Selamat Sempurna Joint Venture with Tokyo Radiator Manufacturing

THE BUZZ
In the last Friday, SMSM disclosed that it will create a joint venture with Tokyo Radiator Manufacturing which will be located in Tangerang. The JV activity will be in manufacturing and trading of heat exchanger (radiator). SMSM will have 33% contribution from total invested capital of IDR17.2bn. From Tokyo Radiator Manufacturing release, it is stated that total investment is at IDR24.7bn and FY13 revenue forecast for the JV is at JPY1bn (~IDR116bn). In addition SMSM expects total revenue to reach IDR2trn in this year or grow by 11% from 2011 indication at IDR1.8trn.

OUR TAKE
We took positively the news of SMSM jv
JV financial impact. With minimal information disclosed, we still haven’t included the impact of the JV on our forecast. However, rough estimation using assumption of: 1) 2013 revenue of IDR 116bn; 2) operating margin of 15.6% (our FY11 estimates for SMSM); 3) interest expense of IDR787m (10.5% average cost of debt, IDR7.5bn debt), and 4) 25% tax rate; will yield on IDR13.8bn. SMSM portion will be around IDR4.6bn or only ~2% of our FY13 net income forecast.

Maintain BUY
The company expectation of FY11 and FY12 revenue is in line with our expectation of IDR1.8trn and IDR2trn. We maintain our forecast and BUY recommendation with TP at IDR2,050 which implies 13.1x FY12 earnings. The counter is currently trading at 10.0x FY12 earnings.