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Apr 29,2015 08:10:54
Key Takeaways From Indonesia Corporate Day 2015 may be a difficult year for ARNA due to the weak IDR and weaker buying power which hit sales and drive up cost. However, the company aims for 20% revenue growth in 2016 to make up the flat growth this year. Weak 1Q15 result. ARNA recorded a weak 1Q15 NPAT of Rp40bn, down by 48% yoy and is 14% to consensus’ FY15F expectation. The weak result was caused by weaker sales and higher COGS and opex. Sales volume was down by 13% yoy due to industry oversupply of ceramic tiles. Meanwhile, the weakening IDR has hit ARNA’s COGS as 42% of it is energy costs primarily are charged in USD. COGS per sqm grew by 6% yoy. Thus, gross margin fell from 33% to 30%. Meanwhile, SG&A cost grew by 48% yoy as a result of higher transportation cost. Increase in diesel price and salary expenses has hit ARNA on the operating level. Net margin fell from 19% in 1Q14 to 11% in 1Q15. FY15 will remain weak. Management expects flat sales volume this year. The market oversupply and the weak buying power will likely pressure ARNA’s sales this year according to the management. Moreover, weak commodity market has also hampered the company’s ex-Java sales which are 25% of the total sales. ARNA expects improvements only to occur starting in 3Q15. The company is still trying to achieve 5% ASP growth this year. On the cost side, weak IDR will remain a pressure for the company. According to the management, for every 1% depreciation in the IDR gross margin will decrease by 0.3%. Keeping 2015 under control. Plant 5 in East Java will start operations in November 2015 and is expected to produce up to 1mn sqm of tiles this year out of total capacity of 8mn sqm. Thus, 2016 will be the first year when ARNA starts to produce full capacity at plant 5. The plant will produce the upper low end tiles branded UNO. In an effort to boost sales, ARNA will give promotions to its distributors if they are able to achieve ARNA’s sales target. Targeting a comeback in FY16F. With the new plant up and running, ARNA targets revenue to grow by 20% yoy in FY16F on the back of 5% ASP growth and 16% sales volume growth. COGS will likely depend on the level of the USD next year. ARNA will also increase the contribution of its high margin DigiUNO product to 25% in FY16F from 7% last year. We currently have no rating on the counter. ARNA is currently trading at 18.7x FY15F PE.
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Akbar Indo Makmur Stimec Tbk
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