1Q22 Results: Solid Revenues and Earnings Growth
Pleasantly Surprised, Above Expectation
• ARNA booked a revenue of IDR743.61 Bn in 1Q22 (vs IDR662.38 Bn in 1Q21) or grew by +11.08% QoQ/+12.26% YoY, slightly above ours and consensus, implies 26.89%/27.58% of FY22E target, respectively.
• Ex Java contribute 59.35% of total revenue, or reach IDR441.30 Bn (+55.30% QoQ/+53.50% YoY). We consider that the increasing contribution outside Java is due to the addition of marketing network (44 sub distributors & 33,980 outlets in FY21).
• Gross profit grew by +24.62% QoQ/+30.16% YoY and pushed GPM up to an ll-time high level 40.58% (vs 35.00% in 1Q21). Efficiency on energy consumption will continue to lift the margins up.
• Net profit reach IDR170.58 Bn or grew by +38.17 QoQ/+44.16% YoY (vs IDR118.33 Bn in 1Q21), beating ours and consensus estimate, implies 29.30%/31.04% of FY22E target. NPM was recorded at 22.94% (vs 17.86% in 1Q21).
• Management plans to add another 3 sub-distributors outside Java (2 in Sumatra, 1 in Kalimantan), which will help accelerate the revenue growth in FY22E.
• Furthermore, the production of "Porcelain Tile" will be operated on a full-year basis, adding another potential volume to ~3 Mn Sqm this year (vs 2.28 Mn Sqm in FY21).
Expecting Margin Expansion from New Plants
Our base case estimate for FY22E revenue and net profit to grow +9.67% YoY/+30.41% YoY in FY22E, respectively on the back of higher sales volume (+7.74% YoY) as well as an optimal increase in new plant utilization (109%). Moreover, ARNA would benefit from China's current lockdown as well as rising gas prices to weigh on the performance of imported ceramic producers, where ~30% of production lines were stopped in the first half of Mar-22. Furthermore, the increase in China's industrial gas prices also contributed to higher selling prices of goods. Overall, this might encourage the company to further increase sales volume, especially in the mid-high 'Homogenous Tile' segment which is still dominated by imported products. As of 2M22, China's ceramic import value rose +69.72% YoY (78.83% contribution).
Maintain BUY with TP IDR1,250
We maintain our BUY recommendation for ARNA with a new TP of IDR1,250 (+26% upside) which implies PE/PBV 14.94x/4.75x in FY22E. Currently, ARNA is trading at 0 STD PE of its 3 year average. Key downside: 1) weak sales products, especially in mid-high segment; 2) gas supply constraint that continue to occur; 3) a higher imported product than expected.
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