Optimizing Strength For Outstanding Performance
9M18 Results: Solid Performance with Bottom-Line Increased by 95.06% YoY
HOKI managed to record satisfactory performance in 9M18 with revenue increased 17.78% YoY to IDR1,060.09 billion (vs IDR900 billion in 9M17). The increase in revenue was supported by the higher sales of rice which recorded an increase of 15.60% YoY. The achievement reflects 76.82%/71.77% of the MNCS/Consensus estimates. HOKI also successfully manage an operational excellency and cost efficiency, maintain their operating profit margin at 9.62% level (vs 6.36% in 9M17). Meanwhile, net income significantly increased by 95.06% YoY to IDR70.76 billion in 9M18 from IDR36.28 billion in 9M17 with net profit margin stood at 6.68%. This achievement was in line with the management projection stating that the top line grows by 10%-15% YoY and the bottom line grows double digit in FY18E.
Potential Growth Supported by New Factory and Distribution Channel with Alfamart
HOKI has 2 production plants located in Cipinang, East Jakarta, with a production capacity of 5 tons/hour, and a factory in Subang with a production capacity of 30 tons/hour. Currently, HOKI is in the process of upgrading production capacity in Subang, by 20 tons/hour, a move expected to be completed by the end of 2018, so that the total production capacity of the HOKI reaches 55 tons/hour in FY18E. Currently HOKI is also constructing a new factory in Palembang, South Sumatra under the name “PT Astha Beras Perkasa”, with focus on paddy and rice processing, as well as it’s distribution. The plant also possesses a brand-new grain milling apparatus for packaged rice, with a capacity of 40 tons/hour, it will be operate by the end of 2019. HOKI also expanded the distribution network through modern retailers in collaboration with Alfamart. HOKI will distribute its own premium production rice under the brand "Super Slyp Rice Rice 5Kg", which will be distributed for the first time in Sumatra. Therefore, We believe HOKI will reach IDR1,380.00 billion/IDR1,589.95 billion revenues in FY18E/FY19F.
Recommendation: Maintain BUY at TP IDR1,230
We recommend BUY for HOKI at a TP: IDR1,230 which implies PE FY18E/FY19F of 31.84x/29.35x and PBV FY18E/FY19F of 5.30x/4.71x. We believe that the prospect of HOKI's growth in FY18E will be supported by several catalysts, as follows: 1) Increasing production capacity as a strategy to meet domestic market demand; 2) Broadening HOKI sales distribution network with Alfamart. Nevertheless, We believe changes in Government Regulation will become the main focus. On May 31, 2018, the Government announced a reduction in Highest Retail Price (HET) of medium rice around IDR500. We believe if the HET price is adjusted downward, it will potentially affected HOKI’s earnings.
