09-10 net profit forecasts increased by 24-34%
The 1Q09 net income reached Rp50bn or 5% above our expectations. We believe the better-than-expected performance was due to higher equipment ASP, a weaker rupiah and higher margins. As such, we raise our 09-10 equipment ASP forecast by 10-5%, our rupiah/USD exchange rate forecast by 4-2%, and our spare parts & services margin estimate to 36.6-26% from 30-20%. This boosts our 09-10 net profit forecasts by 24-34%. Our TP is increased by 57% to Rp1,800, implying PE09-10F of 7.4-5.7x. BUY recommendation maintained. Please note that the full statement will be released by the end of the month after it is audited due to the change in the company’s fiscal year to April/March.
Higher equipment ASP due to change in product mix
Sales of small excavators made up about 86% of unit sales in 1Q09, or less than last year’s 95%. Thus, with bigger and more expensive machines accounting for a larger proportion of the sales, the ASP increased. This helped boost 1Q09 revenues (they reached 26% of our 09F forecast of Rp2T). Consequently, we decide to raise our 09F equipment ASP estimate by 10% (it is flat compared to the 2008 ASP).
Small excavator sales have started to pick up
1Q09 sales volume increased 15% qoq to 195 units. This is not far behind our full year 2009 forecast of 900 units. Sales in Mar 09 surged 61% mom to 95 units, helped by strong demand from the forestry sector. If strong sales of small excavators can be maintained, this bodes well for margins as the small excavators have higher margins. As such, we maintain our heavy equipment margin of 16.5%.
Spare parts and service margin estimates increased
Since heavy equipment sales volume has started to pick up, we believe that revenues from spare parts and servicing will not be as high as in our previous forecasts (we expect more clients to replace their old units rather than have them maintained). Yet since purchasing power is improving, we now expect that the company can maintain gross margins at last year’s level of 36.6% for spare parts and at 26% for servicing (higher than our previous expectation of 30% for spare parts and 20% for servicing). We therefore adjust our assumptions accordingly.
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