Dwi Aneka Jaya Kemasindo, Tbk

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1 Equity Valuation Dwi Aneka Jaya Kemasindo, Tbk Primary Report October 8, 2015 Target Price Low High Offset Printing Stock Performance JCI DAJK 5, , , , , , , , , JCI DAJK 3,000 0 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Enjoying sweet growth Source: Bloomberg, PEFINDO Research and Consulting Equity & Index Valuation Division Stock Information Ticker code IDR DAJK Market price as of October 7, Market price 52 week high 770 Market price 52 week low 470 Market cap 52 week high (bn) 1,925 Market cap 52 week low (bn) 1,175 Last 4 Weeks of Price and Volume 30,000, ,000,000 20,000,000 15,000,000 10,000,000 5,000, ,000, Volume Price Source: Bloomberg, PEFINDO Research and Consulting Equity & Index Valuation Division Shareholders (%) PT Anugrah Pratama Internasional Management 1.01 Public (each below 5%) Contact: Equity & Index Valuation Division Phone: (6221) info-equityindexvaluation@pefindoconsulting.co.id PT Dwi Aneka Jaya Kemasindo Tbk ( DAJK ) is an Indonesia-based company primarily engaged in the manufacturing of paper-based packaging. The businesses are split into two divisions: offset printing and corrugated carton. The Company also offers design services. Its products are used in various industries including food, electronics, pharmaceutical, and telecommunications. Its manufacturing facilities are located in Tangerang, Indonesia. The corrugated carton business started in 2011 when the Company acquired PT Super Kemas Pratama with the capacity of 24k tons. The Company today has three existing plants located in Tangerang with an offset printing capacity of 50k tons/year and corrugated carton of 48k tons/year. Considering its high utilization rate at present time, the Company will soon build the 4 th plant in Subang, expected to commence in is an integral part of this report Page 1 of 12

2 INVESTMENT PARAMETER Leading player in packaging industry DAJK is considered as one of leading player in packaging industry. Having more than 17 years of experience, the Company has gained trust from the major players in various industries it serves. In terms of production capacity, DAJK can produce up to 48k tons/year of corrugated cartons and 50k tons/year of offset prints. We expect the capacity of offset printing to increase to 72k tons/year after all machines are installed. Going forward, we believe the Company s foothold in this industry is getting stronger, following the realization of its expansion plan. Aiming higher growth through expansion DAJK is about to start the construction of new factory stage I in Subang on it s a 10 ha-land. The plant, which is expected to come on stream in 2017, is built to expand DAJK s corrugated carton capacity. The Subang factory will support DAJK s revenues growth at 15% YoY in The Company has budgeted around IDR550 bn for the construction, machineries and working capital of the new factory. To finance the expansion plan, the Company will raise fund of around IDR1 tn. DAJK plans to grow inorganically as the management believes that Company will be undergoing some consolidation in the medium term. Therefore, the Company will be keen on acquiring packaging companies, such as flexible packaging, as opportunity arises. This will eventually support the growth sustainability of the Company and at the same time make DAJK an integrated player. Robust revenue growth not followed by expanding margins DAJK has seen a stellar growth of its revenues for the past five years, at CAGR 104% in the period This was mainly due to a fast growing number of customers, which boost the sales volume. Thanks to the sales and marketing team that have been able to penetrate the market in Jabodetabek area. In 1H15, the Company posted revenue of IDR535 bn, reflecting 28% YoY of growth aggregately. The revenues from offset printing grew 39% YoY, while the revenues from corrugated carton products increased by 28% YoY. However, the operating margin was down to 24% from 26% in 1H14 due to higher COGS margin. Further, the Company s net margin fell even deeper to 9.3% from 13.2%% on the back of increasing finance charges, by 64% YoY, to IDR56 bn in 1H15. Business Prospects We have an upbeat outlook on the packaging industry in the country albeit the slowing economic growth to 4.67% in the second quarter this year. The economy is still driven by private sector consumption which accounted for more than 50% of the Gross Domestic Product in. Moreover, a productive age group of the population, which is quite significant (more than 60%), was the driving force behind the strong consumption of consumer goods in the country. The retail sales still booked a growth of 22.4% YoY in April 2015, which will in turn drive the growth of packaging industry. This year, the packaging industry is expected to grow moderately by 5% to IDR73 tn. Taking the above into consideration, underpinned by the realization of its expansion plan, we believe DAJK will be able to grow fairly fast in the years to come. Table 1: Performance Summary P 2016P Revenue [IDR bn] ,191 1,528 Pre-tax profit [IDR bn] Net profit [IDR bn] EPS [IDR] EPS growth [%] n.a * 32.2* P/E [x] n.a n.a * 10.1* Source: PT Dwi Aneka Jaya Kemasindo Tbk, PEFINDO Research and Consulting Equity & Index Valuation Division Estimates * based on share price as of October 7, 2015 IDR480/share October 8, 2015 Page 2 of 12

3 MACROECONOMY & BUSINESS INFORMATION Economic growth remains slow Uncertainties are still besetting the global economy after the financial crisis struck in Many predictions turned out to be false about the economic recovery. Optimisms with bailouts in Europe ended with new crisis. Entering 2015, World Bank predicted with greater optimism that the global economy was on the track to recovery. Falling prices of oil would reduce pressure on non-oil producing developing economies. The US economic recovery is expected to contribute to boosting the world exports including Indonesia s exports. For Indonesia itself, we view the challenges confronting its economic development are both external and internal factors. Those from external factors including slump in global trade and slowdown in global economic recovery, an increase in interest rates in some advanced economic in different time, oil price fall, would jolt financial stability of oil producing countries. While internal factors stemming from current account deficit caused by slump in export due to the falling price of primary commodities, slow progress in the development of infrastructure and shrinking value of Rupiah against US dollar. As a result, the country only saw the growth of 4.67% in 2Q15, slower than previous quarter of 4.71%. Table 2: Indonesia s Quarterly GDP Growth (annual % change) Year Q1 Q2 Q3 Q Source: Central Bureau of Statistics, PEFINDO Research and Consulting Equity & Index Valuation Division However supported by solid F&B Industry Amid the downturn of almost all industries in 1H15, the food & beverage ( F&B ) sector in Indonesia showed its resilient by booking positive growth. The country s sales of manufactured F&B products is estimated to book 20% YoY growth to IDR1,020 tn. This, will in turn, increase the packaging industry turnover. As of 1H15, the domestic packaging turnover reached IDR30 tn. We expect the turnover to grow moderately by 5% YoY to IDR73 tn this year. The growth is reflected in DAJK s sales performance, which grew by 28% YoY in 1H15. 1,200 Figure 1: Domestic F&B Turnover (IDR tn) 1, , P Source: Bank of Indonesia, PEFINDO Research & Consulting - Equity & Index Valuation Division October 8, 2015 Page 3 of 12

4 Besides, the retail sales in Indonesia grew by 22.4% YoY in April 2015, higher than 19.7% YoY in March. Stronger sales were reported to occur across nearly all items, particularly information and communication equipment, followed by F&B and tobacco. Figure 2: Indonesia Retail Sales, Dec 14 April 15 (% Yoy growth) Source: Bank Indonesia, PEFINDO Research & Consulting Equity & Index Valuation Division Uptrend of global packaging consumption We view the global packaging consumption continues to increase in Asia region as the biggest consumer among other regions. The packaging turnover in Asia reached USD160 bn in Indonesia is considered as top 15 countries with the biggest packaging consumption in the world. The packaging industry can be broadly categorized into several groups, namely paper and board, glass, metal, flexible plastics and rigid plastics. Paper and board has got the biggest slice of the cake with 38% market share, followed by those of rigid plastics (21%) and flexible plastics (13%). DAJK at a Glance DAJK was founded in 1997 with two main business activities, namely offset printing and corrugated carton. Established in Tangerang, the Company currently has three production sites located in the city, equipped with services and facilities such as design and pre-press, press machine, post-press facilities and corrugated carton facilities. The Company was listed in Indonesia Stock Exchange in Since its establishment, DAJK has seen an astonishing revenues growth, from only IDR800 mn in 2000 to IDR894 bn in It was mainly due to its vigorous expansion strategy and excellent execution, supported by strong management team and sales force. DAJK has incorporated a subsidiary PT Inpack Subang Perkasa (ISP) that will own and manage the new factory to be built in Subang, West Java. Figure 3: DAJK s Milestones Source: PT Dwi Aneka Jaya Kemasindo Tbk, PEFINDO Research and Consulting Equity & Index Valuation Division October 8, 2015 Page 4 of 12

5 Expanding customer base, including prominent players in their sectors DAJK managed to rapidly grow the customer base from 143 companies in 2012 to 503 companies in It indicates the Company s strong foothold in this industry. We like very much the package the Company s has to offer to its clients, ie. on-time delivery, competitive price, quality, and innovation. Its customers come from various sectors/industries, including prominent names from F&B, cosmetics, chemicals, and household equipment industries. In anticipation of growing demand in the future, DAJK continues to increase the offset printing capacity to 70k tons/year by adding new machineries. With new factory in Subang coming on stream, the capacity of corrugated carton will reach 120k tons/year, respectively. Figure 4: DAJK s customers Source: Bank of Indonesia, PEFINDO Research & Consulting - Equity & Index Valuation Division Launching new products to catch bigger market share DAJK currently has around six types of corrugated carton and offset printing products. This year, the Company plans to launch five new products especially for retail market. Furthermore, the Company will soon penetrate the market with flexible packaging products. Despite offering lower margin, flexible packaging products will make the Company an integrated packaging offering. All this will be carried out in a bid for bigger market share in the market. Figure 5: DAJK s new products Source: Bank of Indonesia, PEFINDO Research & Consulting - Equity & Index Valuation Division October 8, 2015 Page 5 of 12

6 FINANCE Revenue jumped but margin squeezed DAJK posted strong revenue growth with CAGR 104% during period. Further, its revenue also soared to IDR535 bn in 1H15, up by 28% YoY from the same period a year earlier. It was particularly driven by the growing number of customers, which boosted the sales volume. The revenues from offset printing, as the major revenue contributor, grew by 39%, while the revenues from corrugated carton rose by 11% during 1H15. However, the operating margin was down to 24% from 26% in 1H14 due to higher COGS margin. The net income margin fell even deeper to 9.3% from 13.2% in 1H14 on the back of higher finance charges, hiking by 64% YoY to IDR56 bn in 1H15. Figure 6: DAJK s Revenue and Profit Figure 7: DAJK s Profitability Margin 1,400 1,200 1, , % 40.0% 35.0% 30.0% % P 20.0% 15.0% 10.0% 5.0% 0.0% P Revenue Operating profit Net profit Gross margin Operating margin Net margin Source: PT Dwi Aneka Jaya Kemasindo Tbk, PEFINDO Research and Consulting - Equity & Index Valuation Division Estimates Source: PT Dwi Aneka Jaya Kemasindo Tbk, PEFINDO Research and Consulting - Equity & Index Valuation Division Leverage remains a concern In our view, DAJK has relatively a high leverage, indicated by the rapidly rising debt/ebitda ratio of 6.8x in 1H15 vs. 3.2x in 1H14. During the past year, its debt stock increased by around IDR196 bn from IDR759 bn in FY2014, bringing its interest coverage ratio down to 2.2x from 2.6x in The declining ratio was as a result of increasing finance cost from IDR34bn in 1H14 to IDR56 bn in 1H15 (up by a significant 64%). To finance the expansion strategy, we have concerns over how much space will be available for the balance sheet to comfortably carry additional debt. We therefore expect to see DAJK to refinance some of the existing debt to provide breathing space and raise equity-linked debt to support the expansion strategy. Figure 8: DAJK s debt and EBITDA profile (IDR bn) H14 1H15 Debt EBITDA Source: Bank of Indonesia, PEFINDO Research & Consulting - Equity & Index Valuation Division October 8, 2015 Page 6 of 12

7 Need more capacity for higher growth DAJK saw significant increase in sales volume from both offset printing and corrugated carton. It was in line with the increasing number of customers, from 143 in 2012 to 502 in 2015, or around CAGR 87%. As of 2014, the Company sold 32k tons of offset printing and 43k tons of corrugated carton products, reflecting 90% of utilization rate. To anticipate the growing demand, the Company plans to build its fourth plant in Subang, expected to commence its commercial operations in The total investment for Subang project is IDR550 bn with production capacity of 120k tons/year. In addition, the subsidiaries of the Company, PT DAJK Distributor Indonesia (DDI) and PT DAJK Portal Indonesia (DPI), which are engaged in trading and distribution as well as export import trading, will contribute to the growth of the Company. Besides, the Company also own PT. Inpack Subang, which manufactures corrugated carton. In line with the growing consumption in the country, we believe the additional capacity will fuel DAJK s growth in the next 3-5 years. Figure 9: Offset printing capacity and volume (in ton) Figure 10: Corrugated carton capacity and volume (in ton) 60,000 60,000 50,000 40,000 30,000 35,000 31,500 50,000 41,500 50,000 40,000 30,000 20,000 10,000 12,000 4,546 20,000 16,200 20,000 10, P P Offset printing capacity Sales volume corrugated carton capacity sales volume Source: PT Dwi Aneka Jaya Kemasindo Tbk, PEFINDO Research and Consulting - Equity & Index Valuation Division Estimates Source: PT Dwi Aneka Jaya Kemasindo Tbk, PEFINDO Research and Consulting - Equity & Index Valuation Division SWOT ANALYSIS Table 3: SWOT Analysis Strength Long presence in the packaging industry with complete production facilities including offset printing and corrugated carton Well diversified customers from various industries, several of which are leading players Attratctive product offering: reliable products and services at competitive price Opportunity Weakness Relatively high leverage Limited production capacity at the moment Threat Solid growth of F&B industry as one of the major customers Rising middle class population, the demand driver of packaging products High barrier to entry Government regulation to increase minimum wages Labor strikes and rallies could halt operation activities Source: PEFINDO Research and Consulting Equity & Index Valuation Division October 8, 2015 Page 7 of 12

8 INDUSTRY COMPARISON Table 4: Performance Summary of DAJK vs Peers as of 1H15 DAJK KDSI Revenue [IDR bn] Gross profit [IDR bn] Operating profit [IDR bn] Net profit [IDR bn] 91 1 Total assets [IDR bn] 2,159 1,062 Total liabilities [IDR bn] Total equity [IDR bn] 1, Growth YoY Revenue [%] Gross profit [%] (9.35) Net profit [%] (9.81) (91.67) Profitability Gross profit margin [%] Operating margin [%] Net Margin [%]* Leverage DER [x] Source: IDX, PEFINDO Research and Consulting Equity & Index Valuation Division * annualized October 8, 2015 Page 8 of 12

9 TARGET PRICE VALUATION Methodology We applied the Discounted Cash Flow (DCF) method as the main valuation approach considering that income growth is the value driver in DAJK instead of asset growth. Furthermore, we applied the Guideline Company Method (GCM) as a comparison method. This valuation is based on 100% share price as of October 7, 2015, using DAJK s financial report as of June 30, 2015, for our fundamental analysis. Value Estimation We used a Cost of Capital of 9.3% and Cost of Equity of 10.5% based on the following assumptions: Table 5: Assumption Risk free rate [%]* 9.0 Risk premium [%]* 4.8 Beta [x]** 0.3 Cost of Equity [%] 10.5 Marginal Tax Rate [%] 25.0 WACC [%] 9.3 Source: Bloomberg, PEFINDO Research and Consulting - Equity & Index Valuation Division Estimates * as of October 7, 2015 Target price for 12 months based on the valuation as of October 7, 2015, is as follows: Using the DCF method with a discount rate assumption of 9.3% is IDR755 IDR870 per share. Using the GCM method (P/E 7.1x and P/BV 0.7x) is IDR310 IDR320 per share. In order to obtain a value that represents both value indications, we have weighted both DCF and GCM methods by 70%:30%. Based on the above calculation, the target price of DAJK for 12 months is IDR620 IDR705 per share. Table 6: Summary of DCF Method Valuation Conservative Moderate Optimistic PV of Free Cash Flows [IDR, bn] PV Terminal Value [IDR, bn] 2,632 2,771 2,910 Non-Operating Assets [IDR, bn] Debt [IDR, bn] (945) (945) (945) Number of Share, [mn shares] 2,500 2,500 2,500 Fair Value per Share, [IDR] Source: PEFINDO Research and Consulting - Equity & Index Valuation Division Estimates October 8, 2015 Page 9 of 12

10 Table 7: GCM Comparison DAJK KDSI Avg. P/E [x] P/BV [x] Source: Bloomberg, PEFINDO Research and Consulting - Equity & Index Valuation Division Estimates Table 8: Summary of GCM Method Valuation Multiple [x] Est. EPS [IDR] Est. BV/share [IDR] Value [IDR] P/E P/BV Source: Bloomberg, PEFINDO Research and Consulting Estimates - Equity & Index Valuation Division Estimates Table 9: Fair Value Reconciliation Fair Value per Share [IDR] DCF GCM Average Upper limit Bottom limit Weight 70% 30% Source: PEFINDO Research and Consulting Estimates - Equity & Index Valuation Division Estimates October 8, 2015 Page 10 of 12

11 ROA ROE Dwi Aneka Jaya Kemasindo, Tbk Table 10: Consolidated Statement of Comprehensive Income (IDR bn) P 2016P Revenue ,191 1,528 COGS (126) (330) (617) (821) (1,054) Gross profit Operating expense (19) (42) (88) (119) (156) Operating profit Other income (charges) (22) (49) (74) (107) (127) Pre-tax profit Tax (11) (24) (24) (36) (48) Net profit Source: PT Dwi Aneka Jaya Kemasindo Tbk, PEFINDO Research and Consulting - Equity & Index Valuation Division Estimates Table 11: Consolidated Statement of Financial Position (IDR bn) Assets P 2016P Cash and cash equivalents Receivables Inventories Other assets Total Current Assets ,446 1,943 1,944 Fixed assets Other assets Total assets 691 1,129 1,903 2,551 2,710 Liabilities Trade payables Short-term debts Other liabilities Long-term debts Other liabilities Total liabilities ,376 1,391 Total equity ,066 1,174 1,317 Source: PT Dwi Aneka Jaya Kemasindo Tbk, PEFINDO Research and Consulting - Equity & Index Valuation Division Estimates Figure 11: ROA, ROE and Assets Turnover ROA ROE Asset turnover Source: PT Dwi Aneka Jaya Kemasindo Tbk, PEFINDO Equity & Index Valuation Division Table 12: Key Ratios Growth [%] P 2016P Net sales n.a Operating profit n.a Net profit n.a Profitability [%] Gross margin Operating margin Net margin ROA ROE Solvability [x] Liabilities to equity Liabilities to assets Source: PT Dwi Aneka Jaya Kemasindo Tbk, PEFINDO Research and Consulting - Equity & Index Valuation Division Estimates October 8, 2015 Page 11 of 12

12 DISCLAIMER This report was prepared based on trusted and reliable sources. Nevertheless, we do not guarantee its completeness, accuracy and adequacy. Therefore, we are not responsible for any investment decisions made based on this report. All assumptions, opinions and predictions were solely our internal judgments as of the reporting date, and those judgments are subject to change without further notice. We are not responsible for any mistakes or negligence that occurs by using this report. Recent performance cannot always be used as a reference for future outcome. This report does not offer a recommendation to purchase or hold particular shares. This report might not be suitable for some investors. All opinions in this report have been presented fairly as of the issuing date with good intentions; however, they could change at any time without further notice. The price, value or income of each share of the Company stated in this report might be lower than investor expectations, and investors may obtain returns lower than the invested amount. Investment is defined as the probable income that will be received in the future; nonetheless such returns may fluctuate. As for companies whose shares are denominated in a currency other than Rupiah, foreign exchange fluctuation may reduce their share value, price or the returns for investors. This report does not contain any information for tax considerations in investment decision-making. The share price target in this report is a fundamental value, not a fair market value or a transaction price reference required by regulations. The share price target report issued by the PT PEFINDO Riset Konsultasi ( PRK ) or PEFINDO Research and Consulting is not a recommendation to buy, sell or hold particular shares. It should not be considered as investment advice from the PRK and its scope of service to some parties, including listed companies, financial advisors, brokers, investment banks, financial institutions and intermediaries, does not correlate with receiving rewards or any other benefits from such parties. This report is not intended for any particular investor and cannot be used as par t of an objective investment analysis of particular shares, an investment recommendation, or an investment strategy. We strongly recommend investors to consider the suitability of the situation and conditions before making a decision in relation with the figures in this report. If necessary, consult with your financial advisor. PEFINDO keeps the activities of the Equity Valuation Division separate from its Ratings Division to preserve the independence and objectivity of its analytical processes and products. PEFINDO has established policies and procedures to maintain the confidentiality of non-public information received in connection with each analytical process. The entire process, methodology and the database used in the preparation of the Reference Share Price Target Report as a whole are different from the processes, methodologies and databases used by PEFINDO in issuing ratings. This report was prepared and composed by PRK with the objective of enhancing the transparency of share prices of listed companies in the Indonesia Stock Exchange (IDX). This report is also free of influence from any other party, including pressure or force either from IDX or the listed company reviewed. PRK earns a reward from IDX and the reviewed company for issuing this report twice a year. For further information, please visit our website at This report was prepared and composed by the PEFINDO Research & Consulting - Equity & Index Valuation Division. In Indonesia, this report is published in our website and in the IDX website. October 8, 2015 Page 12 of 12