Nippon Indosari (ROTI IJ) HOLD (Unchanged) 16 November 2017 Company Update Equity Indonesia Consumer Stock Data Target price (Rp) Prior TP (Rp) Shareprice (Rp) Rp1,200 Rp1,400 Rp1,295 Upside/downside (%) (7.3) Sharesoutstanding (m) 5.1 Marketcap. (US$ m) 484.2 Free float (%) 43.3 Avg. 6m dailyt/o (US$ m) 0.5 Price Performance 3M 6M 12M Absolute (%) 8.8-15.9-16.2 Relative to JCI (%) 7.5-19.0-30.9 52w high/low (Rp) 1,295-1,150 130 120 110 100 90 80 70 Nov-16 Dec-16 Dec-16 Jan-17 Feb-17 Feb-17 Mar-17 ROTI-Rebase Major Shareholders PT. Indoritel Makmur 25.8% Bonlight Investments, Ltd. 23.4% KKR 12.6% Pasco 8.5% Estimate Change; Vs. Consensus 2017F 2018F Latest EPS (Rp) 26 45 Vs. Prior EPS (%) (58) (39) Vs. Consensus (%) (38) (27) Source: Bloomberg Willy Goutama PT Indo Premier Sekuritas willy.goutama@ipc.co.id +62 21 5793 1168 Hasan PT Indo Premier Sekuritas hasan@ipc.co.id Apr-17 +62 21 5793 1168 May-17 May-17 Jun-17 Jul-17 Jul-17 Aug-17 Sep-17 Sep-17 JCI Index-Rebase Oct-17 Nov-17 The caveat on optimism Revenue growth slows as consumer spending weakens. Expects flat GPM but lower OPM and NPM. Expansion is the leading indicator of sales growth catalyst. We lower our gross sales by 3%/12% in FY17/18F. HOLD reaffirmed. Waning revenue growth. We highlighted frail 3Q17 gross sales which grew at only 3% yoy (vs. avg5y: 26%) and view this year sales volume will grow at 6% (vs. avg5y: 26%) due to slowing household consumption on ROTI s targeted customer segment, a similar trend experienced by other consumer companies. The other issue is higher sales return (FY17F: 19% vs. avg5y: 12%) triggered by spillover of the unprecedented 4Q16 boycott effect this year This results into decelerating net sales growth of only 1% in FY17F. Nevertheless, we expect normalization in sales return to 16%/14% level in FY18/19F. This brings our net sales forecast to Rp2,7tn in FY18F reviving from our FY17F low-base. Margins diverge. The company benefits from low wheat price since early 2016 (wheat contributes about c.24% of its cost structure) on which we believe the gross margin will exhibit a slight improvement to around c.52% level in FY17F- FY19F (vs. FY16F: 51%). But, the company is facing two problems. First, high sales return increases defective inventory expense. Second, the expansion plan requires additional headcount which upsurges salaries expense. These two problems result to higher operating expense (FY17F: 42% vs. avg5y: 33%). This brought lower operating and net income margins to 9.1% and 5.6% in FY17F, respectively. The future story post rights issuance. Fresh capital injection raised from right issuance amounting to Rp1.4tn should enable deleveraging and expansion into new markets. Right issuance causes lower financial leverage ratio. Our visit noted that company tries to expand its presence in the ex-java market to unleash sales growth catalyst by building additional 4-6 factories in Java/Sumatera/Kalimantan adding total production capacity about 6-8 over the five-year time span on which the management expects this will bring effects on sales in the respective period. Stay HOLD with lower TP of Rp1,200. Gross sales growth in the 3Q17 has shown an anemic growth vis-à-vis the past five-year trend. We thus trimmed our gross sales forecast by 3%/12%/18% for FY17/FY18/FY19 and slashed our TP to Rp1,200 (from Rp1,400) to account for our downgrade. Our TP reflects FY17F P/E of 45.8x. As a market leader in the national bread industry, we believe in ROTI s capability to capitalize ex-java market potential despite concern on possible shrinking market pie due to the sluggish middle-income class consumption and increasing industry competition. Year To 31 Dec 2015A 2016A 2017F 2018F 2019F Revenue (RpBn) 2,209 2,522 2,496 2,783 3,154 EBITDA (RpBn) 557 478 366 441 478 EBITDA Growth (%) 56.6 (14.2) (23.5) 20.5 8.3 Net Profit (RpBn) 306 282 140 240 281 EPS (Rp) 60 56 27 45 53 EPS Growth (%) 58.5 (7.7) (51.7) 66.9 16.9 Net Gearing (%) (43.4) (42.3) (66.8) (65.0) (30.9) PER (x) 21.5 23.2 48.1 28.8 24.7 PBV (x) 5.5 4.5 2.3 2.2 2.0 Dividend Yield (%) 0.4 0.5 0.4 0.2 0.3 EV/EBITDA (x) 12.7 15.0 24.3 20.4 16.7 Source : ROTI, IndoPremier Share Price Closing as of : 15-November-2017
Fig. 1: Net sales dragged down by high return rate Fig. 2:ROTI sales volume proportion 900 800 700 600 500 400 300 200 100 0 Gross Sales Net Sales Sales Return 1Q14 2Q14 3Q14 2014 1Q15 2Q15 3Q15 2015 1Q16 2Q16 3Q16 2016 1Q17 2Q17 3Q17 25% 2 15% 1 5% 7 6 5 4 3 2 1 White bread Sweet bread Fig. 3: Flattish GPM but bearish OPM and NPM trend Fig. 4: Higher Sales return and headcount spikes OPEX GPM OPM NPM Total Opex as of sales 6 5 4 3 2 1 1400 1200 1000 800 600 400 200 0 5 45% 4 35% 3 25% 2 15% 1 5% Fig. 5: ROTI s major shareholder post right issuance Fig. 6: Ex-Java outpaced Java market growth Java Ex-Java Growth in Java market Growth in ex-java market PT. Indoritel Makmur Bonlight Investments, Ltd. KKR Pasco 10 9 8 7 6 5 4 3 2 1 30 25 20 15 10 5 2012 2013 2014 2015 2016 2
Year To 31 Dec (RpBn) 2015A 2016A 2017F 2018F 2019F Income Statement Net Revenue 2,209 2,522 2,496 2,783 3,154 Cost of Sales (1,020) (1,221) (1,198) (1,351) (1,546) Gross Profit 1,189 1,301 1,298 1,432 1,609 SG&A Expenses (739) (918) (1,071) (1,138) (1,289) Operating Profit 450 383 227 294 320 Net Interest (75) (74) (71) (7) 16 Forex Gain (Loss) 0 7 0 0 0 Others-Net 39 56 30 33 38 Pre-Tax Income 413 372 187 320 374 Income Tax (108) (90) (47) (80) (94) Minorities 0 0 0 0 0 Net Income 306 282 140 240 281 Balance Sheet Cash & Equivalent 515 611 1,972 2,060 1,054 Receivable 251 284 281 312 354 Inventory 43 51 51 59 68 Other Current Assets 4 4 4 5 5 Total Current Assets 813 949 2,308 2,435 1,481 Fixed Assets - Net 1,821 1,843 1,929 2,033 2,792 Goodwill 0 0 0 0 0 Non Current Assets 72 128 118 131 146 Total Assets 2,706 2,920 4,355 4,599 4,419 ST Loans 0 0 0 0 0 Payable 160 172 170 190 216 Other Payables 236 148 137 145 166 Current Portion of LT Loans 0 0 0 0 0 Total Current Liab. 396 321 308 335 382 Long Term Loans 0 0 0 0 0 Other LT Liab. 1,122 1,156 1,068 1,069 595 Total Liabilities 1,518 1,477 1,376 1,404 977 Equity 273 272 1,708 1,708 1,708 Retained Earnings 915 1,128 1,257 1,473 1,720 Minority Interest 0 43 14 14 14 Total SHE + Minority Int. 1,189 1,443 2,979 3,195 3,442 Total Liabilities & Equity 2,706 2,920 4,355 4,599 4,419 Source : ROTI,IndoPremier 3
Year to 31 Dec 2015A 2016A 2017F 2018F 2019F Cash Flow Net Income (Excl.Extraordinary&Min.Int) 304 279 140 240 281 Depr. & Amortization 107 95 139 147 157 Changes in Working Capital 62 (80) (23) (11) (15) Others 33 (35) 13 (0) 10 Cash Flow From Operating 507 258 268 374 433 Capital Expenditure (248) (116) (224) (251) (916) Others (29) (55) 9 (12) (14) Cash Flow From Investing (277) (171) (215) (263) (931) Loans 209 34 (88) 0 (473) Equity 0 0 1,434 0 0 Dividends (28) (30) (28) (14) (24) Others (47) (9) (9) (9) (9) Cash Flow From Financing 123 (5) 1,307 (22) (506) Changes in Cash 353 81 1,360 87 (1005) Financial Ratios Gross Margin (%) 53.8 51.6 52.0 51.5 51.0 Operating Margin (%) 20.4 15.2 9.1 10.6 10.2 Pre-Tax Margin (%) 18.7 14.7 7.5 11.5 11.9 Net Margin (%) 13.8 11.2 5.6 8.6 8.9 ROA (%) 12.6 10.0 3.8 5.4 6.2 ROE (%) 28.4 21.4 6.4 7.8 8.5 ROIC (%) 25.8 23.2 7.3 9.9 10.5 Acct. Receivables TO (days) 41.1 40.6 40.5 40.5 40.5 Acct. Receivables - Other TO (days) 0.2 0.4 0.5 0.5 0.4 Inventory TO (days) 15.5 15.2 15.6 15.9 16.1 Payable TO (days) 57.2 51.5 52.1 51.5 51.0 Acct. Payables - Other TO (days) 0.0 0.0 0.0 0.0 0.0 Debt to Equity (%) 83.7 71.2 32.8 30.1 13.8 Interest Coverage Ratio (x) 5.0 4.2 2.5 4.2 6.4 Net Gearing (%) (43.4) (42.3) (66.5) (64.7) (30.8) Source : ROTI,IndoPremier 4
Head Office PT INDO PREMIER SEKURITAS Wisma GKBI 7/F Suite 718 Jl. Jend. Sudirman No.28 Jakarta 10210 - Indonesia p +62.21.5793.1168 f +62.21.5793.1167 INVESTMENT RATINGS BUY : Expected total return of 1 or more within a 12-month period HOLD : Expected total return between -1 and 1 within a 12-month period SELL : Expected total return of -1 or worse within a 12-month period ANALYSTS CERTIFICATION. The views expressed in this research report accurately reflect the analysts personal views about any and all of the subject securities or issuers; and no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in the report. DISCLAIMERS This research is based on information obtained from sources believed to be reliable, but we do not make any representation or warranty nor accept any responsibility or liability as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendations contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is not and should not be construed as an offer or a solicitation of an offer to purchase or subscribe or sell any securities. PT. Indo Premier Sekuritas or its affiliates may seek or will seek investment banking or other business relationships with the companies in this report.