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Good morning,
Japfa Comfeed
Indonesia – Margin Erosion Faster Than Expected
We downgrade Japfa to SELL (from Neutral)
with our TP lowered to IDR1,000, (from IDR1,450, 17% downside). Gross margin
erosion was faster than our expectations due to increased regulatory
headwinds and weak pricing power. These factors correspond to our 31.8% and
30.8% reduction in FY17F-18F net profit, 43% lower than consensus. The
company’s 1H17 net profit saw a 49% YoY decline on lower margins across all
segments and a higher tax rate.
¨ 2.5% feed margin
erosion has big impact. 1H17 net profit of IDR488bn was below expectations, at
32% and 27% of ours and consensus’ estimates. 1H17 feed operating margins
came in at 10.5% (1H16:13%) due to higher feed cost since corn imports by
feed millers were banned. Amidst a weak demand, Japfa Comfeed (Japfa) saw
sales pushing volumes during the Lebaran season, feed ASP saw a 2%
decline on the back 9% YoY volume growth. Given the high sensitivity of
margin movement to operating profit, the segment registered a lower operating
profit of IDR538.6bn, compared to IDR671bn in 2Q16. Its feed segment
contributed 72% of its operating profit as at 2Q17.
Going
forward, we expect feed segmental margins to decline further on the back of
weak seasonality and pricing power. Furthermore, we are bearish of the sector
medium term margins. This is due to the trend of increasing regulatory
headwinds that have limit margins upside, from the price capping of day-old
chick (DOC) and live bird, ban of corn imports, and talk of the formation of
a state-owned poultry enterprise by the Government.
¨ Results below
expecations, 2Q16 gross margin was at a five-year peak. Japfa recorded QoQ
revenue, gross profit and net profit growth of 13%, 27%, 338% respectively
due to the low base effect 1Q16. However, net profit still saw a 42% YoY
decline on gross margin compression and a higher effective tax rate. Recall
that its 1H16 gross margin of 22.4% was at a five-year peak (1H17: 18.5%).
DOC
and live bird sales volume grew 15% and 13% YoY. Notwithstanding the price
capping announcement since 4Q16, DOC and live bird ASP and operating margins
were similar to 2Q16. 1H17 DOC and broiler ASP were hovering at
IDR5,000-5,200/bird and IDR15,500-IDR16,500/chicken. Looking at the
historical trend, we expect 2H17F ASP to be 10-15% lower than 1H16.
¨ Weak 2H17F outlook
and high consensus estimate, expect more disappointments, downgrade to SELL. We lower our
2017-18 core profit estimates by 31.8-30.8% on a further reduction on feed
gross margin estimate to 10% (from 13%). This translates to a lower
DCF-derived TP of IDR1,000, implying 11x FY17F P/E. Our latest estimates are
43% lower than consensus. Main upside risks are an improvement in chicken
demand and implementation shortfall of the regulations while downside risks
include mainly the IDR depreciation and feed margin compression. (Norman Choong, CFA)
Link
to report: Japfa Comfeed Indonesia : Margin Erosion Faster Than Expected
Link
to daily report: Indonesia Morning Cuppa 310717
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Results Review:
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Pembangunan
Perumahan Persero (PTPP IJ, BUY, TP: 4,900), Positive Outlook Ahead
Maintain BUY with
new TP of IDR4,900 (from IDR5,300, 71% upside) as we rollover our valuation
to FY18F. Our TP is based on FY18F P/E of 15.4x, the stock’s 5-year
historical average. Its 1H17 core profit was in line with our expectations,
while its net profit exceeded our estimates due to higher interest income as
a result of proceeds from a rights issue. Revenue was below our estimates due
to several delays in infrastructure projects but its new contracts were
solid, contributing more than 50% of our FY17F estimates. As such, we believe
its good performance should continue in the following quarters.
¨ Decent 1H17
results.
Pembangunan Perumahan Persero’s (PTPP) net profit grew +61.1% YoY in 1H17,
making up 38.4% and 41.5% to our and consensus estimates respectively, above
last year’s seasonality of 34.7%. The results were backed by a stronger gross
margin, profit from joint operations (JO) and other income. Its core profit
was up by +46.9% YoY, making up 32.3%/34.9% of our/consensus’ estimates –
relatively in line vs last year’s 31.7% in 1H16.
Its
revenue was only up by 25.6% YoY, comprising 32.5%/35.2% to our/consensus
estimated, below last year’s seasonality of 39.3%.
QoQ,
its net profit soared 240% YoY and 72% QoQ, while its revenue surged 79% YoY
and 34% QoQ in 2Q17. Its gross margin improved to 15.2% in 2Q17 (vs 14.1% in
2Q16). Net gearing was at 0.03x in 1H17, from a net cash position in Dec
2016.
¨ Superb new contract
collection.
PTPP’s new contracts soared to IDR20.1trn (+44% YoY) in 1H17, more than half
of our FY17 estimates. Its new contracts include the IDR658bn Soekarno-Hatta
International Airport runway, IDR1.1trn Cisumdawu toll road, and IDR1.1trn
first phase of the Bakauheni-Terbanggi Besar toll road.
We
believe PTPP is likely to continue its strong performance given the potential
announcement from Angkasa Pura I for the Kulon Progo Airport project in
Yogyakarta under an investment partnership, with a potential construction
cost of IDR6.7trn. PTPP is also bidding for several toll road projects such
as Probolinggo-Banyuwani, Gempol-Mojokerto and Semarang-Demak.
¨ 3Q17F outlook. We believe its
financial performance would be stronger in the following quarters, in line
with stronger seasonality in 3Q-4Q. It would also be supported by its superb
new collections in 1H17. Gross margin is expected to stabilised at the
current level in 3Q17F.
¨ Maintain BUY. We maintain our BUY
recommendation with a new TP of IDR4,900 as we rollover our valuation to
FY18F. Our TP is based on FY18F P/E of 15.4x, its 5-year historical average.
We remain bullish on the stock due to its cheap valuations, robust growth,
diversified projects, and its three subsidiaries’ upcoming IPOs in FY17F-18F
that would support the companies’ future growth. The stock is currently
trading at FY18F P/E of 9x. (Dony Gunawan)
Link
to report: Pembangunan Perumahan Persero : Positive Outlook Ahead
Indofood Sukses
Makmur (INDF IJ, BUY, TP: IDR10,300), Earnings Growth To Accelerate In The
Quarters Ahead
Indofood’s 1H17
earnings came in line with our estimates, but were above consensus’
expectations. QoQ, earnings declined on the back of lower sales, driven by
shorter working days. Meanwhile, G&A expenses increased because of higher
salary costs as a results of the Lebaran allowances. The company
revealed that excluding sales during the Lebaran holiday, its average
daily sales had actually increased. Hence, we see that earnings should rise
in the following quarters. Maintain BUY with a DCF-based TP of IDR10,200 (22%
upside), implying 21x FY18F P/E.
¨ In line 2Q17
earnings.
Indofood CBP (Indofood)’s 1H17 earnings came in at IDR2.1trn (+6% YoY) which
was in line with our, but were above consensus’ expectations. It made up 50%
and 52% of our and consensus’ full-year estimates.
QoQ,
2Q17 earnings declined to IDR1trn (-8% QoQ) on the back of lower sales, which
were driven by shorter working days during Lebaran. In addition, its
EBIT margin narrowed to 13.5% in 2Q17 (vs 15.7% in 1Q17), driven by higher
G&A expenses (+23% QoQ). We see this was likely be driven by the
one-month extra salary for the Lebaran allowances. It is worth noting
that the company’s 2Q17 finance expenses declined to IDR36bn (-26% QoQ).
¨ Expect better
quarters going forward. Indofood revealed that excluded sales during the Lebaran
holiday, its average daily sales actually increased in all consumer food
categories, except noodles. Hence, we see that earnings should rise in the
following quarters.
Notably,
although noodles sales volume declined, it still gained market share since
industry sales declined steeper. Hence, Indofood’s noodles performance was
better than the industry’s. In addition, noodles’ EBIT margin widened to
20.1% in 2Q17 (vs 19.1% in 1Q17 and 18.9% in 2Q16).
¨ Gaining market
share despite rising competition. Given it is the largest Indonesia consumer
food company, Indofood has better competitive advantage – such as an extended
distribution network as well as well-known brands and economies of scale to
deal with the rising competition. Indofood gained market shares in both
noodles and flour products.
Indofood
sees that competition in the Indonesia consumer industry is rising,
especially in the ready-to-drink (RTD) products. However, the company said
that the sales of its RTD-tea (Ichi Ocha) and RTD-coffee (Cafela)
recorded good performances thanks to its solid marketing strategy.
¨ Maintain BUY with a DCF-based
TP of IDR10,200, implying a 21x FY18F P/E. Key risk to our call is the rising
raw materials cost, especially flour, which is in line with the fluctuation
in international wheat price. International wheat price surged significantly
in early July but has since declined. (Andrey
Wijaya)
Indofood CBP (ICBP
IJ, BUY, TP: IDR10,200), Expecting Better Quarters Ahead
Indofood’s 1H17
earnings came in line with our estimates, but were above consensus’
expectations. QoQ, earnings declined on the back of lower sales, driven by
shorter working days. Meanwhile, G&A expenses increased because of higher
salary costs as a results of the Lebaran allowances. The company
revealed that excluding sales during the Lebaran holiday, its average
daily sales had actually increased. Hence, we see that earnings should rise
in the following quarters. Maintain BUY with a DCF-based TP of IDR10,200 (22%
upside), implying 21x FY18F P/E.
¨ In line 2Q17
earnings.
Indofood CBP (Indofood)’s 1H17 earnings came in at IDR2.1trn (+6% YoY) which
was in line with our, but were above consensus’ expectations. It made up 50%
and 52% of our and consensus’ full-year estimates.
QoQ,
2Q17 earnings declined to IDR1trn (-8% QoQ) on the back of lower sales, which
were driven by shorter working days during Lebaran. In addition, its
EBIT margin narrowed to 13.5% in 2Q17 (vs 15.7% in 1Q17), driven by higher
G&A expenses (+23% QoQ). We see this was likely be driven by the
one-month extra salary for the Lebaran allowances. It is worth noting
that the company’s 2Q17 finance expenses declined to IDR36bn (-26% QoQ).
¨ Expect better
quarters going forward. Indofood revealed that excluded sales during the Lebaran
holiday, its average daily sales actually increased in all consumer food
categories, except noodles. Hence, we see that earnings should rise in the
following quarters.
Notably,
although noodles sales volume declined, it still gained market share since
industry sales declined steeper. Hence, Indofood’s noodles performance was
better than the industry’s. In addition, noodles’ EBIT margin widened to
20.1% in 2Q17 (vs 19.1% in 1Q17 and 18.9% in 2Q16).
¨ Gaining market
share despite rising competition. Given it is the largest Indonesia consumer
food company, Indofood has better competitive advantage – such as an extended
distribution network as well as well-known brands and economies of scale to
deal with the rising competition. Indofood gained market shares in both
noodles and flour products.
Indofood
sees that competition in the Indonesia consumer industry is rising,
especially in the ready-to-drink (RTD) products. However, the company said
that the sales of its RTD-tea (Ichi Ocha) and RTD-coffee (Cafela)
recorded good performances thanks to its solid marketing strategy.
Maintain BUY with a DCF-based TP
of IDR10,200, implying a 21x FY18F P/E. Key risk to our call is the rising
raw materials cost, especially flour, which is in line with the fluctuation
in international wheat price. International wheat price surged significantly
in early July but has since declined. (Andrey
Wijaya)
Link to report: Indofood CBP : Expecting Better Quarters Ahead
Bukit Asam (PTBA IJ,
BUY, TP: IDR17,400), More Realistic Guidance
New management has
cut FY17F guidance, which we believe is now more realistic. Although its
FY17F coal production guidance has been cut, Bukit Asam is one of few among
Indonesian listed coal miners that offer production volume growth in FY17F.
We fined-tuned our assumptions and maintain our BUY call, with revised
DCF-derived TP of IDR17,400 (from IDR17,600, 32% upside). We think it is
trading at undemanding valuations and believe that the upcoming agreement to
be signed between Bukit Asam and PLN on FY17F selling price is a near-term
catalyst.
¨ Using conservative
accounting to record selling price to PLN. Based on our discussion with
current management, Bukit Asam booked revenue from selling coal to the
state-owned electricity company, Perusahaan Listrik Negara (PLN) in 1H17
using average selling price (ASP) that PLN requested in negotiations.
However, if the final agreed selling price with PLN in the yet-to-be-signed
agreement uses 4Q16 ASP (as per former agreement), there should be a positive
surprise as Bukit Asam would record higher selling price and would make a
retroactive adjustment to its revenue from PLN since beginning-2017.
¨ After cutting FY17F
guidance, there is still growth. New management at Bukit Asam (since
end-Apr 2017) cut its FY17F guidance (Figure 2). However, the revised FY17
guidance on production volume still shows growth compared to peers like Adaro
Energy (ADRO IJ, NR) and Indotambang, which have no growth in their FY17F targeted
production volume. We think the revised guidance is more reasonable and
realistic, and that consensus would not downgrade earnings on lower
management guidances as consensus numbers may have already imputed discounts
on previous management’s guidance.
¨ Lower total capex. After reviewing
FY17F total capex, new management has cut total capex to IDR2.02trn
(IDR1.48trn for routine and non-routine investments and IDR0.52trn for
development projects) from IDR4.45trn (IDR2.05trn for routine investments and
IDR2.40trn for development projects). This should increase its FY17 free cash
flows.
¨ Reiterate BUY with
revised DCF-derived TP of IDR17,400. We fined-tuned our assumptions by changing
our FY17F-18F earnings by +1.8% and -0.4% respectively. We maintain Bukit
Asam as our Top Pick as we think it is one of few coal miners that would
generate growth in FY17 production volume. On top of that, its position as
the only state-owned enterprise (SOE) that is engaged in coal mining provides
a competitive advantage in obtaining more sales from PLN. Key risks to our
call include a delay in expanding railway capacity, and a significant drop in
coal prices. (Hariyanto Wijaya, CFA, CPA,
CMT)
Link to report: Bukit Asam : More Realistic Guidance
Bank Central Asia
(BBCA IJ, Neutral, TP: IDR19,000), Costly To Be Conservative?
Post 1H17 results
that were below our expectations, we view BCA’s premium valuation as
unjustifiable. BCA would also not be able to directly benefit from Government
infrastructure projects, due to its conservative risk profile. Meanwhile,
with aggressive competitors drawing away its corporate borrowers, BCA may
need to further lower its lending rate. This could bring its FY18F loan yield
down to 10.3% (FY17F: 10.5%, FY16: 11.5%). Maintain NEUTRAL, with new
GGM-derived IDR19,000 TP (from IDR17,200, 1% upside) after rolling over our
valuation to FY18.
¨ Selective on
infrastructure-related financing. During its results briefing, Bank Central
Asia (BCA) management maintained its conservative stance on the overall
macroeconomic environment, amid several significant ongoing
infrastructure-related projects. Given its status as the biggest non
state-owned bank in Indonesia, BCA would selectively choose which
infrastructure projects match its risk profile. Toll-roads with promising
traffic and and light rail transit (LRT) projects with Government guarantees
are two such projects in which BCA would participate by syndicated scheme.
¨ Consumer lending is
also a challenge. Mortgages,
as the biggest contributor to BCA’s consumer lending segment, are another
challenging issue, due to a sizeable repayment from borrowers that could
reach IDR1.5trn per month. Still, the promotional rate in 1Q17 supported QoQ
mortgage growth of 13.8%. BCA’s management also emphasised that it would
continue to grow its consumer lending segment by offfering promotional rates
to attract the higher middle-income segment. As such, we expect this business
would grow by 13% next year, with mortgages remaining the main contributor
(we estimate it to reach 59.1% of total consumer lending by the end of next
year).
¨ Expect lower loan
yields.
BCA’s management highlighted that the race for corporate lending business is
getting intense, as its competitors aggressively offer lower pricing to BCA’s
borrowers. That said, BCA has started to reprice down some of its lending
rates – which would result in lower loan yields. We, however, already assume
loan yields would drop significantly by 101bps to 10.5% this year, before
further falling to 10.3% next year.
¨ Maintain NEUTRAL,
with higher IDR19,000 TP. We maintain our NEUTRAL recommendation on BCA, with a
new GGM-derived IDR19,000 TP as we roll over our valuation to 2018. We assume
8.3% CoE, 19% sustainable ROAEs and 3% long-term growth. Our TP implies 3x
2018F P/BV, which is reasonable in our view, given that it is below BCA’s
10-year mean of 3.3x.
¨ Risks to our call are
include slower-than-expected GDP growth that would dampen its asset quality
improvement, and aggressive competition for BCA’s CASA deposit base, which
would result in lower market share and exposure to the risk of a higher
blended CoF. (Eka Savitri)
Link to report: Bank Central Asia : Costly To Be Conservative?
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plans to buy back its own shares
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Link to report: Bank
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Best regards,
Helmy Kristanto
Director
Head of Indonesia Research
PT RHB Sekuritas Indonesia
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