Expect Some Outturn in 2H23 given Eased Headwinds
Key Takeaways :
▪️ARNA’s 1Q23 revenue stood at IDR659.8bn (+13.1% QoQ/-11.3% YoY). The increase in the QoQ basis was in-line with sales volume which climbed up +10.8% QoQ, while the lower YoY basis tumbled by -13.9%. Net profit in 1Q23 was at IDR145.3bn (+23.3% QoQ/-14.8% YoY), yet still below consensus/our estimates, reflecting 21.5%/23.1% of FY23E target.
▪️The softening demand in the ceramic tile industry since 4Q22 continues into 1Q23, not only in ceramics but also across the entire building materials industry. Yet, we see that building material prices have begun to stabilize, reflected by the slowing building material inflation in Apr-23 which stood at +2.9% YoY.
▪️We expect ARNA’s sales volume to rebound in 3Q22, driven by the addition of outlet coverage units by +348 (+1.0% YTD), coupled with new +365 SKUs. In terms of seasonality, ARNA’s sales volume usually peaks in 3Q & 4Q, driven by: 1) post-festive Eid; 2) reduced public holidays; and 3) tender project realization.
▪️We noticed that ceramic import volume had a significant drop in 4M23 by -45.3% YoY. However, we see this could be an opportunity for ARNA as their main focus being high segments of ceramic tiles, specifically Homogeneous Tiles (HT) sized 60x60cm which are previously dominated by imported products.
▪️We reiterate BUY for ARNA IJ with a lower TP of IDR1,250. ARNA trades at an undemanding valuation of 12.6x PE, near at the level -2.0 STD PE (5-year average). Downsides risk included: 1) increased building material prices; 2) lower-than-anticipated sales volume; 3) higher-than-expected logistic cost.
MNCS Research
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