Mitra Pinasthika Mustika Company Focus

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1 30 March, 2015 Mitra Pinasthika Mustika Company Focus Willinoy Sitorus Adjust Earnings, Maintain BUY Earnings lower than expected Share price down 13% since 13 Mar 15 on lower than our expected FY14 earnings estimate (87% to our FY14 est.). We expect depressed quarterly earnings news flow to gradually abate and a modest recovery in the auto sector to be seen in 2H15 before full recovery in We expect 1Q15 earnings flat vs 4Q14 earnings before strongly picking up in 2H15. FY14 revenue grew but net profit declined on higher than expected allowance for financing impairment FY14 revenue grew 15.8% y-o-y to IDR16.1trn. However net profit declined 7.5% y-o-y amounting to IDR487bn mainly dragged by large impairment losses (IDR204bn in FY14 vs IDR83bn in FY13) coming from its financing/lease receivables as company turns more conservative by raising allowance for bad debt opex to sales is 9.4% vs 8.4% in We slightly upgrade revenue by 7%/2% respectively as we upgrade our Nissan 4W sales volume. Yet, we cut earnings by both 13% respectively due to large portion of receivables loss allowance from its 2W financing business segment. Playing it safe - allowance for impairment is now at record high It is worth noting % allowance for collective impairment to gross consumer financing receivables is at 2.2% in FY14, higher compared to 1.4% in FY13. This is also highest in company s history. While we remain cautious of allowance remaining in elevated level of ~Rp200bn in 1Q and 2Q of this year, we think it should start declining in 2H single-digit earnings growth before double digit in 2016 We expect single-digit earnings growth in 2015 (+9.1% y-o-y) before booking a strong 2016 earnings growth (+23.5% y-o-y). The 2016 earnings growth is driven by next year s automotive recovery, better market share for Nissan 4W and better loan quality for its financing segment. Maintain BUY with lower TP Given USD/IDR weakening, unexciting 2M15 auto sales and MPMX s NPL hit, our earnings cut is reasonable in our view. Our long-term view is that auto competition to remain tight. Thus, MPMX with exposure to variety of auto brands is a winner in the long-run. We lower our DCFbased TP to IDR1,200 (from IDR1,350) implying 10x/8x P/E. Maintain our BUY call as share price provides 54% upside to our TP. Companies Data Year end Dec E 2016E Revenue (IDRbn) 10,777 13,879 16,076 18,151 20,806 Net Profit (IDRbn) EPS (IDR) EPS growth (%) P/E (x) P/B (x) EV/EBITDA (x) Div Yield (%) Mitra Pinasthika Mustika is an automotive -related company catering to the 4W/2W distribution segment, auto components (lubricant oil), 4W rental and financing related business. BUY Company Update Stock Data Rp1,200 Share Price 780 Reuters Code MPMX.JK MPPA.JK Bloomberg Code MPMX.IJ MPPA.IJ Issued Shares (m) 4,463 5,378 Mkt Cap (Rpbn) 15,973 3,481 Average Avg. Value Daily Daily Trading USD 9.3mn month (Rpbn) 52-Wk range (Rp) Rp3, / Rp1,720 / Major Shareholders PT Saratoga Investama Sedaya 47.6% Morninglight Investment 15.3% Claris Investments 6.8% Public 30.3% Stock Price PT Trimegah Securities Tbk - COMPANY FOCUS 1 Sector Automotive Price Target Rp1,200 (+54%) Consensus Core EPS 15E 16E Consensus (Rp) na na TRIM vs Cons. (%) - - (Rp) 1,600 1,400 1,200 1, Volume (RHS) Price (LHS) Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 (mn)

2 Figure 1. Earnings revision Source: TRIM Research NEW OLD CHANGE 2015F 2016F 2015F 2016F 2015F 2016F Revenue 18,151 20,806 16,969 20, % 2.3% Gross profit 2,583 3,010 2,314 2, % 11.2% Gross margin 14.2% 14.5% 13.6% 13.3% Operating profit 958 1,179 1,109 1, % -12.1% Op. profit margin 5.3% 5.7% 6.5% 6.6% Pre-tax profit , % -15.8% Pre-tax margin 4.3% 4.5% 5.4% 5.5% Net profit % -13.3% Net margin 2.9% 3.2% 3.6% 3.7% Figure 2. Financial highlights Before revised Trimegah (IDR bn) 4Q13 3Q14 4Q14 q-o-q y-o-y 2014A y-o-y 2014A/2014F Total revenue 3,568 4,163 4, % 14.0% 16, % 104.1% Total cost of revenue 3,057 3,577 3, % 13.9% 13, % Total gross profit % 14.3% 2, % 106.0% Grossmargin (%) 14.3% 14.1% 14.4% 14.4% Total opex % 33.8% 1, % Other income % 68.5% -73 Other expenses na 154.8% 11 Operating profit % -18.1% % 82.6% Operating margin (%) 5.2% 5.4% 3.7% 5.4% Interest income % 51.2% % Interest expense -60 (74) (80) 7.9% 34.0% % Share in net income of associates % -39.0% % Total other income/exp % 27.9% % Pre-tax profit % -28.4% % 83.6% Pre-tax margin (%) 4.2% 4.2% 2.7% 4.3% Income tax % -20.9% % Minority interest 8 8 (2) na na % Net income % -23.7% % 87.0% Net margin (%) 3.2% 2.8% 2.2% 3.0% Cash 1,103 1,932 1,422 1,422 Debt 5,539 7,094 6,992 6,992 Equity 4,395 5,340 5,260 5,260 Gearing (%) 126.0% 132.8% 334.0% 132.9% Net gearing (%) 100.9% 96.7% 269.2% 105.9% Revenue segments Distribution 2,947 3,474 3, % 14.9% 13, % Consumer parts % 9.7% 1, % Automotive services % 46.9% 1, % Financial services % 20.2% 1, % Elimination -235 (367) (272) -25.8% 4.7% (1,294) 13.0% Total revenue 3,568 4,164 4, % 18.0% 16, % Operating profit Distribution % 13.2% % Consumer parts % 11.1% % Automotive services % -13.5% % Financial services (11) % -39.6% % Elimination 89 (5) (7) 25.8% -93.8% (22) % Total operating profit % 38.5% % Net profit* Distribution % 7.0% % Consumer parts % 15.5% % Automotive services % -53.9% % Financial services (4) % -40.7% % Elimination/others -80 (8) % % % Total net profit % -10.6% % Source: Company, TRIM Research * Excluding the company s unallocated expenses PT Trimegah Securities Tbk - COMPANY FOCUS 2

3 Figure 3. DCF valuation (IDR bn) 2015F 2016F 2017F 2018F 2019F EBIT (1-tax) ,020 1,145 1,245 Depreciation Capex + Inv. in assoc (1,123) (675) (610) (700) (680) Increase (Dec.) in WC 14 (96) 280 (62) (51) Free cash flow ,249 1,005 1,197 PV Discounted FCF ( ) 2,899 Discounted terminal value 8,749 - Minority interest Debt 6,992 + Cash 1,422 Equity 5,357 Shares outstanding (m) 4,463 Target price 1,200 Source: TRIM Research Figure 4. WACC calculation Risk Free Rate 7.25% Equity beta 1.3 Equity RP 5% Cost of Equity 13.8% Debt Premium 3.0% Cost of Debt 11.0% Statutory Tax Rate 25.0% Target DE Debt 60.0% Equity 40.0% Target DE 150.0% Target D/DE 60.0% WACC 12.1% Nominal Long run growth 5% Source: TRIM Research PT Trimegah Securities Tbk - COMPANY FOCUS 3

4 Figure 5. Asia automotive distribution peers comparison AUTOMOTIVE DISTRIBUTION Source: TRIM Research, Bloomberg Market cap PER (x) PBV (x) EV/EBITDA (x) ROE (%) (USDm) Indonesia Astra International 25, Indomobil Sukses Internasional India Bajaj Auto Limited 9, Hero Motocorp Ltd 8, Mahindra & Mahindra 11, Maruti Suzuki Limited 17, TVS Motor 2, Hongkong Brilliance China 9, na na Dongfeng Motor 13, Geely Auto 4, Guangzhou Auto 8, Korea Hyundai Motor 16, Kia Motors 33, Japan Toyota Motor 247, Honda Motor 61, Daihatsu Motor 6, Mazda Motor 12, Nissan Motor 47, Suzuki Motor 17, Yamaha Motor 8, Weighted Average Mitra Pinasthika MPMX's % premium/disc. to industry -48.5% -51.8% -67.1% -67.0% -44.4% -50.7% -23.4% -17.5% Figure 6. Asia automotive consumer parts peers comparison AUTOMOTIVE CONSUMER PARTS Market cap PER (x) PBV (x) EV/EBITDA (x) ROE (x) (USDm) Indonesia Gajah Tunggal Selamat Sempurna Astra Otoparts 1, India Bharat Forge Limited 4, Exide Industries Ltd 2, Korea Hankook Tire 4, Hyundai Mobis 21, Hyundai Wia 3, Mando 1, Nexen Tire 1, Japan Denso 41, Aisin Seiki 10, Thailand Somboon Advance Technology Thai Stanley Electric PCL Weighted Average Mitra Pinasthika MPMX's % premium/disc. to industry -53.7% -56.5% -65.5% -65.3% -7.3% -20.1% -10.7% -3.0% Source: TRIM Research, Bloomberg PT Trimegah Securities Tbk - COMPANY FOCUS 4

5 Income Statement (IDRbn) Balance Sheet (IDRbn) Year end Dec F 2016F Year end Dec F 2016F Revenue 10,777 13,879 16,076 18,151 20,806 Gross profit 1,618 2,024 2,314 2,583 3,010 Opr. profit ,179 EBITDA 944 1,235 1,275 1,402 1,683 Growth (%) 155.8% 30.9% 3.3% 9.9% 20.1% Net int. inc/(exp) Share in NI of Pre-tax profit Tax Minority int Extra. Items Reported net profit Growth (%) 69.8% 40.9% -7.5% 9.1% 23.5% Cash and equivalents 1,192 1,103 1, ,009 Other current asset 3,070 3,771 4,779 5,314 6,233 Net fixed asset 1,772 2,644 3,214 3,894 4,064 Other non-curr. asset 3,036 3,703 4,535 4,569 3,707 Total asset 9,070 11,220 13,950 14,231 15,013 ST debt 2,887 3,303 2,769 2,068 1,988 Other curr liab 997 1,175 1,438 1,696 1,936 LT debt 3,250 2,236 4,271 4,400 4,300 Other LT liab Total liabilities 7,233 6,826 8,690 8,383 8,450 Minority interest Shareholders equity 1,580 4,144 4,539 5,046 5,662 Total liab. & equity 9,070 11,220 13,950 14,231 15,013 Cash Flow (IDRbn) Year end Dec F 2016F Net profit Depr / amort Chg in work. cap Others CF from op Capex -1,446-1, , Others CF from investing -2,052-1,672-1,003-1, Net change in debt 5, , Changes in capital Others -2,862 1, CF from financing 2,857 1,368 1, Others Net cash flow 1, Cash at BoY 166 1,192 1,103 1, Cash at EoY 1,192 1,103 1, ,009 Key Ratio Analysis Year end Dec F 2016F Profitability Gross margin 15.0% 14.6% 14.4% 14.2% 14.5% Op. margin 6.9% 6.5% 5.4% 5.3% 5.7% EBITDA margin 8.8% 8.9% 7.9% 7.7% 8.1% Net margin 3.5% 3.8% 3.0% 2.9% 3.2% ROAE 30.9% 18.4% 11.2% 11.1% 12.3% ROAA 6.4% 5.2% 3.9% 3.8% 4.5% Stability Current ratio (x) Net debt/equity (x) Net debt/ebitda (x) Interest coverage (x) Efficiency A/R turnover (days) Inv. turnover (days) A/P turnover (days) Interim results Year end Dec 4Q13 1Q14 2Q14 3Q14 4Q14 Revenue 3,568 3,642 4,206 4,163 4,065 Capital History Date 29-May-13 1,500 Gross Profit Opr. Profit Net profit Gross Margins (%) 14.3% 15.1% 14.1% 14.1% 14.4% Opr. Margins (%) 5.2% 6.7% 5.8% 5.4% 3.7% Net Margins (%) 3.2% 4.2% 3.1% 2.8% 2.2% PT Trimegah Securities Tbk - COMPANY FOCUS 5

6 PT Trimegah Securities Tbk Gedung Artha Graha 18 th Floor Jl. Jend. Sudirman Kav Jakarta 12190, Indonesia t f DISCLAIMER This report has been prepared by PT Trimegah Securities Tbk on behalf of itself and its affiliated companies and is provided for information purposes only. Under no circumstances is it to be used or considered as an offer to sell, or a solicitation of any offer to buy. This report has been produced independently and the forecasts, opinions and expectations contained herein are entirely those of Trimegah Securities. While all reasonable care has been taken to ensure that information contained herein is not untrue or misleading at the time of publication, Trimegah Securities makes no representation as to its accuracy or completeness and it should not be relied upon as such. This report is provided solely for the information of clients of Trimegah Securities who are expected to make their own investment decisions without reliance on this report. Neither Trimegah Securities nor any officer or employee of Trimegah Securities accept any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. Trimegah Securities and/or persons connected with it may have acted upon or used the information herein contained, or the research or analysis on which it is based, before publication. Trimegah Securities may in future participate in an offering of the company s equity securities.