equipment.
¨ Share price
retracement due to going ex-dividend has finished. Hexindo’s share
price, which surged to IDR4,240 on 4 Oct, has fallen since its ex-dividend
date. We think the share price retracement – due to the distributed
extraordinary DPS of USD0.1262 (equivalent to IDR1,640) – has concluded. Post
extraordinary dividend, its ROAE should improve. Now, we believe that its share
price movement should reflect the company’s improving fundamentals – which
should keep it on an uptrend due to its sizeable earnings recovery ahead.
¨ Heavy equipment
demand from mining sector is recovering. Based on our channel checks with
industry contacts, small- to medium-sized coal mining companies have begun to
order heavy equipment. However, the equipment is still medium-sized (within the
heavy equipment category), and not large-sized. As the timeframe between orders
to delivery is around three months, the sales should be present in its books
from end-2016 or early 2017 onwards.
¨ Still a BUY, with a
IDR3,500 TP. Our
unchanged DCF-derived TP is premised on a WACC of 11.9% and long-term growth
rate of 2%, as Hexindo’s performance should recover solidly, with a FY16-19F
earnings CAGR of 35.6%. This is on the back of spare parts sales growth related
to the heavy equipment sold in FY12 entering a refurbishment cycle; a recovery
of its heavy equipment sales unit as well as its heavy equipment unit’s gross
margin turning positive again. Our TP also implies FY18F P/E of 13.9x(-0.2SD
from its 5-year mean P/E).
¨ Key risks to our BUY
call
include weaker-than-expected demand for coal and a significant decrease in coal
prices.
Kindly click the following link for the full report: Hexindo Adiperkasa : Refurbishment Cycle To Boost Spare Parts Revenue
Hariyanto Wijaya, CFA, CFP, CA, CPA
Vice President
Research Analyst – Heavy
Equipment, Plantation
PT. RHB Securities
Indonesia
