Hexindo Adiperkasa, Propelled by Strong Orders
Stronger performance seen for coming semester
The company sold 756 units of Hitachi equipment in 2Q12 (July-Sept 2011), or an increase of 48% from 511 units in 1QFY12 (April-June 2011), on the back of continued strong demand. This propelled HEXA’s revenue to USD175m, a q-o-q surge of 43%. This, combined with a 200bpts expansion in operating margin, pushed up its net profit by 66% to USD19.2m.
The solid 2Q12 performance contributed to the better 1H12 (April-Sept 2011) results, with operating profit and net profit growing 52% y-o-y to USD40.2m and 61% y-o-y to USD30.8m respectively. The company expects to sell 2,229 units of equipment in 2H12 (Oct 2011-March 2012), almost double 1H12’s 1,267 units. This should boost profits significantly in 2H12.
HEXA may recoup market share soon
Hitachi equipment’s share declined sharply from 18% in Jan-Sept 2010 to 14% in Jan-Sept 2011, which we attribute mostly to: (i) supply disruptions owing to the temporary closure of its principal factory after Japan’s massive earthquake in March, and (ii) weaker inventory moving into April-June 2011.
HEXA sold on average 193 units of equipment monthly from April to August 2011, but this leapt to 300 units from September to October. We believe Hitachi will reclaim its second place from Caterpillar, as HEXA plans to deliver around 371 units/month during the Oct 2011-March 2012 period based on its internal target. Caterpillar’s American-made equipment fared considerably well, as it benefited from the equipment supply chain disruption in Japan following the country’s devastating earthquake.
Caterpillar sold 256 units equipment/month in Jan-Sept 2011, up 83% from 139 units in Jan-Sept 2010 and this helped enlarge its market share to 16.2% from 13.8%.
Big order of ultra large equipment from leading coal companies
50 Hitachi dump trucks (500-tonne class at around USD5m each) were bound for Indonesia following a large order by mining company Kaltim Prima Coal (KPC). The company has also bagged an order for 237 giant-sized mining machines (at USD2–5m each) from another big coal-mining company.
HEXA expects to book a net commission of 10% for the delivery and installation of these machines, which should support its earnings from 2011-2012. The company claims that the mining sector prefers Hitachi giant machines for their higher efficiency, as they offer better power and productive output.
Cheap valuation, strong balance sheet and high ROE
HEXA is currently trading at a FY13f PER of 10.2x, which is very attractive against its 25% earnings growth. We derive our Target Price of IDR10,900 based on 13x earnings or at a 25% discount to UNTR’s Target Price-implied PER of 17.9x to take into account HEXA’s lower trading liquidity. The company has a strong balance sheet, with a net cash balance of some USD16m as at end-Sept 2011. HEXA is expected to generate ROEs of around 33% from 2011–2013. It also pays annual dividends consistently, at a payout ratio of about 40%-45%.
