Analisa Saham SRIL | 21 November 2018

Yuanta (FS)

Sri Rejeki Isman (SRIL IJ)

Indonesia’s textile giant

► With 56% of the total revenue came from the export sales, SRIL’s earnings are considered naturally hedged
against Rupiah depreciation. Furthermore, the company may be benefitted from the trade war between China
and US, as there is rising demand from US retailers to non-China garment producers, including SRIL.

► An integrated textile and garment company... SRIL is Indonesia’s leading vertically integrated textile-garment
producer with FY17F total revenue of USD 759mn, which was significantly higher than other major players in the
country, including Pan Brothers (USD 549mn) and Ever Shine Tex (USD35mn). The company engages in both
upstream and downstream processes, including spinning, weaving, dyeing/printing, and garment, which allows
more optimal coordination and swift production process. SRIL’s production facilities are on close proximity to
each other and an international port, allowing it to have transportation cost efficiency. Company’s operational
area in Central Java is having lower wages level compared to its neighboring regions, West Java and East Java,
resulting in competitive labor cost. In addition, Central Java is also known as one of the biggest textile centers in
the country, providing the company with skillful workforce

► .. with world-class consumer base. With top-notch expertise in the textile business, SRIL has been appointed as
one of major suppliers of army uniforms to several nations, including NATO members. It also supplies big
fashion brands such as H&M, Disney, Guess, Uniqlo, in addition to retailers such as Walmart, TJ Maxx, and Sears.
In domestic market, the company manufactures uniforms for companies, both private and government agencies.
Aside from its garment products, SRIL also supplies prominent buyers such as Japanese trading company
Marubeni Corporations, Belgian textile trader Chemitex, Chinese textile company Shengrun Textile, etc. With
worldwide and diversified customer base, SRIL is expected to have lower business risk as it does not need to be
dependent to just a few customers.

► Naturally hedged against Rupiah depreciation. SRIL is considered to be naturally hedged against currency
fluctuation. About 53% of its revenue in 9M18 came from export sales and the exposure to export sales was in
increasing trend over the past four years. On the other hand, the value of its raw material import was roughly
about 44% of total revenue, in addition to USD denominated financing costs which accounted about 6.6% of
9M18 total revenue.

► Opportunity from US-China trade war. Ongoing trade war between US and China may bring opportunity for the
company to regain share in US markets, which has been falling in the past two years. Rupiah depreciation,
attractive cost structure, and SRIL’s well-known expertise would provide opportunity for the company to get
some orders previously fulfilled by China producers. The management expects export to US increasing to
around 6% of total revenue next year from around 4% currently.

► Valuation. SRIL is currently trading at 5.4x LTM P/E, which is at the lower end of range compared to peers.
However, taking out the one-time gain from the acquisition of subsidiaries, it is trading at around 8x LTM P/E
vs. peers’ of between 2.2x-32.5x. Meanwhile, the counter’s EV/sales and EV/EBITDA are at 1.2x and 5.8x,
relatively at the middle of the range of 0.2x-2.1x and 1.7x-14.8x, respectively. In the past twelve months, the
company managed to grow its sales at higher pace of 26.1% YoY compared to most of its peers of below 20%
YoY. Next year, it targets a conservative 15% YoY revenue growth supported by major capacity expansion in the
past two years.