Nippon Indosari (ROTI IJ)
O c t- 1 7 N o v -1 7 D e c -1 7 D e c -1 7 J a n -1 8 F e b -1 8 F e b -1 8 M a r- 1 8 A p r- 1 8 A p r- 1 8 M a y -1 8 J u n -1 8 J u l- 1 8 J u l- 1 8 A u g -1 8 S e p -1 8 S e p -1 8 O c t- 1 8 ROTI-Rebase JCI Index-Rebase
24
Product dropping reoriented. A high product return as witnessed in last five quarters (c.19%-26%) was resulted from an aggressive introduction of 45 new SKUs with an improper product placing. ROTI mitigated this by harnessing its in-house algorithm processing the bought big data from its Modern Trade (MT) partner, Indomart and Alfamart, to determine its product dropping and this partially explains a lukewarm gross sales growth of 9% in 9M18 (vs. 5-yr Avg. at 16%) besides industry competition. Presumably, a moderating 3Q18 return rate is also a by-product of this initiative. We thus lower our return rate forecast to 18%/16% (from 19%) and our gross sales growth assumption by 3%/4% in FY18F/19F to account for lower penetration rate in its MT channel due to the optimization of dropping strategy.
New product launched. ROTI introduces a new fighting brand “Boti” to penetrate the Indonesia and The Philippines General Trade (GT) channel in October 2018 and 1Q19, respectively. This channel carries no product return, better operating turnovers, and an upfront payment feature. ROTI starts with 3 SKUs (sugar-coated margarine, chocolate, and filled chocolate sprinkle margarine). This 12-day shelf life bread is priced at Rp2,000 to capture the low-income segment. We factored in this step by increasing GT segment sales (3-yr CAGR FY17-20F at 23%) to 21%-23% for FY18F-20F (3-yr Avg. at 20%).
Maintained HOLD with higher TP of Rp1,010. We tweaked our earnings forecast by 5%/-6% for FY18F/19F as we consider three factors. First, we remain cautious on ROTI’s acumen to manage the opportunity cost of low return rate as an improved product return potentially brings down revenue growth due to selective product dropping in its MT channel (which contributes to more than half of gross sales). Second, an expansion to GT channel should unleash positive growth catalyst both in ROTI’s domestic and overseas market, with the caveat on competition. Third, we expect 100bps decrease in FY19F GPM due to an upward adjustment (+5%) in its flour contract (c.40% of COGS) which will be renewed in 1Q19. We transfer coverage from Putri Tobing to Willy Goutama and maintained our HOLD rating for the stock with higher TP of Rp1,010 (reflecting target P/E FY18F of 37.4x).
Nippon Indosari (ROTI IJ)
24 October 2018 Results Note HOLD (Unchanged)
Year To 31 Dec 2016A 2017A 2018F 2019F 2020F
Revenue (RpBn) 2.521 2.491 2.743 3.119 3.519 EBITDA (RpBn) 502 328 361 463 581 EBITDA Growth (%) (5,5) (34,6) 9,9 28,3 25,5 Net Profit (RpBn) 280 124 166 242 327 EPS (Rp)
55
27
Seeking new growth equilibrium Low sales return rate hosts better 3Q18 earnings. Product dropping optimization wanes revenue growth. New product introduction shall support the future growth. Maintained HOLD albeit with higher TP of Rp1,010.
39
53 EPS Growth (%) 4,4 (57,3) 13,5 45,9 34,9 Net Gearing (%) 26,7 (27,6) (27,8) (21,9) (19,0) PER (x) 19,7 46,1 40,6 27,9 20,6 PBV (x) 3,8 2,0 2,2 2,1 1,9 Dividend Yield (%) 0,0 0,0 0,0 0,0 0,0 EV/EBITDA (x) 10,2 19,8 21,1 16,1 12,8
Source: ROTI, IndoPremier Share Price Closing as of : 23-October-2018 E q u it y | I n d o n e s ia | C o n s u m e rs
70
75
80
85
90
95 100 105 110 115
3Q18 earnings improved though still below consensus. PT Nippon Sariroti (ROTI) booked a 9M18 net profit of Rp103bn (+6% yoy), forming 65%/68% of our and market FY18F consensus. On quarterly basis, the net sales hiked to Rp709bn (+11% yoy) due to a significant improvement in 3Q18 sales return rate to 10.5% of gross sales (2Q18: 20%). This better return rate also expands 3Q18 GPM, OPM, and NPM to 53%, 11%, and 9%, consecutively (2Q18: 52%, 1%, and 2%) and helps easing selling expenses growth (+10% yoy vs. 5-yr Avg. at 16%) as a lower return plunges defective inventory costs (-18% yoy) which account for a fifth of total operating costs.
PT Indo Premier Sekuritas Willy.goutama@ipc.co.id
Stock Data
12M
Target price (Rp) Rp1,010
Prior TP (Rp) Rp850
Shareprice (Rp) Rp1,090
Upside/downside (%) (8,0)
Sharesoutstanding (m) 6,186 Marketcap. (US$ m) 444 Free float (%) 41,5 Avg. 6m dailyT/O (US$ m)
0.1 Price Performance
3M
6M
Absolute (%) 14.6 -12.7 -13.4 Relative to JCI (%)
Willy Goutama
16.8 -5.8 -10.8 52w high/low (Rp) 1.370 - 905
Major Shareholders
PT Indoritel Makmur Intl’ 25,8% Bonlight Investment, Ltd 20,7% Demeter Indo Investment Pte. 15,2%
Estimate Change; Vs. Consensus 2018F 2019F
Latest EPS (Rp)
27
39 Vs. Prior EPS (%) 4.5 (6.1) Vs. Consensus (%)
9.4
22.0 Source: Bloomberg
- 62 21 5793 1168
Fig. 1: Gross and Net Sales (rolling 4-q) vs. Return Rate Fig. 2: Revenue growth remains frail
3,500 30% 1,000
45% 40%
900 3,000
25% 35%
800 30%
2,500 700
20% 25%
600 2,000
20% 15% 500
15% 1,500
400 10%
10% 300
1,000 5%
200 0%
5% 500
100
- 5% 0% - -
- 10%
3
3
3
3
4
4
4
4
5
5
5
5
6
6
6
6
7
7
7
7
8
8
8
2
3
3
3
3
4
4
4
4
5
5
5
5
6
6
6
6
7
7
7
7
8
8
8
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q
4
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3 Return Rate (% GS) Gross Sales Net Sales Gross Sales % Growth Source: Indopremier, ROTI
Source: Indopremier, ROTI Fig. 3: GT channel spiked up as ROTI introduced Boti in Oct’18 Fig. 4: Expects better return rate and margins
84% 90%
60% 54%
80% 79% 79% 79%
53%
78% 53% 53% 53% 78%
77%
52%
73% 73% 80%
48% 46% 50%
70% 60%
40%
50%
30%
40%
19%
27% 27%
17%
23% 30% 22%
16%
22% 20% 16% 21% 21%
21% 20%
13%
16%
11% 10% 10%
20%
10% 12%
10%
11% 10% 10% 9%
8% 6% 6%
0%
0%
2011 2012 2013 2014 2015 2016 2017 2018F 2019F 2020F 2013 2014 2015 2016 2017 2018F 2019F 2020F
GPM OPM NPM
MT GT
Source: Indopremier, ROTI Source: Indopremier, ROTI
Fig. 5: Shelving optimization should lower operating cycles Fig. 6: ROTI introduced 3 new SKUs to penetrate GT channel
12014
12 100
10
80
8
6
60
4
40
2
- 20
(2)
- (4) 2011 2012 2013 2014 2015 2016 2017 2018F 2019F 2020F Inventory Days Receivable Days Payable Days Cash Cycle
Source: Indopremier, ROTI Source: ROTI
Year To 31 Dec (RpBn) 2016A 2017A 2018F 2019F 2020F Income Statement
Net Revenue 2.521 2.491 2.743 3.119 3.519 Cost of Sales (1.220) (1.183) (1.253) (1.458) (1.670) Gross Profit 1.301 1.308 1.491 1.661 1.849 SG&A Expenses (918) (1.107) (1.282) (1.379) (1.475) Operating Profit 383 201 209 283 374 Net Interest (70) (57)
20
45
68 Forex Gain (Loss)
7
1
1
1 Others-Net
50
42
45
51
52 Pre-Tax Income 369 186 275 379 494 Income Tax (90) (51) (69) (95) (124) Minorities (11) (40) (42) (44) Net Income 280 124 166 242 327
Balance Sheet
611 1.895 1.352 1.209 662 Cash & Equivalent 280 324 274 312 352 Receivable
51
50
63
73
84 Inventory
7
51
3
4
4 Other Current Assets 949 2.320 1.693 1.598 1.102 Total Current Assets
1.842 1.994 2.380 2.739 3.071 Fixed Assets - Net
62
62
63
63
63 Goodwill 68 184 Non Current Assets
2.921 4.560 4.135 4.400 4.236 Total Assets
119 ST Loans 172 149 208 239 Payable 148 260 196 228 261 Other Payables 499 500 Current Portion of LT Loans 321 1.027 375 936 499
Total Current Liab.
996 498 500 Long Term Loans 160 214 200 220 242 Other LT Liab.
1.477 1.739 1.075 1.156 741 Total Liabilities 274 1.582 1.708 1.708 1.708
Equity 1.127 1.193 1.347 1.572 1.867
Retained Earnings
43
46 6 (36) (80) Minority Interest
1.444 2.821 3.061 3.244 3.495 Total SHE + Minority Int. Total Liabilities & Equity 2.921 4.560 4.135 4.400 4.236
Source: ROTI, IndoPremier
Year to 31 Dec 2016A 2017A 2018F 2019F 2020F Cash Flow
280 135 206 284 371 Net Income (Excl.Extraordinary&Min.Int) 95 114 146 174 200 Depr. & Amortization
(46) 15 (5) (9) (10) Changes in Working Capital 157 (23) (73) (32) (90) Others 486 241 274 417 471
Cash Flow From Operating (170) (384) (350) (533) (533)
Capital Expenditure
22
35
90
85
80 Others (148) (349) (260) (448) (453)
Cash Flow From Investing 2 120 (616) (500) Loans
1.308 126 Equity Dividends
(16) (35) (124) (62) (35) Others
(15) 1.393 (614) (62) (535) Cash Flow From Financing 323 1.284 (600) (93) (517)
Changes in Cash
Financial Ratios
51,6 52,5 54,3 53,3 52,5 Gross Margin (%)
15,2 8,1 7,6 9,1 10,6 Operating Margin (%)
14,7 7,5 10,0 12,1 14,0 Pre-Tax Margin (%)
11,1 5,0 6,1 7,8 9,3 Net Margin (%)
9,9 3,3 3,8 5,7 7,6 ROA (%)
21,2 5,8 5,6 7,7 9,7 ROE (%)
13,2 4,6 6,9 8,4 11,1 ROIC (%)
38,3 44,3 39,8 34,3 34,4 Acct. Receivables TO (days)
0,0 0,0 0,0 0,0 0,0 Acct. Receivables - Other TO (days)
26,0 23,5 22,2 21,5 21,4 Inventory TO (days)
49,7 49,6 47,8 48,5 48,8 Payable TO (days)
0,0 0,0 0,0 0,0 0,0 Acct. Payables - Other TO (days)
69,0 39,6 16,3 15,4 0,0 Debt to Equity (%)
0,2 0,5 0,3 0,1 0,0 Interest Coverage Ratio (x)
26,7 (27,6) (27,8) (21,9) (19,0) Net Gearing (%)
Source: ROTI, IndoPremier
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 10% or more within a 12-month period HOLD : Expected total return between -10% and 10% within a 12-month period SELL : Expected total return of -10% 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