DOID Volume Record and Attractive Valuation 20181119 NHKS Company Report (English)

Delta Dunia Makmur Tbk (DOID)

  Volume Record and Attractive Valuation Company Report | Nov 19, 2018

  3Q18 Review: Buoyant Profitability

  For 3Q18, DOID posted the revenue of USD254 million (+24.9% q-q, +27.9%

Buy

  y-y) and the net profit of USD31 million (+305.3% q-q, +37.8% y-y)—topping our estimate and consensus. Its EBITDA margin , OPM, and NPM was at 41.3% (vs.

Dec 2019 TP (IDR) 1,020

  33.7% in 2Q18), 16.2% (vs. 15.6% in 2Q18), and 12.5% (vs. 3.9% in 2Q18),

  Consensus Price (IDR) 1,487 respectively.

  The reduction in production costs and the increment in mining TP to Consensus Price

• 31.4%

  workers’ productivities are keys to the rosier profitability. vs. Last Price

• 36.0%

  3Q18 Operational: Surprises from Overburden Removal Shares data

  We overview that the 3Q18 excellent performance was driven by 1)

  Removal Last Price (IDR)

  750

  overburden volume hitting the highest ever for 3 consecutive months, 35.3 Price date as of

  Nov 15, 2018 million bcm, 38.6 million bcm, and 40.8 million bcm (from July to September); 2)

  52 wk range (Hi/Lo)

  1,250 / 610 the increment of +30% in assets utilization and capacities since the early of 2018

  Free float (%)

  50.3 as the potent driver for the increment in production; 3)

  Favorable weather in Outstanding sh.(mn)

  8,612 mining locations.

  Market Cap (IDR bn)

  6,415

  Market Cap (USD mn)

  437

  Recovery in Debt Composition and New Contract Avg. Trd Vol - 3M (mn)

  23,28 In 3Q18, DOID posted the debt to equity ratio and loan to EBITDA of 2.5x and

  Avg. Trd Val - 3M (bn)

  17,4 6.9x, respectively (vs. 3.2x and 9.0x in 2Q18). Besides, it secured 3 new long-

  Foreign Ownership

  28.7% term contracts from coal producers. The total new contracts reach USD2 billion.

  Mining Attractive Valuation, Buy Recommendation Coal

  DOID’s 2018F stocks valuation with an EV/EBITDA ratio of 3.3x and P/E ratio of

  Bloomberg DOID IJ

  4.9x are cheaper than that UNTR of 5.2x and 10.1x. Along with its focus on new

  Reuters DOID.JK

  contracts and the increment in the asset utilization to boost performance, we recommend buy with the target price of IDR1,020.

  Share Price Performance Delta Dunia Makmur Tbk | Summary (USD mn) 2017 2018E 2019E 2020E

  Sales 765 865 947 995

  Sales growth

  25.1% 13.2% 9.4% 5.1% EBITDA 280 299 372 390 Net Profit 47 86 105 110 EPS (IDR) 74 152 188 198

  EPS growth

  26.0% 83.4% 22.0% 5.1%

  YTD

  1M

  3M

  12M

  BVPS (IDR) 281 475 668 874 Abs. Ret.

  5.6% 5.6% 7.9% -12.3% EBITDA margin 36.6% 34.5% 39.3% 39.2% Rel. Ret.

  13.5% 5.0% 11.5% -9.6% NPM 6.1% 9.9% 11.0% 11.1% ROE 30.8% 38.6% 32.7% 25.6% ROA 5.1% 8.3% 8.7% 8.3% ROIC 12.4% 13.0% 13.5% 14.1% P/E 7.4x 4.9x 4.0x 3.8x P/BV 1.9x 1.6x 1.1x 0.9x

Firman Hidayat

  EV/EBITDA 3.2x 3.8x 3.3x 2.8x

• 62 21 797 6202, ext:170

  DPS (IDR)

  firman@nhsec.co.id Dividend yield 0.0% 0.0% 0.0% 0.0%

  Source: Company Data, Bloomberg, NHKS Research Please consider the rating criteria & important disclaimer NH Korindo Sekuritas Indonesia

  Delta Dunia Makmur Tbk www.nhsec.co.id

  Source: Company Data, NHKS Research Coal price and good weather become positive factors

  Source: Company Data, NHKS Research DOID to have more cleaner of balance sheet

  9M18: Revenue breakdown by business segment Source: Company Data, NHKS Research

  Profitability margins rose in 3Q18 Source: Company Data, NHKS Research

  Performance Highlights Profitability ratios rose in 3Q18

  Source: Company Data, NHKS Research Revenue breakdown by the name of client in 9M18

  Source: Company Data, NHKS Research

  Delta Dunia Makmur Tbk www.nhsec.co.id

  Source: Company Data, NHKS Research Highest-ever mothly overburden removal (million bcm) for 3 consecutive month in 3Q18

  Operational Highlights

  3Q18: Coal production (million tonnes) relatively flat from early 2017 Source: Company Data, NHKS Research

  Starting in 2018, the stripping ratio (x) began to rise and in 3Q18 highest ever Source: Company Data, NHKS Research

  Delta Dunia Makmur Tbk www.nhsec.co.id

  3Q18 review (USD mn)

  3Q18

  3Q17

  4Q17

  1Q18

  2Q18

  4Q18E Actual Estimate y-y q-q surprise

  4.6%

  Sales 198 206 182 203 253 242 27.9% 24.9% 228 Gross Profit 62 61 37 42 76 69 22.9% 80.7% 10.5%

  73 Gross Margin 31.4% 29.6% 20.6% 20.8% 28.5% 1.6% 31.9% 30.1% -1.2% 9.3%

   39 44 26 31 64 9.7%

  EBIT 58 64.1% 108.2%

  EBIT Margin 19.6% 21.5% 14.5% 15.1% 25.1% 24.0% 5.6% 10.1% 1.2% 23.8%

  EBITDA 65 75 57 63 98 87 49.1% 55.0% 12.1% 81

  EBIT Margin 33.1% 36.2% 31.3% 31.1% 36.0% 5.5% 2.6% 35.6%

  38.6% 7.5%

  Net Profit 23 15 10 8 31 26 37.8% 305.3% 20.7%

   36 Net Margin 11.5% 7.4% 5.7% 3.8% 12.4% 10.7% 0.9% 8.6% 1.7% 15.9% Source: Bloomberg, NHKS research Earnings revision (USD mn) 2018E 2019E 2020E

  865 947 995

• Revised Sales
>Previous 825 922> -Change 4.9% 2.7% 6.9%

  228 271 291

• Revised Gross Profit
• Previous 218 266 273
• Change 4.8% 1.9% 6.6%
• Revised 26.4% 28.6% 29.3% Gross Margin

  26.4% 28.9% 29.3%

• Previous EBIT -Revised 175 214> -Previous 168 188
• Change 4.0% 13.9% 18.7%

  20.2% 22.6% 23.3%

  EBIT Margin -Revised

• Previous 20.4% 20.4% 20.9% EBITDA -Revised 299 372> -Previous 278 389
• Change 7.4% -4.3% -5.4%

  34.5% 39.3% 39.2%

  EBITDA Margin -Revised

• Previous 33.7% 42.2% 44.3%

  Net Profit Revised 86 105 110 -

• -Previous

  78

  92

  97

• -Change 9.9% 13.7% 13.4%
• Revised 9.9% 11.0% 11.1% Net Margin

  9.5% 10.0% 10.4%

• Previous

  Source: NHKS research

  Delta Dunia Makmur Tbk www.nhsec.co.id

  DOID at A Glance

  PT Delta Makmur Tbk (“Limited Liability Company”) or generally called as Delta Dunia is a public company incorporated based on the Law of the Republic of Indonesia and domiciled in Jakarta. Its stocks are listed on IDX dated June 15th, 2018 with the code: DOID. As a parent entity, DOID has one actively operated subsidiary, PT Bukit Makmur Mandiri Utama (“BUMA”): one of the biggest coal mining contractor in Indonesia. Meanwhile, its two other subsidiaries— PT Banyubiru Sakti (“BBS”) and PT Pulau Mutiara Persada (“PMP”)—are entities not actively operating and previously having coal mining exploration concession. As a publicly listed company, 38% of DOIS’s stocks are currently held by Northstar Tambang Persada Ltd— an investors’ consortium consisting of a number affiliated investments with TPG Capital, Government of Singapore Investment Corporation, China Investment Corporation, and Northstar Equity Partners.

  DOID’s Competitiveness in Asia Market

  Indonesia’s heavy machinery industry outstrips its peers in ASEAN. Indonesia’s coal production capacities, the biggest among its peers are the catalyst for the industry. DOID as the second-biggest mining industry after the United Tractor has smaller market cap. and total asset than are its peers in Asia. It means DOID to occupy more rooms to grow. Its profitability is the highest as it posts the return on equity (ROE) of 33.1% and the high net profit growth of 50.2%. Besides, its stock valuation is attractive to collect; now its stocks are traded at an EV/ EBITDA ratio of 6.8x and P/BV ratio of 1.9x.

  Asia Coal Mining Contracting Companies Market Sales Net Profit Net Profit EV/ Asset Net Profit ROE Company Cap LTM LTM Growth EBITDA P/BV (USD mn) Margin LTM (USD mn) (USD mn) (USD mn) LTM LTM Indonesia

  DOID 437 946 844 65 50.2% 7.7% 33.1% 6.8x 1.9x UNTR 8,785 6,054 5,710 779 44.2% 13.6% 22.6% 12.0x 2.5x HEXA 163 283 377 25 15.6% 6.7% 14.6% 6.6x 1.1x

  India

  ZHONGJI INNOLIGHT 3,185 1,200 828 79 290.8% 9.6% 11.8% 41.7x 4.9x

  Japan

  YAMAZEN 963 2,325 4,719 104 19.4% 2.2% 13.4% 9.5x 1.2x JCHX MINING 677 866 441 40 52.2% 9.1% 6.7% 18.0x 1.2x

  Australia

  MINERAL RESOURCES 1,800 1,542 1,259 211 35.3% 16.8% 22.7% 9.1x 1.9x

  Source: Bloomberg

  Delta Dunia Makmur Tbk www.nhsec.co.id

  Multiple Valuation Forward EV/EBITDA band | Last 2 years Dynamic Forward EV/EBITDA band | Last 2 years Source: NHKS research Source: NHKS research Rating and Target Price Update Target Price Revision Date Rating Target Price Last Price Consensus vs Last Price vs Consensus

  11/19/2018 Buy 1,020 (Dec 2019) 750 1,487 +36.0% -31.4%

  Source: Bloomberg, NHKS research Analyst Coverage Rating Closing and Target Price Source: Bloomberg

  Source: NHKS research

NH Korindo Sekuritas Indonesia (NHKS) stock ratings

  1. Period: End of year target price

  2. Rating system based on a stock’s absolute return from the date of publication

   Buy : Greater than +15%

   Hold : -15% to +15%  Sell : Less than -15%

  Delta Dunia Makmur Tbk www.nhsec.co.id

  Summary of Financials

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