Unbeatable in the Industry
FY21: Solid Top & Bottom Line with Double Digit Growth
• ARNA IJ booked a revenue of IDR2.55 Tn in FY21, grew +15.51% YoY (vs IDR2.21 Tn in FY20) supported by 1) Sales volume recorded at 67.71 Mn sqm or increased by +11.37% YoY (vs 60.80 Mn sqm in FY20); 2 Increase in ASP by +3.72% YoY. ARNA also took the initiative to launch 132 new patterns with a total of 296 stock keeping units (SKUs) through 14,066 stores (+2.3% YoY).
• GPM increased to a level of 35.98%, followed by OPM which increased to a level of 23.59% thanks to the efficiency of decreasing energy consumption in FY21. Net profit increased by +45.78% YoY, or IDR470.90 Bn in FY21 (vs IDR323.01 Bn in FY20), followed by NPM at 18.43%. The increase in net profit was due to a decrease in finance expenses -56.97% YoY, as well as an increase in financial income by +4.99% YoY in FY21.
2022 Business Prospects
• Focusing on Porcelain Tile, Getting More Margin: In line with the economic recovery, the Company launched a new glazed porcelain tile product, namely “ARNA” (produced by Plant 5B) on Apr-21 for the mid-high market segment and has contributed ~3% to total sales mix in FY21. Management believes this product has the potential to provide higher margins and contribute up to 16% of the Company's salex mix in FY25F. This target is supported by the addition of the 5C plant which is estimated to start production in Dec-22, where the production capacity of glazed porcelain tile will increase from 3 Mn sqm/year to 7.4 Mn sqm/year. The Company has plans to increase production to FY25F by adding FY23F (Plant 5C); and FY25F (Plant 6), so that porcelain tile capacity can reach 13.4 Mn sqm.
• Efficiency Improved, Preparing for ODOL: The Lean Manufacturing concept reduces gas consumption which has an impact on cost efficiency. In FY21 gas consumption fell -8% YoY resulting in cost savings reaching IDR30.94 Bn. Cumulatively, energy consumption in FY21 was reduced to 30% (vs 33% in FY20). The reduction in gas consumption will continue to be carried out as a readiness for the end of the relaxation of industrial gas prices of USD6/MMBtu until FY24F later. We see that this efficiency effort can be used to deal with the planned implementation of Zero Over Dimension Over Load (ODOL) which can burden OPM. We project OPM in FY22F at 26.33% (vs 23.59% in FY21).
• Weakening Foreign Competitors: We see that ARNA's position has benefited from: 1) Container shortage which has increased the shipping costs of imported producers; 2) China, which once more imposed a lockdown policy in the beginning of 2Q22, resulting in the supply chain of production raw materials being hampered; 3) The imposition of safeguards (BMTP) at a rate of 15%. It should be noted that ARNA's factory locations are located on the islands of Java and Sumatra, where the mobility of goods delivery is carried out by land. The small export portion (1% in FY21) and shipping costs charged to consumers have prevented ARNA from being exposed to shortage containers.
Estimated Top & Bottom Line Grew +8.24% YoY/+23.65% YoY
We project revenue in FY22F of IDR 2.76 Tn (+8.24% YoY) supported by more massive expansion of porcelain tile products, acceleration of domestic property sector, as well as increase in sales volume and ASP by +6.34% YoY/+1.79% YoY respectively. We post a moderate target for it’s gross profit and operating profit to grow +16.14% YoY/+20.82% YoY in FY22F considering the gas logistics problems that are still happening in East Java (including Plants 3&5) until 1H22 later, resulting in a higher purchase price redemption than incentives (around USD6.5/MMBtu). Moreover, FY22F net profit grew +23.65% YoY and NPM 21.06%.
Maintain BUY with TP IDR1.100
We maintain our BUY recommendation for ARNA with a Target Price of IDR1,100 (+22% upside) which implies PE/PBV 13.87x/4.35x in FY22F. Currently, ARNA is trading at -0.5STD PE of its 3-years-mean. Key downside risks: 1) weak of sales products, especially in mid-high segment; 2) gas supply constraint that continue to occur; 3) a higher imported product than expected.
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