Turning on the Engine
Top Line Improvement driven by Repair and Overhaul Segments
GMFI recorded better performance in 1H18 with top-line growth of 11.55% YoY to USD223.31 million (vs USD200,19 million in 1H17) supported by the Repair and Overhaul division at 19.60% YoY to USD184.3 million with a contribution of 82.53% to total revenue. EBITDA increased by 7.10% YoY to USD35.23 million, with EBITDA margin at 15.78% in 1H18. An increase in foreign exchange and foreign exchange losses contributed to a decline in net profit margin. Net profit slipped by 3.42% YoY to USD20.12 million (vs USD20.84 million) and net profit margin was down 9.01% in 1H18 (vs 10.41% in 1H17).
Organic and Inorganic Expansion can drive GMFI Performance
On the way to the Top 10 MRO, we see that there are several catalysts that can drive GMFI performance, including: 1) Focus on increased composition of revenue from non-affiliated customers and changes to engine and component services–which carry the fattest margins; 2) Finalization of the Global Footprint in Australia, a move which can generate revenues of around USD 5 million in FY19F; 3) Finalizing the private placement to encourage working capital and strengthen capital structure in 4Q18; 4) Signing strategic alliances with AFI-KLM with total project value of USD400 million and PT China Communication Indonesia of USD500 million; 5) Approval of tax holidays for pioneer industry, which can boost GMFI's net profit by approximately 25% YoY in FY19F.
Negative Issue From GIAA Performance as Holding Company
GIAA as the holding company recorded an increase in revenue of 5.92% YoY to USD1.99 billion in 1H18 (vs 6.97% YoY to USD1.76 billion in 1H17). The largest increase came from other services which contributed 13.14% to total revenue, an increase of 28.44% YoY to USD262.68 million. However, GIAA still recorded a net loss of -USD119.56 million in 1H18. Less satisfactory performance from GIAA as a holding company certainly affects GMFI's performance causing GMFI's stock price to depreciate by -40.00% from IDR380 on April 30 2018 to IDR228 on August 30, 2018.
Recommendation: Initiation BUY at TP IDR370
We recommended BUY for GMFI with TP: IDR370 which implies PE/PBV of 14.36x/2.09x on FY18E and 12.39x/1.86x in FY19F. We believe that the organic and inorganic expansion carried out by the Company is able to drive the performance of GMFI in achieving the Top 10 MRO in the world in FY21F. The negative issues from the performance of GIAA and delayed corporate actions are the main focus of attention.
