MNCS COMPANY UPDATE MNC Sekuritas Research Division November,

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1 MNCS COMPANY UPDATE MNC Sekuritas Research Division November, PT Buyung Poetra Sembada Tbk (HOKI) Food and Beverages Optimizing Strength For Outstanding Performance BUY Target Price : IDR 1,230 Stock Data Current Price : 52wk Range H-L : Share Outstanding : Free Float (%) : Mkt Capitalization (IDR bn) Major Shareholders PT Buyung Investama Public : : : IDR 800 IDR 1, ,374 million , % 33.83% 9M18 Results: Solid Performance with Bottom-Line Increased by 95.06% YoY HOKI managed to record satisfactory performance in 9M18 with revenue increased 17.78% YoY to IDR1, billion (vs IDR900 billion in 9M17). The increase in revenue was supported by the higher sales of rice which recorded an increase of 15.60% YoY. The achievement reflects 76.82%/71.77% of the MNCS/Consensus estimates. HOKI also successfully manage an operational excellency and cost efficiency, maintain their operating profit margin at 9.62% level (vs 6.36% in 9M17). Meanwhile, net income significantly increased by 95.06% YoY to IDR70.76 billion in 9M18 from IDR36.28 billion in 9M17 with net profit margin stood at 6.68%. This achievement was in line with the management projection stating that the top line grows by 10%-15% YoY and the bottom line grows double digit in FY18E. Potential Growth Supported by New Factory and Distribution Channel with Alfamart HOKI has 2 production plants located in Cipinang, East Jakarta, with a production capacity of 5 tons/hour, and a factory in Subang with a production capacity of 30 tons/hour. Currently, HOKI is in the process of upgrading production capacity in Subang, by 20 tons/hour, a move expected to be completed by the end of 2018, so that the total production capacity of the HOKI reaches 55 tons/hour in FY18E. Currently HOKI is also constructing a new factory in Palembang, South Sumatra under the name PT Astha Beras Perkasa, with focus on paddy and rice processing, as well as it s distribution. The plant also possesses a brand-new grain milling apparatus for packaged rice, with a capacity of 40 tons/hour, it will be operate by the end of HOKI also expanded the distribution network through modern retailers in collaboration with Alfamart. HOKI will distribute its own premium production rice under the brand "Super Slyp Rice Rice 5Kg", which will be distributed for the first time in Sumatra. Therefore, We believe HOKI will reach IDR1, billion/idr1, billion revenues in FY18E/FY19F. Recommendation: Maintain BUY at TP IDR1,230 We recommend BUY for HOKI at a TP: IDR1,230 which implies PE FY18E/FY19F of 31.84x/29.35x and PBV FY18E/FY19F of 5.30x/4.71x. We believe that the prospect of HOKI's growth in FY18E will be supported by several catalysts, as follows: 1) Increasing production capacity as a strategy to meet domestic market demand; 2) Broadening HOKI sales distribution network with Alfamart. Nevertheless, We believe changes in Government Regulation will become the main focus. On May 31, 2018, the Government announced a reduction in Highest Retail Price (HET) of medium rice around IDR500. We believe if the HET price is adjusted downward, it will potentially affected HOKI s earnings. Key Financial Highlight Krestanti Nugrahane Widhi krestanti.widhi@mncgroup.com (021) ext In billion IDR FY15 FY16 FY17 FY18E FY19F Revenue , , , , EBITDA Net Profit ROA (%) ROE (%) PER (x) PBV (x) Source: Bloomberg, MNCS as of November 06, 2018 Page 1

2 9M18 Financial Performance: Net Profit Significantly Increased by +95,06% YoY to IDR70,76 billion HOKI managed to record satisfactory performance in 9M18. HOKI booked an increase in revenue of 17.78% YoY, from IDR billion in 9M17 to IDR1, billion in 9M18. The increase in revenue was supported by the higher sales of rice which recorded an increase of 15.60% YoY. The achievement reflects 76.82%/71.77% of the MNCS/Consensus estimates. This achievement in line with the management projection stating that the top line grows by 10%-15% YoY and the bottom line grows double digit in FY18E. On the other hand, cost of goods sold increased by 18.41% YoY to IDR billion. Promotional expenses significantly dropped by 90.09% YoY to IDR3.01 billion in 9M18 from the previous IDR30.37 billion in 9M17. HOKI successfully manage an operational excellency and cost efficiency, holding their operating profit margin at a level 9.62% (vs 6.36% in 9M17). Meanwhile net income significantly increased by 95.06% YoY to IDR70.76 billion in 9M18 from IDR36.27 billion in 9M17 with net profit margin stood at 6.68%, inline with our estimate. Exhibit 01. HOKI's Financial Result (IDR billion) IDR Billion 2Q18 3Q18 QoQ 9M17 9M18 YoY FY18E Consensus FY18E MNCS % % Consensus MNCS Sales % , % 1, , % 76.82% COGS % % Gross Profit % % % 72.62% Gross Profit Margin 14.35% 15.03% 14.96% 14.51% Operating Profit % % % 74.04% Operating Profit Margin 9.22% 10.01% 6.36% 9.62% PBT % % % 77.95% Net Profit % % % 78.15% Net Profit Margin 6.22% 6.86% 4.03% 6.68% Source : HOKI, MNCS Exhibit 02. HOKI's Financial Performance FY14-FY19F (IDR Billion) Revenue (LHS) GPM (RHS) OPM (RHS) NPM (RHS) , ,95 18% 16% , ,22 14% 12% % ,30 658,28 8% 6% 400 4% 200 2% 0 0% Source : HOKI, MNCS FY14 FY15 FY16 FY17 FY18E FY19F Page 2

3 Higher Potential from New Factory HOKI has 2 production plants located in Cipinang, East Jakarta, with a production capacity of 5 tons/hour, and a factory in Subang with a production capacity of 30 tons/ hour. Currently, HOKI is in the process of upgrading production capacity in Subang, by 20 tons/hour, a move expected to be completed by the end of 2018 so that the total production capacity of the HOKI reaches 55 tons/hour in FY18E. Currently HOKI is also constructing a new factory in Palembang, South Sumatra under the name PT Astha Beras Perkasa, with focus on paddy and rice processing, as well as distribution. The plant also possesses a brand-new grain milling apparatus for packaged rice, with a capacity of 40 tons/hour; it will be operate by the end of HOKI budgeted capital expenditure of IDR20-30 billion for the construction of the plant. Furthermore, PT Buyung Putra Energi located in South Sumatra engaged in the conversion of waste rice husks (after rice is polished), into fuel for power generation, with a capacity of 3 Megawatts (MW). The plant, which is budgeted at IDR60-IDR70 billion, is targeted for completion in 1Q19F. Electrical energy produced will be used for Company operations (electricity needs) at the new HOKI plant, and the excess will be sold to PT PLN (Persero). With the addition of this factory, we predict that production growth should be increase to 22.91%/12.95% YoY in FY18E/FY19F. New Distribution Channel with Alfamart The distribution network scheme adopted by HOKI, aiming to reach a broad market segment, will strengthen rice sales and expand sales through modern retailers, in collaboration with Alfamart. HOKI will distribute its own premium production rice under the brand "Super Slyp 5Kg Rice Alfamart Rice", which will be first distributed in Sumatra, with plans to gradually spread into other regions. Previously, HOKI cooperated with Indomaret, where one of the pillars of HOKI sales marked more than 24.53% of their total. Note that currently the number of outlets owned by Indomaret as of the first semester of 2018 reaches 15,599, more than Alfamart which only has 13,503 outlets as of March The collaboration with Alfamart is expected to boost HOKI sales volume in the future. Exhibit 03. Number of Outlets Indomaret and Alfamart in Indomaret Alfamart Source : AMRT FY15 FY16 FY17 IH18 Page 3

4 Will the Highest Retail Price Drop (HET) have an impact on HOKI? On May 31, 2018, the Government, through the Ministry of Trade, announced a reduction in Highest Retail Price (HET) of medium rice, from IDR9,450/kg to IDR8,950/ kg, and premium rice from IDR12,800/kg to IDR12,300/kg. However, the planned HET reduction of IDR500 is still under review. We believe if the HET price is adjusted downward, it will potentially affected HOKI s earnings. As of 9M18, the HOKI selling price of 1kg rice is around DR11,800/kg. Recommendation: Maintain Buy with Target Price IDR1,230 We recommend BUY for HOKI at a TP: IDR1,230 which implies PE FY18E/FY19F of 31.84x/29.35x and PBV FY18E/FY19F of 5.30x/4.71x. We believe that the prospect of HOKI's growth in FY18E will be supported by several catalysts, as follows: 1) Increasing production capacity as a strategy to meet domestic market demand; 2) Broadening HOKI sales distribution network with Alfamart. Nevertheless, We believe changes in Government Regulation will become the main focus. On May 31, 2018, the Government announced a reduction in Highest Retail Price (HET) of medium rice around IDR500. We believe if the HET price is adjusted downward, it will potentially affected HOKI s earnings. Exhibit 04. HOKI is currently trading at Level +0.5 STD PE Ratio HOKI Mean STD-1 STD-2 STD+1 STD Des-17 Jan-18 Mar-18 Apr-18 Mei-18 Jun-18 Jul-18 Agust-18 Sep-18 Okt-18 Source : Bloomberg as of October 2018, MNCS Page 4

5 Exhibit 05. Financial Projections Income Statement Balance Sheet IDR Billion FY15 FY16 FY17 FY18E FY19F IDR Billion FY15 FY16 FY17 FY18E FY19F Revenues , , , , Current Assets COGS , , , Cash and Cash Equivalents Gross Profit Trade Receivable Operating Expense Inventories Selling Expenses Others current Assets General and Administrative Non-Current Assets Operating Profit Fix Asset - net EBITDA Other Non-Current Assets Interest Expense (7.69) (12.61) (10.01) (16.06) (15.88) TOTAL ASSETS Interest Income Current Liabilities Other (32.17) 0.54 (1.46) Account Payable Profit Before Tax Short Term Debt Tax Expense (8.87) (15.21) (16.42) (31.00) (33.62) Other current liabilities Net Income Before MI Non-Current Liabilities Minority Interest Long-term Liabilities - Net Net Income Other Non-Current Liabliies Total Equity EPS (full amount) Cash Flow TOTAL LIABILITIES & EQUITY Ratios IDR Billion FY15 FY16 FY17 FY18E FY19F Ratio FY15 FY16 FY17 FY18E FY19F CFO Total (102.18) (115.20) Revenue Growth 27.01% 74.23% 5.43% 14.12% 15.21% Net Income Operating Profit Growth 48.02% 91.05% 1.04% 88.74% 7.35% Depreciation (0.07) Net Income Growth % (17.75)% 9.45% 88.77% 8.47% Change in Working Capital (144.45) (34.43) (49.87) Change in others (477.52) (21.91) (53.19) Current Ratio(x) CFI Total (54.77) (28.90) (15.69) (100.67) (25.82) Quick Ratio(x) Change in ST Investment Receivables Days Change in LT Investment Inventory Days Capex (105.71) (33.62) (0.49) (100.00) (25.00) Payable Days Change in Others (0.04) (2.01) (0.59) (0.67) (0.82) Debt to Equity (x) CFF Total (29.83) Net Change in Debt (44.92) (1.66) Gross Profit Margin 15.03% 14.72% 13.64% 15.34% 15.20% Equity financing (0.93) Operating Profit Margin 5.74% 6.29% 6.03% 9.98% 9.30% Dividend payment (59.71) - - (27.16) (29.46) EBITDA Margin 6.31% 6.74% 6.74% 10.65% 9.98% Others Net Profit Margin 8.09% 3.82% 3.97% 6.56% 6.18% Net Cash Increase (7.39) (4.91) ROA 16.04% 11.84% 8.31% 12.48% 12.37% Closing Balance ROE 30.33% 19.91% 10.08% 16.63% 16.04% Source: Company, MNCS Page 5

6 Thendra Crisnanda Head of Institutional Research, Strategy (021) ext Victoria Venny Telco, Toll Road, Logistics, Consumer, Poultry (021) ext MNC SEKURITAS RESEARCH TEAM Edwin J. Sebayang Head of Retail Research, Technical, Auto, Mining (021) ext Tomy Zulfikar Research Analyst (021) ext I Made Adi Saputra Head of Fixed Income Research imade.saputra@mncgroup.com (021) ext Krestanti Nugrahane Widhi Research Associate, Plantation, Consumer krestanti.widhi@mncgroup.com (021) ext Rr. Nurulita Harwaningrum Banking, Auto, Plantation roro.harwaningrum@mncgroup.com (021) ext Muhamad Rudy Setiawan Research Associate, Property, Construction muhamad.setiawan@mncgroup.com (021) ext Khazar Srikandi Research Associate khazar.srikandi@mncgroup.com (021) ext Sukisnawati Puspitasari Research Associate, Cement, Mining sukisnawati.sari@mncgroup.com (021) ext Ikhsan Hadi Santoso Research ikhsan.santoso@mncgroup.com (021) ext MNC SEKURITAS EQUITY SALES TEAM T. Heldy Arifien Head of High Networth heldy.arifien@mncgroup.com (021) ext Harun Nurrosyid harun.nurrosyid@mncgroup.com (021) ext Agus Eko Santoso agus.santoso@mncgroup.com (021) ext Okhy Ibrahim okhy.ibrahim@mncgroup.com (021) ext Gilang Ramadhan gilang.ramadhan@mncgroup.com (021) ext Muhamad Fauzan Saputra Junior Equity Sales Muh.saputra@mncgroup.com (021) ext Nesya Kharismawati nesya.kharismawati@mncgroup.com (021) ext Iman Hadimulya, ST iman.hadimulya@mncgroup.com (021) ext Paksi Jaladara Junior Equity Sales paksi.jaladara@mncgroup.com (021) ext MNC Research Investment Ratings Guidance BUY : Share price may exceed 10% over the next 12 months HOLD : Share price may fall within the range of +/- 10% of the next 12 months SELL : Share price may fall by more than 10% over the next 12 months Not Rated : Stock is not within regular research coverage PT MNC SEKURITAS MNC Financial Center Lt Jl. Kebon Sirih No , Jakarta Pusat Telp : (021) Fax : (021) Call Center : Disclaimer This research report has been issued by PT MNC Sekuritas, It may not be reproduced or further distributed or published, in whole or in part, for any puidrose. PT MNC Sekuritas has based this document on information obtained from sources it believes to be reliable but which it has not independently verified; PT MNC Sekuritas makes no guarantee, representation or warranty and accepts no responsibility to liability as to its accuracy or completeness. Expression of opinion herein are those of the research department only and are subject to change without notice. This document is not and should not be construed as an offer or the solicitation of an offer to purchase or subscribe or sell any investment. PT MNC Sekuritas and its affiliates and/or their offices, director and employees may own or have positions in any investment mentioned herein or any investment related thereto and may from time to time add to or dispose of any such investment. PT MNC Sekuritas and its affiliates may act as market maker or have assumed an underwriting position in the securities of companies discusses herein (or investment related thereto) and may sell them to or buy them from customers on a principal basis and may also perform or seek to perform investment banking or underwriting services for or relating to those companies. Page 6