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Good morning,
Astra International
– Heavy Equipment Boosts Earnings
Astra’s 2Q17
earnings came in line with our expectations, driven by a higher earning from
heavy equipment which benefit from higher coal price. Its auto division
earnings declined. However we see this was driven by seasonality of lower
working days during the Lebaran holiday. We believe auto earnings
would increase in the following quarters. Earnings from the financial
division booked a solid performance in which Bank Permata’s NPLs came in
lower. Maintain BUY with a SOP-based IDR9,850 TP (22% upside), implying 17x
FY18F P/E.
¨ Heavy equipment
boosts earnings.
After booking a robust 2Q17 earnings, we see heavy equipment earnings to
remain strong in the following quarters, thanks to higher coal prices. Our
channel checks with United Tractors’ (UNTR IJ, BUY, TP: IDR30,400) management
revealed that heavy equipment order book for 2017 delivery has been full.
This trend is likely to continue till the next year – which in line with coal
price expected remain robust– customers have already filled order book on
heavy equipment for 2018 delivery.
¨ Auto earning likely
to recover.
Auto 2Q17 earnings declined both on QoQ and YoY basis. However we see this
was driven by seasonality of lower working days during the Lebaran
holiday. Notably, the Lebaran holiday moved to June this year (in
2016, it was in July). Hence, we expect Astra’s auto earnings to increase in
the following quarters. Although lower sales, Astra 4-wheel (4W) and 2-wheel
(2W) vehicle market shares increased to 56% and 74% respectively in 1H17 (vs
51% and 73% respectively in 1H16).
¨ Financial earnings
likely to remain solid. Earnings from its financial division booked a solid
performance. Bank Permata’s lowered its NPLs in which its gross NPLs declined
to 4.7% at end-June (vs 6.4% at end-March and 8.8% as at end-Dec 2016). This
indicates a better quality on its loan portfolio since Bank Permata has
gradually improved its loan prudential.
¨ Better position in
managing infrastructure investments. This was mainly due to toll road, power
plant and property investments made during 1H17, Astra International’s
(Astra) net cash position excluding the group’s financial services
subsidiaries was IDR2.6trn. It is significantly lower compared to a net cash
of IDR6.2trn as at end-2016. However, its net cash position is better than
that of end-March, which was merely IDR131bn. This indicates that the company
is now in a better position to manage its investments cash flow. We believe
these infrastructure project investments should improve its diversified
earnings in the future.
¨ Maintain BUY with SOP-based
IDR9,850 TP, implying a 17x FY18F P/E. Key risks to our call is the downtrend
in the agribusiness earnings since we expect CPO prices to decline. However,
higher earnings from the heavy equipment, auto, and financial divisions
should be more than enough to offset the expected lower agribusiness
earnings. Agribusiness accounted for 9% of Astra’s consolidated earnings. (Andrey Wijaya)
Link
to report: Astra International : Heavy Equipment Boosts Earnings
Link
to daily report: Indonesia Morning Cuppa 280717
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Results Review:
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Adhi Karya Persero
(ADHI IJ, BUY, TP: IDR2,700), Ready To Sail
We remain confident
in our BUY call, as Adhi Karya’s 2Q17 results outperformed our estimate.
Earnings surged 136.4% YoY, backed by stronger-than-expected revenue growth
and profit from JO. Its revenue also surpassed our expectation, while its GPM
was in line. However, it only booked a IDR74bn loss from EPC jobs and a
receivables impairment for 1H17, out of a potential loss of around IDR400bn
in FY17F. Its 3Q17 outlook is still positive, as a new bond issuance and fund
injection approval for KAI would shed some light on the LRT Greater Jakarta
project. Our IDR2,700 TP (27% upside) implies 13x FY18F P/E.
¨ Superb results. Adhi Karya
reported IDR131bn (+136.4% YoY) net profit in 1H17, or 26.5%/21.8% or
our/consensus full-year estimates respectively (1H16: 17.7% of our FY16
estimate). It was mainly supported by stronger revenue and profits from joint
operations (JO) being greater than expected.
Its
revenue of IDR5.2trn (+65.6% YoY) accounted for 37%/31.2% of our/consensus
estimates respectively, which was better than 1H16’s seasonal portion of
28.3%. Revenue largely came from construction works (IDR3.2trn) and the LRT
Greater Jakarta project (IDR1.4trn).
Its
GPM was in line, at 11.5% for 1H17 vs 8.6% in 1H16. This was supported by a
stronger investment (precast) margin of 27.5% (vs 19.8% in 1H16). On the
other hand, its construction margin was relatively flat, at 12.7%.
It
only recorded a IDR68bn engineering, procurement and construction (EPC) loss
and IDR6bn receivables impairment in 1H17. Management guided for a IDR200bn
EPC loss and IDR200bn receivables impairment by end-2017.
Operational
cash flow remained negative, at minus IDR2.7trn as the company has not
obtained any payment yet for the LRT Greater Jakarta project.
Revenue
grew 62.9% YoY/31% QoQ in 2Q17, while net profit surged by 150.1% YoY/486%
QoQ. The company booked a strong gross margin of 12.3%, which led to a 3.8%
net margin (2Q16: 2.5%).
¨ 3Q17 outlook. We believe Adhi
Karya may still post solid results in 3Q17 as it has issued a IDR3.5trn bond.
Two-thirds of the proceeds would be used for LRT Greater Jakarta. Meanwhile,
the recent approval of a fund injection for state-owned railway company PT
Kereta Api Indonesia (KAI) may shed more light on the LRT project’s payment.
Therefore, Adhi Karya may likely also ramp up construction works on LRT
Greater Jakarta in the coming quarters. Moreover, most of its EPC loss and
impairment loss would mainly be booked in 4Q17.
¨ Maintain BUY. We remain positive
on Adhi Karya. Our unchanged TP of IDR2,700 is based on 13x FY18F P/E, 0.5SD
below its 5-year historical average. The stock is
currently trading at 15.3-10.2x FY17F-18F P/Es. (Dony Gunawan)
Link
to report: Adhi Karya Persero : Ready To Sail
Astra Agro Lestari
(AALI IJ, Sell, TP: IDR12,800), Downtrend In CPO Price Pushes Share Prices
Down
2Q17 earnings of
IDR243bn (-35.2% YoY, -69.7% QoQ) were below expectations on
lower-than-expected profit margins. Production recovery from the El Nino
impact is underway. However, we expect its FY18F FFB production growth from
nucleus plantation to be flat due to its old plantation profile. Reiterate
SELL call with unchanged TP of IDR12,800 (17% downside) based on 14x target
P/E, as we think the downtrend in CPO prices would push share prices down.
Historically, during a CPO price downtrend, its P/E multiple tended to shrink
to the 12x level.
¨ Lower-than-expected
2Q17 net income.
Although Astra Agro Lestari (Astra Agro) booked healthy revenue in 2Q17, sharply
lower profit margins resulted in weak 2Q17 net income of IDR243bn (-35.2%
YoY, -69.7% QoQ) (Figure 1). 6M17 net income of IDR1,044bn was in line with
our and consensus estimates (55%/50% of our/consensus FY17 expectations).
¨ Profit margins fell
sharply
Although 2Q17 average selling price decreased only slightly (-1.3% YoY, -9.3%
QoQ), consolidated gross margin fell sharply to 16.4% (1Q17: 31.1%, 2Q16:
22.0%). We suspect the reason for the sharp contraction in profit margin was
higher-than-expected production costs.
¨ Production recovery
from time-lagged El Nino impact underway. After getting hit
by the impact from El Nino last year, Astra Agro has booked some
recovery in CPO production this year (2Q17: +13.2% YoY, -3.1% QoQ).
¨ Flat nucleus
production growth projected in FY18F. Due to old plantation profile (Figure 3)
with an average age of 15 years, we expect Astra Agro to only book flat FY18F
FFB production growth from its nucleus. We project its CPO production to
continue growing in FY18F, from purchasing higher FFB volume from external
parties in order to fulfil its palm oil mills’ production capacity.
¨ Replanting
underway.
In order to mitigate deforestation, Astra Agro has maintained its no new
planting policy. Due to its old plantation profile, it has some replanting
activity – with a target of c.3,500 ha pa to be replanted during FY17F-FY18F,
c.5,000 ha pa to be replanted during FY19F-20F, and c.7,000 ha pa to be
replanted from FY21F onwards.
¨ CPO price is
estimated to decrease further in 3Q17. We continue to expect CPO prices to be
remain weak over the next quarter. This is as CPO supply heads towards the
peak season in 2H17F. Bumper soybean harvest should result in surpluses for
the overall 17 oils and fats composite of 6m tonnes, and eight vegetable oil
complex of about 7m tonnes during the 2017 crop year.
¨ Reiterate SELL call
with unchanged TP of IDR12,800. We maintain our forecast assumptions. Our
TP of IDR12,800 is based on a P/E target of 14x applied to our FY17F EPS.
Historically, during a downtrend in CPO prices, Astra Agro’s P/E multiple
tends to shrink to the 12x level (Figure 2). Our TP implies an EV/ha of
USD9,200. Key upside risks include better-than-expected margins from tight
management of production costs. (Hariyanto
Wijaya, CFA, CPA, CMT)
United Tractors
(UNTR IJ, BUY, TP: IDR32,900), Strong Mining Heavy Equipment Sales To
Continue
Despite fewer
working days in 2Q17 due to Lebaran, United Tractors booked strong
earnings of IDR1.9trn during this quarter. This was mostly driven by
significant increases in mining heavy equipment unit sales. We opine for
strong sales in the latter to keep increasing in the coming quarters. This is
as the firm’s backlog of mining heavy equipment orders has already reached
2018’s delivery slots. We fine-tune our assumptions and revise up our
DCF-derived TP to IDR32,900 (from IDR30,400, 14% upside). Maintain BUY.
¨ Strong 2Q17
earnings despite the Lebaran holidays. For the first time
in 10 years, the Lebaran holidays occurred in 2Q17. Although there
were fewer working days during this quarter due to the festivities (~9 days),
United Tractors booked strong 2Q17 earnings of IDR1.9trn (+71% YoY, +28.0%
QoQ).
The
main driver was strong mining heavy equipment sales of 546 units (+309 YoY,
+57% QoQ). Note that a higher proportion of mining heavy equipment to total
Komatsu unit sales increases blended ASP. This is as mining heavy equipment
selling prices are, on average, ~5x higher than construction heavy equipment
prices. This is due to the significant difference in the sizes of the latter.
1H17 earnings were within our and consensus expectations at 47% and 51% of
FY17 estimates respectively (Figure 1).
¨ Strong mining heavy
equipment sales to continue. On the back of the recovery in coal
prices, there have been sizable mining heavy equipment orders. These mostly
come from replacement cycle of heavy equipment sales during the boom of
2010-2012 (Figure 3). Due to significant incoming mining heavy equipment
orders, United Tractors’ backlog of such orders has already reached 2018’s
delivery slots. Therefore, we opine that the sales of mining heavy equipment
units would keep increasing in the coming quarters.
¨ Mining contracting
volume to increase in 2H17. From the start of the year to end-July,
heavy rainfall at the mine sites where PT Pamapersada Nusantara (Pamapersada)
operates has been recorded. This has curbed its mining contracting volumes.
However, despite the heavy rainfall, United Tractors booked overburden
removal volume growth in 2Q17 of 9% YoY (+12% QoQ). We think less rainfall in
the coming months should boost mining contracting volumes in 2H17.
¨ Reiterate BUY, with
a higher DCF-derived IDR32,900 TP (from IDR30,400). We fine-tune our
assumptions to factor in stronger mining heavy equipment sales and increase
our FY18F-19F earnings by 7-10%. This resulted in a higher DCF-based
IDR32,900 TP (WACC: 13.8%. LTG: 2%). Our TP implies FY18F-19F P/Es of 14.7x
and 13.2x respectively.
We believe increasing monthly mining heavy
equipment unit sales and monthly mining contracting volumes in the coming
months are near-term catalysts for the stock price. Key risks to our call
include a significant drop in coal prices, weaker-than-expected coal demand
and a strengthening IDR. (Hariyanto Wijaya,
CFA, CPA, CMT)
Acset Indonusa Tbk
(ACST IJ, BUY, TP: IDR3,700), Targeting a Bigger Piece Of The Pie
We upgrade our
recommendation of Acset to BUY (from Neutral) with a higher TP of IDR3,700
(from IDR2,850, 19% upside), as we rollover our valuation to FY18F. Our TP is
based on a 15.7x FY18F P/E, -1SD from its average historical forward P/E. Its
net profit in 1H17 jumped +95.3% YoY, supported by its stronger gross margin
and lower interest expense. Given superb new contracts collection, we raise
our new contracts assumption to IDR8trn and IDR5trn in FY17F-18F respectively.
Despite our lower expectation of its gross margin due to more infrastructure
projects, we expect the company’s net profit to grow +54.6% YoY next year.
¨ Strong 1H17’s
results.
Acset Indonusa’s (Acset) net profit grew nearly double (+95.3%YoY) in 1H17,
accounted for 57.9% and 47.3% to our and consensus’ estimates respectively,
owing to a higher gross margin and lower interest expense. It was above last
year’s seasonality of 48%.
Its
revenue stood at IDR1trn (+8.4% YoY), making up 42.8% and 38% of our and
consensus’ estimates respectively, below last year’s performance of 53% in
1H16. It was mainly dominated by construction works (60%) and infrastructure
(32%) whereas, foundation only contributed 7% of total revenue.
In
QoQ basis, its net profit grew +9.5% QoQ; +147.3% YoY in 2Q17, while its
revenue only grew by +2% QoQ;+6.3% YoY.
On
the other hand, its gross margin soared to 17.8% in 2Q17 (vs 15.1% in 2Q16),
led to higher net margin of 6.5% (vs 2.8% in 2Q16). Its strong gross margin
was boosted by the foundation works on the Jakarta-Cikampek elevated toll
road project.
¨ New contracts
collection.
Up to 1H17, Acset has successfully raked IDR7.1trn worth of new contracts,
which mainly came from the Jakarta-Cikampek elevated toll road project. We
raise our new contracts estimates to IDR8trn this year and IDR5trn new
contracts for next year. By year-end, we estimate its total orderbook to
reach IDR12.1trn (82.1% YoY) and would grow +21.3% YoY by the end of next
year, giving the company the strongest earnings visibility ahead among
Indonesian contractors.
¨ Outlook FY18F. We fine-tuned our
estimates and expect a lower gross margin of 13.9% (vs 14.9% in FY17F) in
FY18F due to a higher contribution from infrastructure projects, which offer
lower margins than the foundation business. Thus, its net profit is expected
to improve +54.6% YoY in FY18F, while its revenue would grow +63.7% YoY.
¨ Upgrade to BUY with a new TP of
IDR3,700, offering a \19% upside to its current price. Our TP is based on
-1SD from average historical forward P/E. (Dony
Gunawan)
Link to report: Acset Indonusa Tbk : Targeting a Bigger Piece Of The Pie
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Link to report: Bank
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Link to report: Adhi Karya Persero –
Waiting For The Sun To Rise
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Link to report: Coal Mining –
Positive Momentum To Build Up
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Earnings Should Improve In The Following Quarters
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Link to report: BI
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Best regards,
Helmy Kristanto
Director
Head of Indonesia Research
PT RHB Sekuritas Indonesia
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