Voksel Electric Poised For a 2H Rebound

Despite an IDR30bn hedging loss in 2Q13 caused by falling commodity prices, VOKS guided for IDR1.2trn revenue over IDR49bn net profit in IH13. This is mainly because the company has locked in revenue at a high base after signing manufacturing contracts at high early-year commodity prices, which should boost VOKS’s gross margin upon the delivery of its products in 2H13 and reverse its earlier losses. Maintain BUY, with a IDR2,400 TP.

Projecting IDR1.2trn revenue, IDR49bn net profit in 1H13
These numbers translate into a flat topline and a 10.9% bottomline decline y-o-y. Excluding the hedging losses stemming from declining commodity prices (eg London Metal Exchange’s 3-month forward copper contract fell from ~USD8,300 in February to ~USD6,700 as at end-June), the company’s net profit would have been higher by IDR30bn. However, these non-cash “paper” losses would be offset when VOKS purchases the physical commodity at the new lower prices, which should in turn boost the company’s gross margin when it delivers its final goods in 2H13.

Fully hedged from raw material price volatility
Since VOKS signed the manufacturing contract with its customers assuming the high early-year commodity prices, the company has locked in revenue at a high base. As Indonesia’s infrastructure projects are usually initiated at year-end, VOKS is slated to book high revenue at lower raw material costs upon its final product delivery in 2H13, thus offsetting its earlier “paper” losses in 1H13.

Due to the locked-in nature of its manufacturing contracts with project-based customers including the state power company Perusahaan Listrik Negara (PLN), VOKS has the ability to fully hedge itself from raw material price fluctuations – a competitive advantage compared to “market cable” producers such as PT Supreme Cable & Co Tbk (SCCO, Not Rated), which is dependent on monthly retail orders and is prone to commodity risks.

Maintain BUY with IDR2,400 TP
The company is bound to book 43% of its IDR2.8trn FY13E target revenue – in line with seasonality. All in, we maintain our BUY call on VOKS, with a IDR2,400 TP. VOKS is trading at a 8.5x 2013E P/E.