Voksel Electric Powered By Cable Demand

Company Profile
PT Voksel Electric (VOKS) manufactures power and telecommunication cables. It is the largest manufacturer of medium-voltage aluminium cables and fibre optics in Indonesia and the main supplier to the State Power Company Perusahaan Listrik Negara (PLN) and PT Telekomunikasi Indonesia (TLKM, BUY, TP IDR13,000).

Highlights
Directly benefiting from aggressive power and telco spending. We prefer VOKS compared to other listed cable companies due to its dominance in garnering cable orders from PLN and TLKM. This makes the Company a direct beneficiary of the Government’s aggressive spending on infrastructure. Around 50% of its FY12 revenue came from PLN and 10% TLKM contracts. We also note that PLN plans to invest USD29bn between now and 2021 on electricity transmission and distribution development, of which ~15%, or USD4.5bn, has been allocated for cable procurement.

Robust margins on favourable product mix
Unlike its free market competitors, who have limited capability in hedging their commodity positions due to uncertain monthly retail demand, VOKS’ bulk sales contracts to PLN and TLKM has enabled the Company to secure the highest gross margins in the industry (~15%) for the past three years despite the volatile commodity prices. The contracted bulk sales also allow it to better manage its full-year capacity and ascertain its earnings guidance better than its private sector peers.

Additionally, three quarters of VOKS’ orders are for transmission and distribution cables (15%-19% gross margin) and fibre optics (~20% gross margin). This combination of high-margin product mix and contract-based business model has enabled the Company to consistently deliver the industry’s highest ROAE (at 25.36% in 1Q13) and net margins (5.73%).

Strong balance sheet guarantees expansion mode
VOKS’ Debt-to-Equity Ratio (D/E) was at a mere 0.2x at end-FY12, with its debt comprising only short-term working capital loans. Since then, the Company has been in a net cash position and, by end-2013, it will have manufactured some 11,630 tonnes of copper, 21,636 tonnes of aluminium and 1.2m km of fibre core cables – the largest total capacity in the industry.