Cloudy Sentiment Overshadowing Strong Fundamentals
Key Takeaways
• ARNA IJ booked net revenue of IDR2.00tn in 9M22, rose by 6.24% YoY (vs IDR1.89tn) due to higher third-party sales by CSAP IJ, which grew +6.57% YoY and accounted for 70.85% of its 9M22 revenues.
• Gross profit rose double-digit +21.42% YoY driven by lower COGS -2.27% YoY, lifting its GPM to 41.04% (vs 35.91% in 9M21).
• Net profit in 9M22 recorded at IDR458.36bn or rose +31.92% YoY (vs IDR347.45bn in 9M21), thanks to lower selling expense (-1.41% YoY) and G&A (-6.78% YoY).
• We believe, the margin will stay elevated amid the potential of gas price hike for certain industries due to the increase in global gas prices, the gas cost consumption accounts for ~30% of COGS.
• Our model shows that increasing industrial gas prices to USD7/MMBtu will lift up the assumed gas cost per sqm of ceramic by ~IDR900.
• We take into account, a projection of ceramic production growth in FY223F by 72.47mn sqm (+2.94% YoY) using USD7/MMBtu gas prices, thus the estimated GPM in FY23F at 40.26%, or squeezed -1.87 ppt from the previous estimation of 42.13%.
• Meanwhile, we projected the revenue in FY23F could lift +5.33% YoY, driven by higher sales volume growth of +3.17% YoY coupled with a new plants of 4C (Ogan Ilir) and 5C (Mojokerto).
• We maintain our BUY call for ARNA with a lower TP of IDR1,350 from IDR1,450, providing +55% potential upsides, implying PE/PBV of 14.99x/4.44x in FY23F. Currently, ARNA is trading at an attractive valuation of 10.81x PE (close to -2 STD of its 3-year average).
MNCS Research
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