Dear all,
Please find attached our company update report on Hexindo Adiperkasa (HEXA) * * *Buy a high-quality company * § *Higher-than-expected 1Q09 audited results* HEXA’s 1Q09 audited net profit at Rp62 bn, down 21% YoY and 12% QoQ, was ahead our expectation on 1) better-than-expected spare-parts and service revenues and 2) partly a weaker Rupiah. As expected, the drop in heavy equipment revenue (down 52% YoY) was offset by higher revenue from spare-parts and service, which registered 45% and 27% YoY growth, respectively, and both were also above our expectation (they each were 55% and 30% of our FY09F). This has led 1Q09 revenue to decline by 30% YoY to Rp583 bn. 1Q09 operating profit at Rp123 bn, up 7% YoY but down 8% QoQ, has already accounted for 44% of our old FY09F figure of Rp279 bn. § *Strong margins expansions* Gross margin expanded significantly from 21.2% in 1Q08 to 33% in 1Q09 due mainly to increased contribution from spare-part and service revenue to total revenue, where they each also commanded high profit margin of 40% and 33% respectively. Strong demand for spare-parts has enabled the company to raise its spare-parts selling price. Pending new equipment purchase has forced HEXA’s clients to use spare-parts and service more extensively. § *FY09-10F earnings forecast raised by 56%-68% * We revised upward our FY09-10F earnings forecast by 56%-68% to Rp286 bn – Rp394 bn mainly on the back strong 1Q09 results (see page 2) and the inclusion of secured US$175 mn heavy equipment and maintenance contracts obtained during 1Q09, which is split into FY09-10 revenue. The company just closed USS$130 mn deal with KPC for delivering 30 giant dump trucks and 4 big excavators and another US$15 mn order from Newmont and US$30 mn from Thiess. We still see upside risks to our earnings forecast as HEXA is currently negotiating sales of 200 units forestry equipment with Sinar Mas Group, which just got Rp200 bn credit line from BRI to develop its Industry Forestry Area (HTI) in South Sumatera. § *Maintained Buy with new target price of Rp3,725* We use PER methodology and FY10F EPS of Rp468 to derive our new target price of Rp3,725 for HEXA, implying 8x of FY10 earning or at 30% discount to our UNTR’s implied target PER of 11.2x. At current prices HEXA is trading at attractive FY09-10F PER of 6.2x-4.5x. Meanwhile, we forecast the company to pay Rp103 dividend per share from its 2008 earnings plus special dividend of Rp19 from 1Q09 period. HEXA assigned 1Q09 as special period before changing its fiscal year to Apr-Mar period and its reporting currency to US$. We heard that one foreign house has included HEXA into their coverage while another two houses will do the same thing, it will revoke HEXA status as under-followed small cap stock. Best regards, *Arief Budiman* Equity Analyst Disclaimer : This email and any files transmitted with it are confidential and intended solely for the use of the individual or entity to whom they are addressed. If you have received this email in error, please let us know by replying to the sender, and immediately delete this email from your system. Please note that in these circumstances, the use, disclosure distribution or copying of this information is strictly prohibited. We apologise for any inconvenience that may have been caused to you. Attachment(s) from ar...@optimasecurities.co.id 1 of 1 File(s) HEXA 3 May 09.pdf<http://d.yimg.com/kq/groups/21682994/1091374346/name/HEXA%203%20May%2009.pdf>
