Arwana Citra Mulia: Simple and Clean (ARNA, Rp 3,100, Not rated)
ARNA sees no better year to expand further than this year, expecting net earnings to leap by 60% this year. Running its existing plant at almost full capacity, the 4th plant will come on stream by 2H13. We expect the momentum on ASP to continue on the back of robust property market.
New capacity coming on stream. ARNA is expecting 4th plant (Palembang) to start production by June this year. Production capacity may increase by 19% to reach 49.4mn sqm/year. Not stopping there, ARNA is preparing a 5th plant in East Java with a capacity of 6-8mn sqm/year to start operation end of 2014.
Industry is looking at 15-20% growth. The ceramic producer association is looking at 15-20% industry growth in the medium term, where 90% of demand will come from domestic market. ARNA posted 20% revenue growth in 2012 (contributed by 5.3% sales volume & 14.6% ASP growth). In 2013, it expects 29.7% revenue growth (12% ASP & 17.7% volume increase).
Yet, pricing power and efficiency gave a boost to bottom line. Management has successfully passed through cost increase to consumers, reflected by its improving margins in the past 2 years (31% in 2011 & 34% in 2012). ARNA is aiming for ~38% gross margin this year.
Benefitting from mid-to-low segment & outside Java growth story. ARNA highly focuses on mid-to-low segment, where market is the largest among other segments. With 69.4% sales in Java, sales outside Java has grown by CAGR08-12 by 16.5% (vs Java sales growth of only 7.8%). Tiles are distributed through over 15,000 outlets across Indonesia.
Low debt, consistent dividend payout and healthy 1Q growth. ARNA’s net gearing is at 8.9%. Historically, company has been consistent in dividend payout (47% in 2012), thus, the ratio should be kept at least at current level, in our view. In 1Q13, revenue and net earnings grew by 37% yoy and 123% yoy respectively. Definitely not cheap at 23.5x PE2013, yet strong growth outlook, consistent effort to efficiency, and beneficiary of property boom may justify the value.
For Indonesia Market Summaries, 3 May 2013