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Jan 11, 2017 10:57:03
: An attractive entry point
Arwana’s share price took a dive yesterday, down 21% with most of the correction happened just before market close. As we believe that fundamental remains unchanged, Arwana’s current share price offers an attractive entry points. The stock is currently trading at 19x 2017 PE, with 55% earnings growth.
Based on market data, the biggest seller on Arwana share yesterday was one of the local brokers, which is likely due to the rebalancing activity. Our conversation with the CFO yesterday revealed that company’s condition and operation are still largely intact, without any negative surprise update. As we highlighted in our recent report, Arwana indicated that 4Q16 sales are likely to reach 12.7m sqm (+16% QoQ, +11% YoY). Hence, FY16F sales volume may reach 47m sqm (+19% YoY), in line with our expectations. In addition, finished goods’ inventory days declined to 22-23 days in November (from 31 days in 3Q16). Arwana also recorded better sales mix with UNO sales (higher margin product) contribution continues to improve at the expense of lower margin product, Best Buy.
Arwana’s management also believes that this good performance is likely to continue in 2017, driven by: i. Higher sales volumes – estimated to reach 52-55m sqm (11-17% YoY growth); ii. Better sales mix – UNO and regular ceramic sales’ contributions to increase to 40% each, while Best Buy’s contribution to decline to 20%.
All in all, we see the recent sharp correction as an opportunity to enter. Maintain BUY on the counter with TP IDR550, offers 34% upside from current level. (Andrey Wijaya)