PT Surya Pertiwi Tbk (SPTO)
Shinhan Sekuritas Indonesia
Helmi Therik
In line revenue growth in 9M. The company recorded a modest revenue growth in 9M this year by 6%yoy to IDR1.6tn or representing 73% of our full year estimation at IDR2.2tn. About 89% of the revenue growth came from the local goods product under ‘Toto’ brand while 11% from imported goods product or the premium product items. The imported goods posted a satisfactory result that up by 11%yoy to IDR180bn while the local goods increased with the modest pace by 5%yoy to IDR1.4tn.
Stable margin. The company was able to maintain the margin at the stable path as reflected in the gross margin and operating margin that unchanged at 24% and 13% in 9M this year compared to the last year amid the rupiah weakening. This was due to the strong brand position in the market that could pass through the cost pressure to the customer despite about 80% of the raw materials were imported. The rupiah depreciation has a minimum impact on the net profit margin that slashed down by only 1% to 8% from last year at 9% due to the forex losses. We maintained our net profit estimation this year at IDR217bn.
New gallery, new tower. The company has just inaugurated the new gallery on its new tower in third quarter this year. The new gallery at the prime road was believed would leverage its brand equity to maintain its leadership in the market. The new gallery would enhance the user experience while at the same time educate the market regarding its new product. The company believes that the strong brand equity would protect the deterioration of the profitability from the unfavorable price competition.
Production line development to anticipate the demand. The company continued to add the new production line gradually to anticipate the demand from China as well as from the domestic market. The underpenetrated of the sanitary ware in Indonesia was the positive backdrop for the company to grow further while at the same time the environmental issue in China have caused on the factory shutdown which would be the positive catalyst for Indonesia factory due to the production reallocation. About 67.89% of the households (68mn) in Indonesia have an access for improved sanitary and approximately 50% of the toilet in Indonesia is dominated by the squat toilet. This point to the ample room for the company to grow further. The new production line under the SPN is estimated at 1mn pcs/annum after the completion of the second line production in the 1Q next year.
Valuation. We reiterate our overweight call with the TP at IDR 1,250 based on the blended DCF which implies the PE 2018 and 2019 PE at 13.8 and 12.8 respectively or at attractive level compares to the peer that trades above 20x PE.
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