PT Arwana Citramulia Tbk (ARNA) - BUY; TP: IDR630
1Q19 Results: UNO Portion has Significantly Improved
Solid Top-line Driven by Strong Growth of Sales Volume
ARNA showing solid performance with revenue increased by 13,44% YoY going from IDR494,72 tn in 1Q18 to IDR561,23 tn in 1Q19 representing 26,55%/26,18% of Consensus/MNCS estimates for FY19E. This solid performance supported by the increased of sales volume at 8.75% YoY from 14.27 mn sqm in 1Q18 to 15.52 mn sqm in 1Q19. ARNA’s production is running at full capacity. On FY19E-FY20F, production capacity will be increased to 61.87 million sqm/year with IDR100 billion in capex available. In addition, ASP/sqm is likely to rise by 4.3% YoY in 1Q19, in line with changes in product mix strategy. We estimate ASP/sqm will grow ~3% in FY19E, in line with management projections.
UNO-Digi Portion Rose to 60% in 1Q19
ARNA has developed a proper product mix composition, in order to survive in the midst of a sluggish national ceramic market. UNO-Digi portion of production rose from 43% in 3Q17 to 53% in 3Q18 and 60% in 1Q19 while the ‘best buy’ product contribution maintained at 29% in 1Q19 (vs 35% in 3Q18). We estimate that a 1% increase of UNO-Digi products has resulted in a 0.86% increase in gross profit, while a 1% increase in best buy products resulted in revenue slipping by 0.26%.
Expect Strong Margin in FY19E
Meanwhile, net profit increased significantly by 41.19% YoY from IDR39.45 bn in 1Q18 to IDR55.69 bn in 1Q19, with a net profit margin increased by 195bps at 9.92% level in 1Q19. This net profit achievement reflects 27.21/26.27% of Consensus/MNCS estimates for FY19E. We believe that a combination of sales volume and ASP increased, supported by the efficiency of using gas to fire kilns boosted the ARNA’s bottom line. We estimate net profit in FY19E at IDR200 bn with a margin maintained at ~9% level, in line with management target. Management believes that COGS can be lower as gas consumption approaches 1.65 Nm3/sqm from the level of 1.71 Nm3/sqm in FY18.
Recommendation: Maintain BUY with a Target Price of IDR630
We recommended BUY for ARNA at a TP: IDR630, which shows PE/PBV 23.11x/4.08x on FY19E and 18.57x/3.87x in FY20F. Meanwhile, the risk that has the potential to hamper the growth of ceramics industry performance is the delayed industrial gas prices cut by Government. This year ARNA will expand its sales to new market in Laos and Thailand. Capex is set to IDR40 bn in FY19E as they plan to expand sales network to Kupang, Ambon, Mamuju and Sampit.
Disclaimer On
MNCS Institutional Research Team
