Tuesday, June 14, 2011

ON THE PLATTER - Hexindo Adiperkasa

by OSK Securities

Hexindo Adiperkasa (HEXA IJ; BUY; TP 8,900): Company update - Toning Down the Numbers

HEXA’s May sales came in at 179 units (+20% m-o-m and 2% y-o-y), bringing the cumulative Apr-May 2011 sales to 328 (averaging only 164 units per month). These numbers signify a potential downside risk to our FY12f target of 3,100 units. Factoring in the lower sales, we reduce our sales target for FY12f by 5% to 2,945 units, which accordingly leads to a cut in our revenue and net profit estimates by about 4%. This prompts us to reduce our TP to IDR8,900, which still implies an attractive FY12f PER of 13.0x against a robust earnings growth of 50%. Buy maintained

Starting off the fiscal year with lower volume. HEXA’s May heavy equipment sales rose 20% m-o-m and 2% y-o-y to 179 units, which brought its cumulative Apr-May 2011 sales to 328 units, with a monthly average of only 164 units. This is lower than our sales target of 3,100 units for fiscal year ending Mar 2012, or 258 units per month. We believe the weak numbers are mostly a function of: i) supply disruptions, especially of components, owing to its principal factory temporary closures after Japan’s earthquake in March, and ii) a weaker inventory position moving into April. In March, HEXA sold a record 278 units. At this stage, we expect April sales of 149 units, being the trough, before things get better starting from May.

Speedy recovery by Japanese principal. In a corporate disclosure released at end-May, Hitachi Construction Machinery Japan (HEXA’s principal and main shareholder) said the group had made good progress after the earthquake and had restored operation capacity to pre-earthquake levels. In view of the electricity supply constraints during the current summer season, Hitachi said it is taking measures such as front-loading production. In response to stronger global heavy equipment demand this year, the group plans to expand its domestic and global production operations although further details are unavailable.

FY12f sales revised down by 5%. Factoring in the low April and May sales, we tone down our sales target for FY12f (April 2011 to Mar 2012) by 5% to 2,945 units (+23.4% y-o-y), which is still in line with HEXA’s internal target of 3,000 units. Accordingly, we are lowering our revenue and net profit forecasts for FY12 by some 4% to USD650m and USD64m respectively. Meanwhile, we maintain our FY13f earnings forecasts.

Buy maintained with new TP of IDR8,900. On the back of our lower earnings assumptions and incorporating our economist’s higher USD/IDR assumption of 8,550, we nudge down our TP from IDR9,500 to IDR8,900. Our new TP implies a FY12f PER of 13.0x, or a 33% discount to our implied PER for UNTR’s target price. HEXA is currently trading at a 2012F PER of 9.2x, which is very attractive against its robust earnings growth of 50%. We expect the company to generate ROE of about 39% for FY12-13f.

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