Weaving The Future - MNC Sekuritas€¦ · Rp 340 (as of May 26th 2017). The calculation of PT is...

MNCS FLASH NOTES

MNC Sekuritas Research Division May 29, 2017

Please see important disclaimer at the back of this report

www.mncsecurities.com MNC Sekuritas 1-500-899 [email protected]

Key Financial Highlight

In million USD 2014 2015 2016 2017E 2018F Sales 554.62 621.99 679.94 748.89 775.10 Gross Profit 122.42 133.42 145.35 166.93 172.78 Net Profit 50.45 55.68 59.37 65.50 69.00 Gross Profit Margin (%) 20.78 21.13 21.38 22.29 22.29 Net Profit Margin (%) 9.10 8.95 8.73 8.75 8.90 Total Assets 698.87 783.35 947.17 1,017.51 1,080.98 Net Debt/EBITDA 3.33 3.36 3.67 3.07 2.71 Debt/Equity 1.29 1.11 1.53 1.30 1.11

Solid 1Q17 Results Driven by Strong Growth of Garment Division Sri Rejeki Isman Tbk (SRIL) booked 6.8% YoY increase in revenue from USD168.7 mn in 1Q16 to USD180.2 mn in 1Q17, as the sales of garment products surged by 150% YoY. The 1Q17 revenue is inline within MNCS estimate, representing 24.06%/23.65% from MNCS/consensus estimates. The company also successfully managed an operational excellency and cost effiency since 2016, as the result operating margin increased from 16.9% in 1Q16 to 18.5% in 1Q17. Along with the good result at the top line, net profit grew by 7.8% YoY or 22.5% qoq to USD 17.7 mn in 1Q17. It was accounted for 27.06%/25.93% of MNCS/concensus estimates. Key Growth Catalysts in 2017 We believe that the positive profitability trend in 1Q17 will continue throughout the year. It is supported by : 1) Aggressive expansion in production capacity by average of 32.5% for each of strategic business units (SBU) in FY17E; 2) More diversification in global customers portfolio where the export sales contribution is expected to increase from 49% in 1Q16 to 56% in FY17E; 3) Solid growth in company's profitability. We estimate the company revenue will potentially grow by 10.1% YoY to USD 748.89 mn in FY17E, while net profit is estimated to increase by 10.33% YoY to USD 65.5 mn; 4) Manageable debt exposure in the long run. We estimate the DER ratio of the company will potentially decline from 1.53x in FY16 to 1.3x/1.11x in FY17E/FY18F as stronger operating cash flow ahead. Valuation and Recommendation : Maintain Buy with TP IDR468 We believe the strategic decision of SRIL to enlarge its production capacity and maintaining cost efficiency was bold decision in providing sustainable value adds for the shareholders. We maintain our Buy recommendation with price target (PT) of IDR468 per share for next 12 months, indicating 37.22% potential upside from current share price at Rp 340 (as of May 26th 2017). The calculation of PT is based on DCF model by using 8.06% of WACC, 0.74 of Beta and 6.4% of risk premium. Our valuation implies 10x/9.5x of PE17E/PE18F.

PT Sri Rejeki Isman Tbk (SRIL) Textile and Garment Manufacturer

Weaving The Future

BUY

Stock Data

Target Price : 468

Current Price : 340

52wk Range : 204-496

Share Outstanding : 18,593 mn

Free Float (%) : 43.88

Mkt Capitalization : 6,321 bn

PT Huddleston Indonesia

: 56.07%

Major Shareholders

Founder Share : 0.05%

Research Analyst

Victoria Venny N.S. [email protected] (021) 2980 3111 ext. 52236

Public : 43.88%

Source : Company, MNCS Estimate

Flash Notes | MNC Sekuritas Research Division



1Q17 Results Highlight : On The Right Path

SRIL reported 6.8% YoY increase in revenue from USD168.7 mn in 1Q16 to USD180.2 mn in 1Q17, mainly was boosted by strong growth in the garment business. Garment business sales surged by 150% YoY in 1Q17 in the middle of full production capacity. The realization of revenue in 1Q17 accounted for 24.06%/23.65% from MNCS/consensus estimates. Meanwhile COGS remained stable at 77% of total revenue in 1Q17. The company has successfully maintained its Gross Profit Margin (GPM) at around 22% which was a little bit higher compared than 21% of last eight (8) quarters. As the result, net profit grew moderately by 7.8% YoY or +22.5% qoq to USD17.7 mn in 1Q17.

41%

26%

24%

9%

1Q17 Sales by Business Segment

Spinning Garment Finishing Weaving

48%

28%

10%

10%4%

0%

1Q17 Sales by Geography

Domestic Asia Europe USA UAE Australia

Figure 1. SRIL’s Sales Composition by Business Segment and Geography, 1Q 2017

Source : Company, MNCS

USD mn 1Q16 4Q16 1Q17 QoQ YoY FY17E Consensus

FY17E MSEC

%Consensus % MNCS

Sales 168.69 181.24 180.18 -0.58% 6.82% 762.00 748.89 23.65% 24.06%

COGS 133.15 140.12 140.44 0.23% 5.47%

Gross Profit 35.54 41.12 39.75 -3.34% 11.85% 128.00 129.61 31.05% 30.67%

Gross Profit Margin 21.07% 22.69% 22.06%

Income from Operations 28.54 36.38 33.40 -8.18% 17.03%

EBIT Margin 16.92% 20.07% 18.54%

Profit Before Tax 16.45 14.02 20.51 46.23% 24.67% 81.70 87.33 25.10% 23.48%

Net Profit 16.45 14.47 17.72 22.46% 7.76% 68.35 65.50 25.93% 27.06%

Net margin 9.75% 7.99% 9.84%

EBITDA 33.67 42.02 39.67 -5.58% 17.84% 148.00 153.49 26.81% 25.85%

EBITDA Margin 19.96% 23.18% 21.89%

Figure 2. 1Q17 Financial Result

Source : Company, Bloomberg, MNCS Estimate



Aggressive Expansion in Production Capacity to Meet the Higher Demand

SRIL plans to increase its production capacity starts from 2017 onward in order to meet higher demand both of domestic and international market. The domestic market contributed for 51% of total consolidated sales of the company in FY16. Meanwhile the overseas market accounted for 49%. However along with the strategic plan of the company to expand its overseas market, the overseas sales contribution has increased from 49% in 1Q16 to 53% in 1Q17. The company targets to increase the overseas market contribution to 56% in FY17E. SRIL will expand the total capacity of spinning division by 16% from 566.000 in FY16 to 654.000 bales of yarn in FY17E. In the weaving division, the total capacity will be increased by 50% from 120 mn to 180 mn meters of greige in FY17E. Meanwhile the total capacity of finishing division will be raised by 100% from 120 mn to 240 mn yards of fabric. The total capacity in garment division will be enhanced by 114% from 18 mn to 30 mn pieces of apparel in FY17E. As the average, the company targets to enlarge the production capacity by 32.5% for each of strategic business units (SBU) in FY17E.


Division 2014 2015 2016 2017E 2018E 2019E 2020E

Spinning (yarn: bales/yr)

566,000

566,000

566,000

566,000

654,000

654,000

654,000

Weaving (greige: m/yr)

120,000,000

120,000,000

120,000,000

168,000,000

180,000,000

180,000,000

180,000,000

Finishing (fabric: yard/yr)

120,000,000

120,000,000

120,000,000

168,000,000

240,000,000

240,000,000

240,000,000

Garment (garment: pcs/yr)

18,000,000

18,000,000

18,000,000

27,000,000

27,000,000

27,000,000

27,000,000

Figure 4. Production Capacity


The SRIL management estimates that the utilization of new plants will be potentially at 40% in FY17E and 95% in 2018. Thus, we estimate the average utilisation rate would normalize from 94% of full capacity in FY16 to 75%/66% in FY17E/FY18F. The average volume will grow by 32.5%/16.4% in FY17E/FY18F. Meanwhile the ASP growth is estimated to remain stable at 1.8% - 2% in FY17E/FY18F. Therefore we estimate the revenue of the company will sustaibly grow by 10.1% YoY to USD748.89 mn in FY17E. Meanwhile net profit of the company will increase moderately by 10.33% YoY to USD65.5 mn in FY17E. We estimate that GPM will potentially increase from 21.4% in FY16 to 22.3% in FYE, while NPM will slightly raise up from 8.73% in FY17E to 8.75% in FY18F.

The Normalization of Utilization Rate in FY17E/FY18F

Valuation and Recommendation : Maintain Buy with TP IDR418

We derived our price target (PT) from DCF valuation with 8.06% of WACC, 0.74 of Beta, 6.4% of risk premium and 13,200 IDR/USD rate as the basic assumption. We maintain our BUY recommendation with PT of IDR468 per share for next 12 months. Our valuation implies 10x/9.5x of PE17E/PE18F. We believe that the stock is undervalued and has attractive story growth ahead.




USD million 2014 2015 2016 2017E 2018E USD million 2014 2015 2016 2017E 2018E

Sales 554.62 621.99 679.94 748.89 775.10 Cash & ST investment 81.60 77.14 60.49 89.90 127.23

COGS 432.20 488.58 534.59 581.95 602.32 Trade receivable 129.24 102.18 149.56 164.73 170.49

Gross Profit 122.42 133.42 145.35 166.93 172.78 Inventory 109.57 135.79 147.62 160.69 166.32

Selling 10.88 13.47 13.02 14.34 14.84 Current Assets 326.24 323.14 378.03 435.68 484.41

Admin 16.62 22.07 22.23 24.49 25.35 Fixed Assets, net 322.60 440.88 519.30 531.99 546.73

Other Operating Income 0.66 1.20 6.29 1.51 1.56 Others 50.02 19.33 23.16 23.16 23.16

Loss on Foreign Exchg. (2.01) (0.98) (0.93) - - Non-current Assets 372.62 460.21 569.14 581.83 596.57

Opex 26.83 34.34 28.97 37.32 38.63 Total Assets 698.87 783.35 947.17 1,017.51 1,080.98

EBITDA 107.58 117.84 135.38 153.49 159.41 Short term bank loans 31.67 38.27 73.14 73.14 73.14

Depreciation 14.01 19.74 19.93 23.88 25.26 Accounts Payable 18.62 11.11 5.52 9.62 8.09

EBIT 93.57 98.10 115.45 129.61 134.14 Taxes Payable 4.84 8.10 6.17 10.92 11.50

Others (27.64) (33.50) (49.42) (42.28) (42.15) Current maturity of LT debt 1.04 2.76 32.27 32.27 32.27

Interest Expense (29.19) (35.44) (50.53) (43.39) (43.28) Current Liabilities 64.48 67.16 123.53 132.96 132.26

Interest Income 1.55 1.93 1.11 1.12 1.13 Employee benefits 8.47 10.12 12.86 12.86 12.86

Others 0.66 1.20 6.29 1.51 1.56 Borrowings 267.12 268.47 434.73 434.73 434.73

PBT 65.93 64.60 66.03 87.33 92.00 Non-current liabilities 402.95 439.45 492.53 492.53 492.53

Tax (15.48) (8.92) (6.66) (21.83) (23.00) Minority Interest 10.47 10.47 10.48 10.48 10.48

Net Profit 50.45 55.68 59.37 65.50 69.00 Total Equity 231.43 276.74 331.11 392.02 456.19

EPS 0.003 0.003 0.003 0.004 0.004 Total Liabilities & Equity 698.87 783.35 947.17 1,017.51 1,080.98

Figure 5. Financial Projection

Income Statement Balance Sheet

USD million 2014 2015 2016 2017E 2018E Ratio 2014 2015 2016 2017E 2018E

Net Profit 50.45 55.68 59.37 65.50 69.00 Growth

Change in WC Sales 23.06% 12.15% 9.32% 10.14% 3.50%

Inc/Dec in receivables (68.44) 27.06 (47.38) (15.17) (5.77) Gross Profit 25.75% 8.98% 8.95% 14.85% 3.50%

Inc/Dec in other Current Assets

(0.26) (2.20) (12.33) - - EBIT 46.56% 4.84% 17.69% 12.26% 3.50%

Inc/Dec in Payables (23.16) (7.51) (5.58) 4.10 (1.53) PBT 49.02% -2.02% 2.21% 32.26% 5.34%

Inc/Dec in other CLs 0.25 2.33 (2.43) 5.39 0.83 Gross Profit Margin 20.78% 21.13% 21.38% 22.29% 22.29%

Change in Deferred Tax 8.87 1.84 (1.52) - - EBIT Margin 16.87% 15.77% 16.98% 17.31% 17.31%

Operating Cash Flow (8.16) 70.71 (1.78) 70.63 82.17 PBT Margin 11.89% 10.39% 9.71% 11.66% 11.87%

Capex (86.57) (138.02) (98.35) (36.57) (40.00) Net Profit Margin 9.10% 8.95% 8.73% 8.75% 8.90%

Investing Cash Flow (120.09) (107.33) (128.86) (36.57) (40.00) ROE (average) 23.93% 21.91% 19.53% 18.12% 16.27%

Proceeds/payments on ST loans

(95.80) 8.31 64.38 - -

Proceeds/payments on LT loans

307.28 33.01 51.87 - - Liquidity & Solvency

Dividends (3.05) (7.41) (4.02) (4.58) (4.83) Net Debt/EBITDA 3.33 3.36 3.67 3.07 2.71

Issuance of shares (17.64) - 0.01 - - Debt/Equity 1.29 1.11 1.53 1.30 1.11

Others 12.95 (1.76) 1.76 (0.06) - Working Capital

Net Cash Flow 75.50 (4.47) (16.65) 29.41 37.34 Inventory Days 92.53 101.44 100.79 100.79 100.79

Closing Balance 81.60 77.14 60.49 89.90 127.23 Payable Days 15.73 8.30 3.77 6.03 4.90


Cash Flow Ratios

MNC SEKURITAS RESEARCH TEAM

Edwin J. Sebayang Head of Retail Research, Technical, Auto, Mining [email protected] (021) 2980 3111 ext. 52233

I Made Adesaputra Head of Fixed Income Research [email protected] (021) 2980 3111 ext. 52117

Yosua Zisokhi Plantation, Cement, Poultry, Cigarette [email protected] (021) 2980 3111 ext. 52234

Disclaimer This research report has been issued by PT MNC Sekuritas, It may not be reproduced or further distributed or published, in whole or in part, for any purpose. PT MNC Sekuritas has based this document on information obtained from sources it believes to be reliable but which it has not independently verified; PT MNC Sekuritas makes no guarantee, representation or warranty and accepts no responsibility to liability as to its accuracy or completeness. Expression of opinion herein are those of the research department only and are subject to change without notice. This document is not and should not be construed as an offer or the solicitation of an offer to purchase or subscribe or sell any investment. PT MNC Sekuritas and its affiliates and/or their offices, director and employees may own or have positions in any investment mentioned herein or any investment related thereto and may from time to time add to or dispose of any such investment. PT MNC Sekuritas and its affiliates may act as market maker or have assumed an underwriting position in the securities of companies discusses herein (or investment related thereto) and may sell them to or buy them from customers on a principal basis and may also perform or seek to perform investment banking or underwriting services for or relating to those companies.

Victoria Venny Telco, Infrastructure, Logistics [email protected] (021) 2980 3111 ext. 52236

Rr. Nurulita Harwaningrum Banking [email protected] (021) 2980 3111 ext. 52237

Krestanti Nugrahane Research Associate [email protected] (021) 2980 3111 ext. 52166

Sukisnawati Puspitasari Research Associate [email protected] (021) 2980 3111 ext. 52307


Thendra Crisnanda Head of Institutional Research, Strategy [email protected] (021) 2980 3111 ext. 52162

Gilang Anindito Property, Construction [email protected] (021) 2980 3111 ext. 52235

Reza Dewa Angga Nugraha Junior Analyst of Fixed Income [email protected] (021) 2980 3111 ext. 52294

MNC Research Investment Ratings Guidance BUY : Share price may exceed 10% over the next 12 months

HOLD : Share price may fall within the range of +/- 10% of the next 12 months SELL : Share price may fall by more than 10% over the next 12 months

Not Rated : Stock is not within regular research coverage

PT MNC SEKURITAS MNC Financial Center Lt. 14 – 16

Jl. Kebon Sirih No. 21 - 27, Jakarta Pusat 10340 Telp : (021) 2980 3111 Fax : (021) 3983 6899 Call Center : 1500 899

Benny Narendro Head of Institutional Client [email protected] (021) 2980 3111 ext. 52198

Sri Laksamanawati Head Marketing of Institutional Client [email protected] (021) 2980 3111 ext. 52173

Nesya Kharismawati Equity Sales Manager [email protected] (021) 2980 3111 ext. 52182

Okhy Ibrahim Manager Equity Trader [email protected] (021) 2980 3111 ext. 52180

Harun Nurrosyid Manager Equity Trader [email protected] (021) 2980 3111 ext. 52187

Anastasia Pratiwi Manager Equity Institution [email protected] (021) 2980 3111 ext. 52181

Agus Eko Santoso Manager Equity Trader [email protected] (021) 2980 3111 ext. 52185

Gilang Ramadhan Manager Equity Trader [email protected] (021) 2980 3111 ext. 52178

Iman Hadimulya, ST Manager Equity Institution [email protected] (021) 2980 3111 ext. 52174

MNC SEKURITAS EQUITY SALES TEAM


Weaving The Future - MNC Sekuritas€¦ · Rp 340 (as of May 26th 2017). The calculation of PT is...

Documents

Transcript of Weaving The Future - MNC Sekuritas€¦ · Rp 340 (as of May 26th 2017). The calculation of PT is...