Danareksa Gajah Tunggal (GJTL IJ, Rp 860 BUY) 1Q10 Results - Good

Highlights:
On a YoY basis, 1Q10 sales grew 33.2%. Margins also improved – the gross margin widened from just 12.5% in 1Q09 to 19.9% in 1Q10. The company also showed better efficiency – the opex to sales ratio declined from 8.2% in 1Q09 to 6.3% in 1Q10. Operating income surged 325% YoY to Rp 316 bn in 1Q10.

On a QoQ basis, 1Q10 sales are up 10.3%. At 19.9% in 1Q10, the gross margin was lower than 4Q09’s 26.7%. As for the opex to sales ratio in 1Q10 of 6.3%, it was lower than 4Q09’s 8.3%. The operating income in 1Q10 of Rp 316 bn was down 18.4% QoQ.

The company returned to profitability and booked a net profit of Rp 177 bn in 1Q10 compared to a net loss of Rp 56 bn in 1Q09. On a QoQ basis, the 1Q10 net profit was 19% lower.

Net gearing declined to 105% at the end of March 2010 from 121% at the end of 2009.

Comments:
This is a good set of results!
Yes, there was a narrowing of gross margins on a QoQ basis, but this was expected due to surging natural rubber prices. Moreover, 1Q10’s gross margin of 19.9% still exceeds our full year estimate of 17.9%. All in all, we maintain our conservative stance on rubber prices since they have continued to head inexorably higher, peaking at US$ 4.13/kg in mid-April.

The operating expenses are inline with our forecast. Since 2005, only around 20%-22% of the total full year’s opex has been spent in the first quarter of the year.

We maintain our BUY recommendation on the stock. We remain positive as: 1) the debt restructuring should give Gajah Tunggal enough time to strengthen its balance sheet 2) the increase in orders from Michelin of 2mn-3mn-5mn tires in 09-10F-11F should support the company’s sales growth 3) the stock is not expensive and trades at 5.1x-4.3x 10F-11F PER and 0.9x-0.8x 10F-11F PBV. Our TP of Rp1,090 implies 6.5x-5.4x 10F-11F PER and 1.2x-1.0x 10F-11F PBV.