Company Update:
Arwana Citramulia (ARNA IJ, BUY, TP: IDR550)
Earnings Should Improve In The Following Quarters
Arwana Citramulia (ARNA IJ, BUY, TP: IDR550)
Earnings Should Improve In The Following Quarters
Arwana’s
earnings should grow in the coming quarters, driven by higher sales volumes
(post-Lebaran), improved sales mix after a new UNO tiles
production line kicks off at its Gresik plant, lower operational costs after
disbursing a 1-month bonus salary as Lebaran allowance, and lower fixed
costs per unit from higher utilisation rate. It is also reducing gas
consumption per sqm in production, as well as its defective product rate to
improve cost efficiency. BUY, with unchanged DCF-derived TP of IDR550 (20%
upside), which implies 25x/17x FY17F/18F P/Es respectively.
¨
Sales
volume and sales mix likely to improve. We expect Arwana Citramulia’s (Arwana) sales
volume to grow in the coming quarters, due to the absence of Lebaran
holidays. It would also be boosted by an increase in property development
activities, which are cyclically higher in 2H and are partly driven by the
Government’s 1m houses programme.
Its sales mix should also improve when an UNO
production line at its Gresik plant becomes operational this month. In 4Q17, it
will shift some production lines at its Pasar Kemis, Cikande, and Mojokerto
plants to manufacture Digi-UNO tiles. Hence, Digi-UNO tile sales
should increase by the end of the year.
¨
Lower
operational and fixed costs per unit. We expect Arwana’s operational costs to
decline after it paid out a month’s salary to workers for their Lebaran
allowance. The Lebaran allowance was the main reason its general and
administrative expense per sqm rose to IDR1,400/sqm (+20% QoQ) in 2Q17.
We expect its fixed cost per unit to decline
in tandem with the increase in its utilisation rate. Its utilisation rate
declined to 80% in 2Q17 (1Q17: 92%) on the back of its sales volume declining
14% QoQ during the quarter. This caused its 2Q17 COGS to rise by 3% QoQ to
IDR25,500/sqm.
¨
Continuously
improving its efficiency rate. Arwana is working to sustain the improvement
in its operational efficiency, especially by lowering its gas usage per sqm in
production and cutting down the rate of defective products. For 2017, it
expects to lower gas consumption per unit of production by 9% YoY. This should
significantly reduce its COGS, since gas accounted for 39% of 1H17 production
costs. The company also targets to reduce the rate of defective products during
the manufacturing process to 1% by end-2017 (from 3.5% in 2016). Its defective
products rate declined to 1.4% in 1H17.
¨
Seasonally
weak 2Q17 earnings.
2Q17 earnings were IDR22bn (-44% QoQ, +38% YoY). We believe the QoQ decline was
driven by seasonal factors that dampened its quarterly sales volume (the 10-day
Lebaran holiday period), and higher operational costs (ie the 1-month
extra salary paid out as a festive allowance). Thus, earnings should improve in
the following quarters.
¨ Maintain BUY, with unchanged DCF-derived TP of IDR550 that also implies 25x/17x P/Es for FY17F and FY18F respectively.
Kindly click the following link for the full report: Arwana Citramulia : Earnings Should Improve In The Following Quarters
Best regards,
¨ Maintain BUY, with unchanged DCF-derived TP of IDR550 that also implies 25x/17x P/Es for FY17F and FY18F respectively.
Kindly click the following link for the full report: Arwana Citramulia : Earnings Should Improve In The Following Quarters
Best regards,
Andrey Wijaya
Senior Vice President
Research Analyst – Auto,
Consumer, Cement
PT RHB Sekuritas
Indonesia
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