Shine Bright Like a Diamond
Proven Business Track Record with Integrated Business Model
The Company has proven track record in the Indonesian jewelry market with over 25 years of experience. The company has competitive advantage as a vertically integrated gold jewelry manufacturer, from manufacturing factories with total production capacity of 2,500 kg of gold per month to retail store. It is also strengthened by strong distribution channels, with total of 500 retailers located in Java, Sumatra, Kalimantan, Sulawesi and 11 owned retail stores in Bandung. Based on Euromonitor International Research in 2016, the Company has 10% market share of around US$ 2 billion total retail value of Indonesian Jewelry in FY16.
Lucrative Prospect of Gold Jewelry Business Supported by Improving Indonesia's Economic Growth
Indonesia has become the world’s 10th largest economy nowadays with growing middle class income and purchasing power parity (PPP). The higher growth of Indonesia’s GDP YoY from 4.94% in 1Q16 to 5.01% in 1Q17, also showing the improvement of PPP which potentially delivers a strong growth catalyst for gold jewelry business in Indonesia. Moreover the gold jewelry has been on top minded of Indonesia society over decades as one of investment and hedging instrument. We believe that the lucrative prospect of it will bring positive impact for the Company’s business as a company that produces and sells gold jewelry products.
Solid Financial Performance with Manageable Debt Risk Exposure
The company has recorded strong revenue growth trend with CAGR (2014–2016) of 28.15% p.a while net profit surged with CAGR (2014–2016 ) of 71.86%. We estimate that the revenue of the Company will continue to grow by 14.75%/15.83% to Rp2.52 tn/Rp2.92 tn in FY17F/FY18F. Meanwhile net profit will be adjusted by -25.11% to Rp120 bn in FY17F as the upswing impact of tax amnesty recognition in FY16. Nevertheless aside of those extraordinary income, the net profit of the Company will potentially grow by 34.61% in FY17F. It will rise by 22.20% to Rp157 bn in FY18F. On the other hand, the company has successfully lowered its DER level from 1.34x in FY15 to 0.88x in FY16. It will continue to deleverage the DER level to only 0.32x/ 0.29x in FY17F/FY18F.
Great Combination between Strong Growth Potential and Attractive Valuation
We call BUY for HRTA with price target Rp420 which implies PE 15.07x/12.33x and PBV 1.84x/1.65x on FY17E/FY18F. We believe the price offered for HRTA on FY17E is built in some catalysts as follows: 1) Solid performance with attractive earnings growth and stable margin, 2) Integrated business supported by aggressive expansion through franchise system, 3) Indonesia’s consumers behavior that makes gold jewelry as an alternative investment
