Already Priced In - (United Tractors, Sarana Menara Nusantara, Matahari Department Store) Unknown Rabu, 01 Maret 2017




Good morning,

United Tractors – Profit Margin Recovery But Most Likely Already Priced In
United Tractors booked higher than expected FY16 earnings of IDR2trn. The main driver was the higher than expected profit margins recovery. United Tractors now is trading at a FY17 P/E of 14.0x (which represents an average level over the past several years). Meanwhile, the share price performance of United Tractors has done well, increasing by around 53% since Aug 2016, which leaves now only a 6% upside potential to our TP. Therefore, we downgrade to NEUTRAL (from Buy) with an unchanged TP of IDR26,300.


♦ Higher demand on heavy equipment in FY17 from mining and construction sectors. Based on our channel checks, we found out that two sectors in particular are experiencing a higher demand on heavy equipment in FY17, i.e. mining and construction. Since the end of 2016, due to a recovery in coal price, Komatsu’s giant-sized heavy equipmentcurrently requires a lead time of around three months from the time an order is placed to the time the order is delivered to customers.
♦ Profit margins recovery to sustain in FY17.Higher commodity prices, and especially coal prices in FY17 should assist in the recovery in United Tractors’ profit margins from 4Q16 and also sustain it during FY17.
♦ Limited upside to our TP. Downgrade to NEUTRAL with an unchanged TP of IDR26,300. Currently United Tractors is trading at a P/E FY17F multiple of 14.0x (which equals its 11-year average P/E multiple) and we estimate only a 6% upside.
♦ Above expectations FY16 earnings. United Tractors reported FY16 earnings of IDR5.0trn, which is above our and consensus expectations (106%/109% of our and consensus expectations). The main drivers for the good 4Q16 performance (vs 3Q16) were a profit margin recovery in the construction machinery (parts and services business recovers in 4Q16) and the mining contracting business. (Hariyanto Wijaya, CFA, CPA)

Link to report: United Tractors : Profit Margin Recovery But Most Likely Already Priced In
Link to Daily report: Indonesia Morning Cuppa 010317

Results Review:

Sarana Menara Nusantara (TOWR IJ, BUY, TP: IDR4,700), Still Our Preffered Pick
We resume coverage on SMN with BUY and unchanged DCF-derived TP of IDR4,700. SMN remains our preferred pick among Indonesian tower companies, for its undemanding valuations and strong balance sheet, with room for re-rating and inorganic expansion. We also like its wholly-owned technology company iForte, which should underpin future growth at SMN, and augment its existing product offering.SMN closed 2016 with decent revenue and EBITDA growth rates of 13% and 16.7% respectively.

♦ We continue to prefer Sarana Menara Nusantara (SMN) over other listed Indonesian tower companies, due to its solid balance sheet, undemanding 2017F EV/EBITDA of 8.8x (vs industry average of 10x), and its wholly-owned technology company, PT iForte SolusiInfotek (iForte), which should provide additional growth given its specialisation in micro-cell leasing and fibre optic broadband. Maintain BUY with unchanged DCF-derived TP of IDR4,700.
♦ iForte has been gaining momentum since SMN’s acquisition in 2H15. Coming from a low base, revenue has increased three-fold, while revenue contribution to SMN has increased to 3% from 1%. Management expects IForte to contribute up to 10% of revenue before 2020, as the value of its fibre optic backbone in Jakarta increases over time – this is as digging permits are becoming more difficult to obtain in Jakarta.
♦ Given its financial muscle, SMN is open to inorganic expansion. During our meeting with management three weeks ago, management acknowledged the limitations of organic growth at this juncture due to lower capex by telcos, and pressure on long term lease rates. However, management appeared sanguine on inorganic expansion, should opportunities arise. SMN's net debt/EBITDA of 1.5x remains the lowest amongst Indonesian tower companies (industry average of 4x).
♦ Closed 2016 with a decent set of numbers. In 4Q16, SMN recorded decent YoY growth in revenue and EBITDA of 10.5% and 11.9% respectively. The bulk of the growth came from the acquisition of 2,500 towers from XL Axiata (EXCL IJ, BUY, TP: IDR3,355), which contributed six months of revenue in 2016. (Norman Choong, CFA)




Matahari Department Store (LPPF IJ, Neutral, TP: IDR16,000), On The Weak Side
Matahari Department Store released rather weak FY16 results.

♦ FY16 profit landed 95% of consensus & 97% of our estimate.
♦ Growth decelerated to its slowest rate since 2012, SSSG slowed to 5.5% in FY 2016 (6.8% in the previous year).LPPF attributed relatively weak performance on competition, weak consumption and inventory clean-up. Further it also expects weak same-store sales growth (SSSG) in 1Q17, negative single digit.
♦ Ahead, LPPF plans to open standalone stores for one of the its private label, Nevada, which cater mid-segment.
♦ On capex, the company allocates IDR400-450bn: 30% for new stores, 20-25% for store refurbishments, and the rest for other operations & maintenance.
♦ On its e-commerce investment in mataharimall.com, the company reiterated its position that there will be no more investments into the affiliated e-commerce after the IDR590bn injection announced in 4Q16. This injection to mataharimall.com is on top of company’s capex budget.
♦ LPPF will stick with 70% dividend payout ratio and there are no plans for share buybacks.
♦ LPPF trades at 17/16x 2017/18F PE, while offering only 11% profit growth and ~4% yield over the same period; we have a neutral rating on the stock. (Stifanus Sulistyo)


Economic Update:

Money Supply Moderates, Loan Growth Surges At Beginning 2017
Indonesia’s money supply (M2) growth edged down to 9.8% YoY in Jan 2017, from +10.0% in Dec 2016. This was due to a slowdown in net domestic operations but partly mitigated by a pick-up in net foreign operations. Going forward, we expect broad money to grow faster at 11.0% in 2017, underpinned by stronger economic growth.

♦ Private credit surged. Total loans growth increased in Jan 2017, on account of a broad-based faster growth in all types of loans. Going forward, we expect demand for private credit to pick up to 12.0% in 2017, aided by monetary policy easing and stronger projected economic growth.
♦ Deposit growth, likewise, edged up a tad higher. Savings and time deposits recorded stronger performances during Jan 2017 but was partly offset by a moderation in demand deposits.
♦ Key policy rate likely to be cut by 25bps. We expect Bank Indonesia (BI) to cut its key policy rate by another 25bps in 2017 (to 4.5%) to support economic growth under stable IDR circumstances. However, we believe the windown for a rate cut may probably be available until Apr this year.
♦ IDR continued to appreciate against USD. IDR appreciated by 0.5% against USD in Feb 2017, after strengthening in January, as capital inflows started to return. Nevertheless, we expect IDR to stay weak and trade toward 13,600 by end-2017. (Rizki Fajar)


Link to report: to be sent out later




Media Highlights:

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Best regards,

Helmy Kristanto
Director
Head of Indonesia Research
PT. RHB Securities Indonesia
​

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