Voksel Electric Brighter Prospects Ahead

Voksel Electric (VOKS)’s 1Q13 revenue rose 13% y-o-y to IDR600.4bn, but net profit edged down 2% y-o-y to IDR26.8bn. Yet, we believe margins are set to improve going into the year as commodity prices are bottoming out, thus allowing the group to accumulate raw materials at lower costs. VOKS’ IDR1.6trn orderbook as at end-April reaches 56% of its FY13 revenue target. VOKS is trading at a 6.7x 2013 P/E.

1Q13 results in line
In 1Q13, VOKS booked IDR600.4bn of revenue (up 13.0% y-o-y) and IDR26.8bn of net profit (down 2.2% y-o-y). The bottom-line squeeze was mainly led by a decline in gross margin to 12.5% from 1Q12’s 17.2%. Material costs (85.5% of its cost of revenue) climbed 7.4% y-o-y, as VOKS’ weighted average inventory valuation method unfavorably impacted its material costs booking in 1Q13, after it accumulated inventories at higher prices in January. We foresee the opposite to take place as aluminum and copper forward prices on the London Metal Exchange (LME) are bottoming out.

This allows VOKS to accumulate raw materials at lower costs now, which should in turn boost its margin going forward. Cost of revenue (CoR) expanded by 19.4% y-o-y mainly due to a two-fold increase in final goods inventory costs, an indication of the company’s robust pipeline. The CoR hike was also partly attributed to a 53.4% y-o-y surge in direct fabrication and wages, both accounting for 6.7% of the total CoR. The top-line and bottom-line made up 20.9% and 15.7% of VOKS’ FY13 estimates, in line with the seasonality pattern after the State Power Company (PLN) becomes the company’s largest revenue contributor from early 2011. VOKS generally books ~70% of its FY13 net profits in 2H13.

Secures 56% of FY13 target revenue
Despite a robust top-line growth, the company’s final inventory inched up a mere 1.8% y-o-y as its inventory turnover period improved to 1.6x from 1.3x last year, indicating an improved pipeline. As at end-April, VOKS has booked IDR1.6trn worth of order in hand to be executed by year-end, 69% of which comprise PLN’s and PT Telekomunikasi Indonesia Tbk’s (TLKM) order. This “orderbook” translates to 55.8% of VOKS’ FY13 target revenue at IDR2.8trn. The company expects to generate IDR171bn-IDR180bn in net profit this year, up 22.5% y-o-y. It is trading at a 6.7x 2013 P/E.