Please click here for report: Aneka Gas Industri: Softer q-o-q performance due to shorter working days
Aneka Gas Industri (AGII IJ): BUY
Market Cap: US$125m | Average Daily Value: US$0.01m
Last Traded Price: Rp590; Price Target: Rp1,300 (Upside 120.3%)

Analyst

William Simadiputra +62 2130034939 william..simadiputra

Softer q-o-q performance due to shorter working days

  • Earnings grew by 8% y-o-y to Rp15.8bn in 2Q18, slightly below expectation
  • Shorter working days hindered revenue growth
  • Earnings to come in stronger in the following quarters
  • Maintain BUY rating and TP of Rp1,300

What’s New
Single-digit y-o-y earnings growth, slightly below our expectation. AGII posted a NPAT of Rp15.8bn (+8.1% y-o-y, -39.8% y-o-y) due to weaker q-o-q topline performance. Its EBITDA performance also shows a similar pattern – 2Q18 EBITDA came in at Rp150bn (+7.1% y-o-y, -8.5% q-o-q). Operational related margin performance was relatively stable q-o-q, but inched up y-o-y, thanks to its cost-plus margin air gases pricing mechanism.

Revenue affected by shorter working days. Revenue came in at Rp461bn (+5.8% y-o-y, -5.9% q-o-q). The lower q-o-q revenue growth performance can be attributed to the shorter working days in June 2018. We have yet to obtain operational details in 2Q18 but weaker demand from consumer- and healthcare- related end-users appeared to be the culprit behind the lower volume growth in the period.

Outlook
Keeping our earnings estimates for now. We are keeping our financial forecasts, given the stronger earnings outlook in 2H18, especially in 4Q of the year as seen in AGII’s historical quarterly earnings pattern. Our FY18 EBITDA and net profit forecasts are Rp676bn (+10.6% y-o-y) and Rp109bn (+27.8% y-o-y) respectively.

We are looking beyond AGII’s short-term earnings performance. To gauge AGII’s business performance outlook, we believe that investors need to look beyond its quarterly earnings performance that does not fully reflect its strong footprint in the industrial gas sector and sound operational performance. Moreover, given that it is now at the growth and expansion stage, its earnings performance may be dampened by short-term financing expenses amid AGII’s deleveraging efforts.

Valuation
We maintain our BUY rating with a TP of Rp1,300. Our TP is derived from discounted cash flow (DCF) valuation, with a WACC of 11.2% and TG of 2.0%. Our TP implies an FY19 EV/EBITDA multiple of 7.8x.