Company update:
Garuda Metalindo (BOLT IJ, BUY, TP: IDR1,320)
Key Beneficiary Of 2W Sales Recovery
Garuda Metalindo (BOLT IJ, BUY, TP: IDR1,320)
Key Beneficiary Of 2W Sales Recovery
4Q16
national motorcycle sales data suggests Garuda’s earnings recovery is on track
as itis one of the key beneficiaries of recovering national 2W vehicles sales,
thanks to its strong position in the motorcycles fasteners market. Its 4W
fasteners sales are expected to increase further asit has just secured a
contract with a new car maker. It maintained raw material costs despite higher
steel prices, partly due to stronger supply chain management. We have trimmed
our earnings estimates on lower sales and lowered our DCF-based TP to IDR1,320
(from IDR1,390, 45% upside) – implies 0.9x/1.1x FY17/18F PEG. BUY.
¨ Beneficiary of 2W
sales recovery. Garuda
Metalindo’s (Garuda) earnings growth is highly correlated to domestic vehicle
sales, especially motorcycles. On MoM basis, we have seen a recovery in
motorcycles sales since Aug 2016. These improved MoM sales were in line with
higher consumer disposable income, especially those living outside Java, who
benefited from higher commodities prices( eg CPO, rubber, and coal). In 2017,
we see 2W vehicles sales accelerating, in line with the Indonesia Motorcycle
Industry’s (AISI) estimates, which project domestic motorcycle sales to grow by
3-5%.
Based
on AISI’s data, 4Q16 national motorcycles wholesale increased to 1.6m units
(+14% QoQ), which is near the average quarterly wholesale during 2015. This is
a good development in our view, since quarterly motorcycles wholesale growth
was negative in 1Q16 to 3Q16, but recovered in the last quarter.
¨ New customer for 4W
fasteners. Garuda
just secured a new customer to supply cars fasteners spare parts. It supplies
fasteners to almost all Indonesian cars manufacturers, including Daihatsu, Hino,
Honda, Isuzu, Suzuki, Toyota and Mitsubishi Motors. Cars spare parts and
components sales were the main drivers of Garuda’s revenue growth in 2016.
¨ Manageable input
costs. Despite
higher average international steel prices – main raw material for fasteners
–and weakened IDR, Garuda was able to improve 9M16 GPM to 27.6% (+120bps),
which was partly driven by lower input costs thanks to stronger supply chain
management. After consolidating its raw materials procurement, Garuda is now
enjoying better bargaining power by purchasing raw materials in bulk.
¨ Slightly lowered
forecast and TP. We
maintain our 2016F earnings estimate at IDR123bn (-0.1%), but slightly lowered
our 2017F earnings estimates to IDR145bn (-1.6%), as our previous 2017F sales
volumes were likely too optimist since we estimated 2016 national motorcycles
sales to be flat, when in fact it declined. However, Garuda was able to manage
their input costs hence the lower sales were partially offset by slower growth
in production costs.
We
also lowered our DCF-based TP to IDR1,320 (from IDR1,390, 45% upside) which
implies to 0.9x/1.1x 2017/2018F PEG and 21x/19x 2017/2018F P/Es. Key risks to
our call include fluctuation in steel prices and weakened IDR. However, we see
these risks as manageable thanks to its improved raw materials supply chain. We
maintain our BUY call on Garuda.
Kindly click the following link for the full report: Garuda Metalindo : Key Beneficiary Of 2W Sales Recovery
Andrey Wijaya
Senior Vice President
Research Analyst – Auto,
Consumer, Cement
PT. RHB Securities
Indonesia
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