Voksel Electric Remaining Intact

VOKS booked 1HFY13 earnings of IDR50.6bn (-7.7% y-o-y) on IDR1.2trn in revenue (+5.8% y-o-y), due mainly to unrealised commodity contract losses that were booked as part of cost of revenue. However, we expect the losses to be offset in 2H, as it purchases the physical raw materials at lower prices, thus expanding 2HFY13 gross margins. We maintain our BUY call, with IDR2,400 TP. It is trading at 7.6x FY13F P/E.

1HFY13 results as expected
VOKS booked 1HFY13 revenue of IDR1.2trn (+5.8% y-o-y) over IDR50.6 bn net profit (-7.7% y-o-y), on par with the indication provided in our earlier report (VOKS: Poised For a 2H Rebound, 16 July 2013). 1HFY13 gross margins dropped to 11.8% from 15.8% previously. This stemmed from unrealised losses from commodity contracts that were booked under cost of revenue, as the Company hedges its raw material inventory for upcoming manufacturing processes during the peak 2H season.

These “paper losses” are then offset when VOKS reverses its position on the commodity contracts and buys the physical raw materials at lower prices, thus expanding its gross margin when the Company delivers its finished goods in 2H. Note that the London Metal Exchange (LME)’s three-month forward copper contract fell to ~USD6,700 as at end-June from ~USD8,300 in February.

Potential FY13F revision, earnings estimates to remain intact
Management has indicated that it might revise its FY13F targets, adjusting for low commodity prices, as VOKS may consider looking at booking future manufacturing agreements at the new benchmarks. Based on our sensitivity analysis, a 10% decline in commodity price assumptions will reduce topline/bottomline by 3%/4%, while a 20% drop in prices will negatively affect topline/bottomline by 5%/6% respectively – still largely in line with our estimates.

Maintain BUY at TP IDR2,400
VOKS is bound to book 43% of its FY13F target revenue of IDR2.8trn in 1HFY13 – in line with seasonality – as we await 2HFY13’s performance to offset the paper losses during the period under review. All in, we maintain our BUY call on the Company, with an IDR2,400 TP. VOKS is currently trading at 7.6x FY13F P/E.