May 02, 2016 08:46:43
ADHI posts flat 1Q6 earnings, still tracking historical seasonality

Adhi Karya ($ADHI) reported 1Q16 net income of Rp10.7 bn, up by only 1% YoY, which met only 2% of our FY16 net income forecasts. we still consider this as in-line with historical seasonality as 1Q was historically the weakest quarter of the year (2-5% of FY numbers) while 3Q was the strongest quarter (55-70% of FY numbers). 1Q16 revenue managed to grow 7% YoY to Rp1.32 tn but consolidated GPM contracted by 110bps to 9.6%, dragged down by negative EPC margin and 830bps decline in property margin as the company started launched its product only in April. On the flipside, ADHI booked Rp200 bn (15% of total) in revenue from LRT project and precast revenue jumped more than fourfold to Rp39 bn. Meanwhile, 1Q16 construction service GPM was 13.1% vs. historical numbers of 9-12%.  Opex that rose 10% YoY has further erode profitability , bringing operating profit down 17% to Rp53.6 bn. Below operating level, forex loss , 23% increase in interest expense, and higher effective tax rate also ate up profitability.

Comment: although looking weak at first glance, we believe it is too early to revise down our earnings forecasts.  Recall that in 1Q15, the company booked YoY net profit decline of 35%, but turned to 42% growth for full-year 2015. At this juncture, we maintain our Buy rating and TP of Rp3,440 for ADHI as we believe ADHI’s performance will gradually improve toward the end of year.