.

RHB Indonesia - Nippon Indosari Corpindo - Below Expectations Despite 3Q17 Earnings Jump (Nippon Indosari, Summarecon) Unknown Selasa, 31 Oktober 2017




Good morning,

Nippon Indosari Corpindo – Below Expectations Despite 3Q17 Earnings Jump

Even though Indosari’s 3Q17 earnings jumped QoQ, driven by a decrease in sales returns, its 9M17 net profit still came in below our estimate. The underperformance was driven by higher-than-expected expired/defective inventory costs and A&P expenses. It also just announced that KKR has acquired a 12.64% stake in the company. Maintain NEUTRAL, with an unchanged DCF-based TP of IDR1,180 (7% downside) that also implies a 21x FY18F P/E.


¨ An underperformance despite an 3Q17 earnings jump. Nippon Indosari’s (Indosari) 9M17 earnings plunged 52% YoY to IDR97bn, below our expectations and making up only 56% and 44% of our and consensus full-year estimates respectively. This was driven by higher-than-expected opex, mainly incurred in 6M17. Expired/defective inventory costs and advertising & promotion expense rose to IDR166bn (+47% YoY) and IDR106bn (+12% YoY), respectively. Defective inventory costs accounted for 22% of 9M17 total opex, while advertising costs made up around 14% of total opex.
Its 3Q17 earnings came in at IDR48bn (+139% QoQ, -37% YoY), as its sales improved and sales return rate declined after the Ramadan fasting month. Note that its 3Q17 EBIT margin widened to 12.7% (2Q17: 7.2%), which was still lower than its 3Q16 EBIT margin of 18.3%. In our calculation, Indosari’s sales return rate dropped to 16% in 3Q17 (2Q17: 28.8%), but this was still much higher than 3Q16’s 12.5%. The company is continuing its efforts to improve the return rate while expanding its sales in 4Q17.
¨ To enter the South Korean market. Indosari has signed a deal with Caffebene, a coffee chain from South Korea, whereby it would supply various pastries and cakes under the brand Caffebene by Sari Roti, from Dec 2017 onwards. Indosari does not have any plan to build a factory in South Korea at the present time, but aims to ship frozen dough to South Korea from Indonesia. Pastries and cakes arriving in South Korea should be ready to be sold in Caffebene outlets. We believe this is a good strategy to minimise the risk of incurring huge costs of setting up a new factory.
¨ New majority shareholder. At end-October, Kohlberg Kravis Roberts (KKR) acquired a 12.64% stake in the company, equivalent to 782m shares. KKR purchased Indosari’s shares at an average price of IDR1,275 per unit, capping a transaction value of USD74m. Post its rights issuance, major stakeholders in the company would be as follows: Bonlight Investments (~23.4%), Indoritel (~25.8%), KKR (~12.6%) and Pasco Shikishima (~8.5%).
¨ Maintain NEUTRAL with a DCF-derived TP of IDR1,180, which also implies a FY18F P/E of 21x. A key upside risk to our call is faster-than-expected recovery in its performance, which would lower its opex. Downside risks include sales returns being higher than expected. (Andrey Wijaya)

Link to daily report: Indonesia Morning Cuppa 311017

Company Update:

Summarecon Agung (SMRA IJ, Neutral, TP: IDR1,125), Strong Demand For Symphonia
Last Saturday, we visited Summarecon’s two new sub-clusters launched in Symphonia Serpong – Verdi and Vivaldi. The event was held in Summarecon Serpong’s marketing office. A total of 402 units were available for sale and there was a 90% take-up rate on the first day with approximately IDR600bn of marketing sales based on the price range of IDR1.05-3bn/unit. Maintain NEUTRAL with a IDR1,125 TP (12% upside).

¨ 90% take-up rate for Verdi and Vivaldi. On 28 Oct 2017, Summarecon Agung (Summarecon) launched two landed residential sub-clusters called Verdi and Vivaldi that would be located inside the Symphonia development in Serpong. The company sold 362 of a total of 402 units offered on the first day of the launch. The project’s ground-breaking is scheduled for 5-6 months from the launch date while the handover is slated at 18 months post launch or approximately 2Q19F.
¨ Unit types and price. There are 243 units for the Verdi sub-cluster with land size areas ranging from 72-84 sqm/unit and prices ranging between IDR1.05-1.6bn/unit. Verdi is the more popular product due to its relatively affordable pricing. 232 units were sold on the day of the launch.
On the other hand, there are 159 units of the Vivaldi sub-cluster available for sale with land size areas of 128-144 sqm/unit and prices ranging between IDR2.05-3.03bn/unit. Vivaldi sold 131 units on the day. In terms of payment method, the company is offering a maximum of 24 in-house cash installments as well as around 10% discount for cash buyers. Estimated marketing sales from these two projects are approximately IDR600bn.
¨ What we had observed. At 11.20am, the marketing office was congested with customers who had paid their respective booking fees in advance as well as potential buyers. During this time, there were already a total of 430 customers, who had paid booking fees in advance.
As mentioned, Verdi was the more popular type among the buyers due to its pricing. Customers who opt to purchase this type via a mortgage can pay the 15% downpayment through installments of up to six months and an average monthly payment of IDR8.5m for a 15-year tenure. In comparison, for Vivaldi, aside from the similar 15% downpayment that can be made by installments of a maximum six months, the average monthly payment would be IDR16.4m for a maximum period of 15 years.
¨ Conclusion. We believe this is the beginning of a recovery in the demand for property especially for units <IDR1.5bn. Including the sales from Vivaldi and Verdi, we estimate Summarecon’s marketing sales have reached 96% of our full-year target. The company still has three more launches in the pipeline in Bekasi, Bandung, and Karawang. We have yet to make any changes to our assumptions and 9M17 results would be released within this week. Maintain NEUTRAL. (Yualdo Tirtakencana)
Media Highlights:

Corporate

Krakatau Steel achieved 5.87% revenue increased
Ancora obtained USD2mn Loan
LCK Global Kedaton plans to go public
Our Recent Publication:
Results Review: Perusahaan Gas Negara – Some Improvements, But Outlook Still Uncertain
Results Review: Delta Dunia Makmur – Mining Contracting Volume Growth To Continue
Economics Update: 2018 State Budget: Encouraging Investment And Infrastructure For Growth And Equality
Economics Update: BI Pauses In October After Easing August-September
Company Update: Bekasi Fajar – Waiting On Guidance For 9M17
Company Update: Arwana Citramulia – Revenue Remains Robust Despite Elevated Costs
Economics Update: September Exports Moderate, Imports Pick Up
Sector Update: Building Materials – Infrastructure Projects Boost Bulk Cement Sales Growth
Company Update: Ciputra Development – Toning Down Our Forecasts
Corporate News Flash: Summarecon Agung – 9M17 Marketing Sales Are In Line With Estimates


Best regards,

Andrey Wijaya
Senior Vice President
Research Analyst – Auto, Consumer, Cement
PT RHB Sekuritas Indonesia


Disclaimer: This message is intended only for the use of the individual or entity to whom it is addressed and may contain information that is confidential and privileged.  If you, the reader of this message, are not the intended recipient, you should not disseminate, distribute or copy this communication.  If you have received this communication by mistake, please notify us immediately by return email and delete the original message.  This message is transmitted on the condition that the recipient accepts the inherent risks in electronic data transmission and agrees to release RHB group and RHB Securities from any claim which the recipient may have as a result of any unauthorized duplication, reading or interference with the contents herein. The contents herein are made in the personal capacity of the above-named author and nothing herein shall be construed as professional advice or opinion rendered by RHB group and RHB Securities or on its behalf.
Tags:
Labels:
Related