Nipress Right Issue Analyst Meeting

As a local battery producer with third largest market share, NIPS is one of the beneficiary of low cost green car program, which uphold optimal local content spirit. New contract to supply ~500k unit car battery (~25% of current production) in the next year is already in hand. On top of that, since 2011 NIPS also has been expanding into industrial battery, which has high growth prospect from last year low base market share at 10% in the segment. With average product life of 2 years, the current new demand will become recurring demand in the future.

Beneficiary of growing domestic automotive industry
NIPS growth in domestic automotive sector is attributed to 1) growth in car and motorcycle population for replacement market, and 2) increasing new car market especially from LCGC that push local content usage. NIPS has received contract to supply ~500k unit car battery for LCGC OEM market in the next year (~25% of current production).

As a local company that has relatively strong brand (based on company and GIAM data, in the last year, NS battery has 13% and 18% market share in 4W and 2W domestic battery market respectively), NIPS has become the main choice for pure local sourcing. The two main competitors GS (under Astra Otoparts, 34%/38% in 4W/2W battery market) and Yuasa (45%/20% in 4W/2W battery market) are partly owned by their foreign principal GS Yuasa (GS and Yuasa merged in 2004).

Automotive battery contributed ~70% of 9M13 revenue
By product classification, 76% of auto battery sales went to 4W battery market and by target market, 72% of it went to domestic market. NIPS Currently supplying to Daihatsu, Nissan, KIA and several other brands as well as private brand and replacement market.

Tapping the industrial market
With only 10% market share in the last year, industrial market still provides room for growth. Since 2011, NIPS has been penetrating industrial battery market which previously being dominated by imported goods. NIPS focus its sales in telecommunication power solution and solar power plant subsegments within the industrial battery market. Strong after sales services and lower transportation cost has become the major advantage for NIPS against imported goods.

Teleco power solution segment use battery as backup for BTS power source (one BTS need around 16-24 unit of batteries). In 9M, NIPS through its subsidiary Hariff Daya Tunggal Engineering grabbed 61% of Telkomsel supply or around one fourth of the domestic teleco power solution market. Hariff also holds 81% supply to ISAT, however in this case, ISAT already appointed the source of products.

Growth potential in teleco power solution comes from expanding its market share as well as 9.5% expected CAGR in the teleco power solution market (based on Frost and Sullivan data).

Additional growth also come from solar power plant market considering solar power plant is the preferred solution for remote area with low population density in which power grid become uneconomical. The demand size will depend on government budget.

Industrial battery contributed to ~29% of the revenue in 9M13 with majority of it come from teleco power solution market and the rest from the solar electric power plants market.

Margin dynamics
Industrial market has a better margin, which could be seen from gradually improving blended gross margin over the year. The company also expects USDIDR fluctuation to play minimal role in margin as ~50% of the revenue come from the combination of export market and industrial market, which has sales in USD. USD linked cost also has around the same proportion to total cost, hence there will be natural hedging.

Expansion plan
To cope with the growing demand, the company plans to expand its 4W battery capacity from 2.5m unit/year (actual ~2.0m unit/year, some shared for industrial battery capacity) to 3.0m unit/year mainly for LCGC demand and its 2W battery capacity from . The company also plans to set a new 544k unit/year industrial battery production capacity.

Considering the current 200k unit/year industrial battery capacity is a sharing facility with the 4W battery production line, the new industrial battery production line will set free the 200k unit/year industrial battery capacity back to 4W battery production line. Notes that due to difference in size, 200k unit industrial battery is equal to around 500k unit of 4W battery capacity, hence the actual 4W battery capacity will increase from currently ~2.0m unit/year to 3.0m unit.year.

Right issue
The expansion will need around IDR338bn capex and IDR113bn working capital which will be funded by IDR260bn right issue. The right issue price will be in the range of IDR350/share-IDR400/share with 742.85mn share to offer. (equivalent to current price of IDR7,000/share-IDR8,000/share before 1:20 stock split).

Valuation
The company is currently traded at 6.4x 12M trailing PE with IDR286b market cap. While the fully diluted 12M trailing PE will be at 12.5x. Notes that net gearing is currently at high level of 1.6x