Indonesia: KIJA Booked a Weak Earnings of Rp84bn (-80.6% yoy) in FY17

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1. 28 March 2018 Premier Insight Prodia Good results despite slowing revenue 6 ,700 12,000 FY17 profit rose 71% despite slowing healthcare industry growth. 6,600 10,000 6,500 Institutional clients mitigate slower growth of retail customers . 8,000 6,300 6,000 Rp bn JCI Index 6,400 6,200 4,000 Rising operating efficiency underpins strong profit growth. We upgrade FY18F earnings. Reiterate Buy (TP: Rp7,500). 6,100 2,000 6,000 27-Mar 26-Mar 23-Mar 22-Mar 21-Mar 20-Mar 19-Mar 16-Mar 15-Mar 14-Mar 9-Mar 13-Mar 8-Mar 12-Mar 7-Mar 6-Mar 5-Mar 2-Mar 1-Mar 28-Feb 27-Feb - 26-Feb 5,900 27-Mar 26-Mar 23-Mar 22-Mar 21-Mar 20-Mar 19-Mar 16-Mar 15-Mar (0) 14-Mar 0% 13-Mar 5% - 12-Mar 0 -5% (0) -10% (0) -15% (0) -20% (0) -25% % net buy/market turnover Foreign net buy (sell) Net buy (sell) in Rp bn Equity | Indonesia | Research Daily JCI Index (PRDA IJ; Buy) Key Indexes Index Closing 1 day 1 year YTD -2.3% JCI 6,209 0.1% 12.1% LQ45 1,016 0.2% 10.4% -5.9% 23,858 - 1.4% 15.2% -3.5% DJI SET 1,803 0.1% 14.3% 2.8% HSI 30,791 0.8% 26.5% 2.9% NKY 21,317 2.7% 11.0% -8.4% FTSE 7,000 1.6% -4.7% -8.9% FSSTI 3,439 0.8% 8.9% 1.1% 27 - 1.8% 2.7% -6.8% EIDO Commodity price Commodities Last price Ret 1 day Ret 1 year (in USD) 65.3 -0.5% 36.7% CPO/tonne Oil/barrel (WTI) 629.4 -0.1% -9.8% Soy/bushel 9.9 -0.8% 3.6% Rubber/kg 1.7 0.0% -43.7% Nickel/tonne 12,948 0.3% 33.4% Tins/tonne 20,945 0.1% 7.3% Copper/tonne 6,607 0.8% 15.2% Gold/try.oz (Spot) 1,345 -0.6% 7.4% 96.9 0.3% 19.7% Coal/tonne Corn/bushel Wheat/bushel (USd) 3.5 0.0% 3.3% 450.5 0.3% 6.1% Good results. Prodia delivered strong earnings of Rp150bn in FY17 (+71%), well above our forecast (Rp121bn), driven by rising operating efficiency and interest income. EBIT grew by 20% in FY17 (EBITDA: +14%), ahead of our expectation, despite its slowing revenue growth to 7.9% in FY17, from 13.4% in FY16 (Fig. 1). Prodia’s revenue growth slowdown was in line with the trends seen in healthcare and consumer markets in 2017 (Fig. 2) on the back of weakening consumer purchasing power and competition from universal healthcare services. Prodia’s customer visits grew by only 0.8% in FY17, well below its growth of 3.5% CAGR in FY13-FY16 (Fig. 3), due to slowing growth from walk-in customers and doctor referrals, reflecting competition from lower-priced diagnostic services. Shifting customer mix. Prodia’s revenue per visit grew by 7.1% in FY17, still inline with its 7.4% CAGR in FY13-FY16 (Fig. 4). By customer segment, revenues from external referrals and corporate clients grew by 18.5%/12.3%, respectively, stronger than in the prior year (FY16: 15.7%/10.4%, respectively), mitigating its slower growth from walk-in customers/doctor referals of 4.8%/3.7%, respectively (FY16: 13.6%/13.7%). Prodia’s strong revenue growth from institutional clients reflects its strong referral lab/esoteric testing services, which should continue with the opening of its fourth regional reference lab in Medan. In 2017, Prodia added 7 clinical labs, 1 referral and Next Gen lab (Jakarta), 26 POC outlets, 4 specialty clinics, 3 hospital labs and also upgraded 13 clinical labs to Prodia Health Centers, or largely still on-track with the company’s network expansion plan. Rising efficiency. Prodia’s EBITDA margin improved to 16.3% in FY17 (+92bps), continuing its margin uptrend in the prior years (FY16: +80bps; FY15: +70bps), as labor cost growth slowed in part due to early retirement program, while gross margin was stable. Prodia’s labor costs/revenue declined to 24.4% in FY17, from 25.0% in FY17 and 25.8% in FY15 (Fig. 5), while its operating margin widened to 10.2% in FY17, from 8.1% in FY15 (Fig. 6). We believe Prodia’s revenue growth, driven by its network expansion, should sustain its strong earnings growth outlook on the back of its high operating leverage/large fixed costs base. Maintain Buy. We raise our FY18F profit forecast by 12.5% (FY19F unchanged), despite our 10-15% lower revenue forecast, due to Prodia’s lower operating cost and higher financial income. We view the stock as cheap at 2018F EV/EBITDA of 8.9x vs. peers MIKA (30.3x), SILO (14.5x) and KLBF (16.3x). Reiterate Buy. Source : Bloomberg Year To 31 Dec Revenue (RpBn) EBITDA (RpBn) EBITDA Growth (%) Net Profit (RpBn) EPS (Rp) EPS Growth (%) Net Gearing (%) PER (x) PBV (x) Dividend Yield (%) EV/EBITDA (x) Source : PRDA, IndoPremier Refer to Important disclosures in the last page of this report 2015A 1,199 175 18.3 60 64 8.9 23.8 53.6 25.7 3.4 18.6 2016A 1,359 209 19.3 88 94 46.4 (87.0) 36.7 2.5 2.6 10.0 2017A 1,466 239 14.3 151 161 71.1 (62.8) 21.4 2.4 0.8 9.8 2018F 1,595 278 16.3 169 180 12.0 (49.2) 19.2 1.9 1.2 8.9 2019F 1,747 310 11.5 195 208 15.5 (50.3) 16.6 1.7 1.5 7.6 Share Price Closing as of : 26-March-2018
2. PremierInsight Jaya Real Property (JRPT IJ; Buy) Consistent growth year after years FY17 earnings of Rp1.1tn (+10.2% yoy), above market expectation. Resilient marketing sales of Rp2.4tn (+3% yoy) in FY17. Bintaro Xchange 2nd phase will positively impact JRPT’s performance. Maintain Buy with unchanged TP of Rp1,350. Flat earnings supported by other income of Rp123bn. JRPT posted an earnings of Rp1.1tn (+10.2% yoy) in FY17, which came above market expectation, cumulating 104/105% of our/consensus’ estimate. Revenue reached Rp2.4tn (+1% yoy) in FY17, which 83% was contributed by development income, while the remaining comes from recurring income. The strong earnings was resulted by decrease in COGS of Rp921bn (-2.3% yoy) and increase in total other income of Rp162bn (+138% yoy). The increase in other income is mainly contributed from cooperation by building kiosk in Senen III of Rp123bn. There were margin improvement all across the board with gross, operating, and net margin stood at 61.7%, 45.4%, and 46.3%, respectively (FY16: 60.4%, 45.5%, 42.4%). In quarterly basis, JRPT booked strong earnings of Rp389bn (82% qoq, 44% yoy) with net margin at 49.2%, cumulating 35% of FY17 earnings. Consistent sales growth amid slow property market. JRPT booked total marketing sales in FY17 of Rp2.4tn (+3% yoy), reaching company’s target of 0-5% growth. Despite challenging residential sales in Bintaro, JRPT managed to booked flat Bintaro sales of Rp1.35tn in FY17, due to demand from commercial segment in Fresh Market Bintaro and Fresh Market Graha Raya. In the other hand, Non-Bintaro development (Pasar Kemis & Serpong) shows a robust growth by booking sales of Rp691bn (+21.6% yoy). Bintaro still the main contributors to FY17 total marketing sales with 56%, followed by Non-Bintaro estates and High-Rise development with 29% and 15%, respectively. Bintaro Xchange 2nd phase to increase recurring income. JRPT plans to expand its well known Bintaro Jaya Xchange mixed-use development by developing the 2nd phase, which will includes: 1) Mall Phase 2 of 135,000 sqm building area and Park of 1.4ha, 2) Hotel and service apartment with 270 hotel rooms & 270 units apartment, and 3) Oceanarium or Marine Park of 8,000sqm GFA. We believe the development will positively impact JRPT’s estate in Bintaro as the 2nd phase will act as an additional crowd puller and recurring income for JRPT. Maintain Buy on JRPT with unchanged TP of Rp1,350. We continue to like JRPT on the back its large end-user customers, healthy balance sheet, and its resilient marketing sales achievement amid slow property market. The stock is currently trading 78% discount to our RNAV estimate and 9.9x PE FY18F providing attractive point of entry. Risks to our call are stock low trading liquidity and lower than expected marketing sales due to higher cancellation rate. Year To 31 Dec Revenue (RpBn) EBITDA (RpBn) EBITDA Growth (%) Net Profit (RpBn) EPS (Rp) EPS Growth (%) Net Gearing (%) PER (x) PBV (x) Dividend Yield (%) EV/EBITDA (x) Source: JRPT, IndoPremier Refer to Important disclosures in the last page of this report 2016A 2,381 1,144 15.6 1,011 74 15.8 (5.3) 11.4 2.4 2.4 9.5 2017A 2,405 1,156 1.0 1,114 81 10.2 (9.9) 10.4 1.9 2.8 8.1 2018F 2,746 1,320 14.3 1,162 84 4.3 (12.3) 9.9 1.7 3.1 6.9 2019F 2,922 1,419 7.5 1,224 89 5.4 (11.4) 9.4 1.5 3.2 6.3 2020F 3,127 1,516 6.8 1,308 95 6.8 (12.6) 8.8 1.4 3.4 5.8 Share Price Closing as of : 26-March-2018 2
3. PremierInsight News & Analysis Corporates ADRO: Adaro Energy (ADRO IJ; Rp2,040; Buy) and EMR Capital (a private equity manager) completed the agreement to buy Rio Tinto’s 80% stake in Kestrel underground mine in Queensland Australia. The transaction with total worth of US$2.25bn is expected to complete in 2H18. (The West Australian). Comment: This is positive for ADRO, at this stage we maintain our Buy rating for ADRO. GGRM: Gudang Garam (GGRM IJ; Rp70,700; Hold) posted net profit amounted to Rp 7.7tn, up 16.1% yoy. The earnings figure came in-line to ours and consensus estimate with 100.7% and 103.9% achievement, respectively. The solid earnings figure was partly supported by higher revenue in FY17 to around Rp83.3tn, up 9.2% yoy and margins slightly expanded across the board with operating and net margin increased by 40bps and 60 bps to 13.5% and 9.3%, respectively. On quarterly basis, the company also posted positive growth both top line and top line to of some Rp21.7tn and Rp2.3tn, up 2.4% and 1.7%, respectively. (Bisnis Indonesia). Comment: We believe this positive tone will continue this year as the company has shown recovery since 3Q17 with booking postive growth both top line and bottomline. GGRM currently trades at PE 2018F 14.8x. 2017 2016 YoY 4Q17 3Q17 qoq Vs. ours Vs. cons. Revenue (in Rp bn) 83,306 76,274 9.2% 21,783 21,278 2.4% 96.1% 99.4% Gross Profit 18,222 16,617 9.7% 5,103 4,692 8.8% Operating Profit 11,237 9,972 12.7% 3,514 3,170 10.8% 7,753 6,677 16.1% 2,334 2,295 1.7% 100.7% 103.9% Net Profit Gross Margin 21.9% 21.8% 23.4% 22.0% Operating Margin 13.5% 13.1% 16.1% 14.9% 9.3% 8.8% 10.7% 10.8% Net Margin RALS: Ramayana Lestari Sentosa (RALS IJ; Rp1,230 ; Hold) reported slightly lower profit at Rp407bn (-0.5% yoy) that came slightly below market forecast of 99%. Revenue and COGS were at Rp5,623bn (-4% yoy) and Rp3,410bn (-6% yoy) bringing flat gross profit of Rp2,212bn (+0.4% yoy). Operating expenses amounted to Rp1856bn (+0.6% yoy) resulting to lower operational profit of Rp356bn (-0.3% yoy). Gross, operating, and net margin drove higher at 39.3%, 6.3%, and 7.2%, respectively. ( 2016: 37.6%, 6.1%, and 7%, respectively). (Company). 4Q17 3Q17 4Q16 (IDR bn) (IDR b) (IDR b) (IDR b) (q-q%) Net sales 1,205 953 1,297 26.4 (7.1) COGS (725) (565) (852) 28.4 (14.9) Gross profit ——Change—— (y-y%) FY17 FY16 Change (IDR b) (IDR b) (y-y %) % forecast % consensus 5,623 5,857 (4.0) 95.1 96.2 (3,410) (3,655) (6.7) 0.4 91.0 92.9 92.4 99.4 480 388 445 23.5 7.9 2,212 2,202 (475) (439) (449) 8.2 5.8 (1,856) (1,845) 0.6 Operating profit 5 (50) (4) nm (234.3) 356 357 (0.3) Interest income 33 28 25 19.4 33.7 110 120 (8.6) Tax 1 24 2 nm nm (60) (57) 6.1 Other 5 3 28 nm nm 20 11 nm 39 (1) 47 (4,057.3) (17.2) 407 408 (0.5) Operating cost Net profit Gross margin (%) 39.8 40.7 34.3 39.3 37.6 Operating margin (%) 0.4 (5.3) (0.3) 6.3 6.1 Net margin (%) 3.2 (0.1) 3.6 7.2 7.0 Comment: RALS’s result came below our forecast, cumulating of 92% of our FY17 earning forecast. Given lower than expected FY17 result, we will review our forecast and assumption for operating expenses in FY18F. Refer to Important disclosures in the last page of this report 3
4. PremierInsight KIJA : Kawasan Industry Jababeka (KIJA IJ; Rp264; Not Rated) booked a weak earnings of Rp84bn (-80.6% yoy) in FY17. Top line were flat at Rp3tn (+2.2% yoy), while COGS and opex were growing by 10% and 5% yoy to which made gross margin and operating margin down to 38% and 20.4% in FY17 (FY16: 42.4% and 25.3%). In addition, other expenses and financial expenses were growing 158% yoy and 29% yoy, respectively which resulted in Net margin to squeeze to 2.8% in FY17 (FY16: 14.9%). In quarterly basis, KIJA booked a loss of Rp44.8bn (-135% qoq, -156% yoy), with net margin of -6.7% in 4Q17. On other news, KIJA stated that they will need additional investment of Rp9tn to develop Tanjung Lesung Industrial Estate’s facility. The facility will include hotels, marina, golf field, Recreactional Park, cultural center, convention center. As of mid March, KIJA already invest around Rp5tn for the development. (Kontan, Investor Daily). Markets & Sector Infrastructure sector: Waskita Karya (WSKT IJ; Rp2,560; Buy) and Jasa Marga (JSMR IJ; Rp4,550; Hold) will soon divest it shares in six sections of the Trans Java toll road to raise total of Rp8tn. WSKT through its subsidiary WTR will execute the divestment of Kanci-Pejagan, Pejagan-Pemalang, and Pasuruan Probolinggo section through limited participation mutual funds (RDPT) to raise Rp5tn, which will be carried out in early April. On the other hand, JSMR also plans to divest its shares in BatangSemarang, Solo Ngawi, and Ngawi-Kertasono to riase Rp3tn in fresh fund. (Jakarta Post). Comment: We are positive on the divestment possibility, which will improve both companies’ cash flow. Economics Indonesia Economic Quarterly: The World Bank launches March’s edition of IEQ which reviews economic performance in 2017 and discusses specific topic of the need to improve fiscal management for inclusive growth promotion. The following key points are its observation highlights for Indonesia: • • • • Economic growth rose to 5.1% FY17 with notable achievements on govt spending growth, fastest in three years, driven by capital expenditures growth of 18% (highest in 8 years). The bank predicts expenditure to remain growing by 7.4% with capital spending rather flatly +2%. Current account deficit was lowest of 6 years in 2017 at 1.7% but is expected to widen to 1.9% by 2018 as imports came to support domestic production. Economic growth is projected to increase to 5.3% yoy in 2018 although tilted to downside risks, which include slower global trade, volatility, and slower private consumption. The bank anticipates moderate growth in consumption, which should translate into impact for total expenditure growth as consumption makes up more than 50% of Indonesia’s expenditure. For the report’s additional feature, the bank pinpoints ongoing problem in Indonesia’s fiscal spending that is ineffective use of fiscal expenditure, notably to reduce inequality (vs South Africa, Argentina, and Brazil) and prescribes three principles to support spending for inclusive growth: (1) Spending effectively (to note, only 3.6% of expenditure spent on public investment and PPP vs China’s 17.7%, Malaysia’s 11.3%, and Thailand’s 6.3%), (2) Spending more on priority sectors (infrastructure, health, social assistance), and (3) Better tax collection. (World Bank). Comment: We think the bank’s feature report this time addresses concerns made by Sri Mulyani, who is, in almost every public hearing session, arguing about the need for more quality spending. Not only the report is positively supporting the concern, it also is providing the necessary steps to address the problem. We believe some steps are yet to translate into policies going forward. Refer to Important disclosures in the last page of this report 4
5. Head Office PT INDO PREMIER SEKURITAS Wisma GKBI 7 /F Suite 718 Jl. Jend. Sudirman No.28 Jakarta 10210 - Indonesia p +62.21.5793.1168 f +62.21.5793.1167 INVESTMENT RATINGS BUY : Expected total return of 10% or more within a 12-month period HOLD : Expected total return between -10% and 10% within a 12-month period SELL : Expected total return of -10% or worse within a 12-month period ANALYSTS CERTIFICATION. The views expressed in this research report accurately reflect the analyst;s personal views about any and all of the subject securities or issuers; and no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in the report. DISCLAIMERS This reserch is based on information obtained from sources believed to be reliable, but we do not make any representation or warraty nor accept any responsibility or liability as to its accruracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendations contained in this document does not have regard to the specific investment objectives, finacial situation and the particular needs of any specific addressee. This document is not and should not be construed as an offer or a solicitation of an offer to purchase or subscribe or sell any securities. PT. Indo Premier Sekuritas or its affiliates may seek or will seek investment banking or other business relationships with the companies in this report.