4Q24 results: Strong revenue growth, but cost pressure limit bottom-line expansion

ARNA delivered 4Q24 revenue of IDR710bn (+1.4% q-q, +17.3% y-y), bringing FY24 revenue to IDR2.63tn (+8% y-y). The growth was driven primarily by higher average selling prices (ASP), which increased to IDR40,420/sqm (+1.5% q-q, +16.9% YoY), reflecting favorable pricing conditions and a shift towards higher prices after the anti-dumping regulation. However, sales volumes remained relatively flat, with FY24 sales at 66.2mn sqm (+5% y-y).

FY24 net income of IDR426bn (-4% y-y) was in line with our and consensus expectations (97%/100% of estimates). The decline in earnings was largely due to slightly higher cash costs, which increased to IDR29,629/sqm (+7% y-y). Operationally, plant utilization remained stable at ~92% for FY24, consistent with management’s strategy to maintain production efficiency while balancing supply-demand dynamics.

Outlook and key developments

1) ASP support after antidumping measures

A key catalyst for ARNA heading into FY25F would be the increase in prices from antidumping measures introduced in end-2024, which should provide a favorable tailwind for ARNA’s ASP, in our view. As the Chinese tile importers run out of inventory, this would cause the industry ASP to increase.

2) Expansion plans: Enhancing rectification capabilities

To capitalize on shifting consumer preferences, ARNA is exploring an expansion of its rectification capabilities, enabling it to produce more high-value rectified tiles. Rectified tiles – which feature precise, machine-cut edges for a seamless finish – are gaining popularity in premium and mid-range markets, allowing for potential ASP improvements and margin expansion over time.

Indeed, post-antidumping regulation we have seen an improvement in the quarterly ASP trend (+1.5% q-q and 17% y-y), with additional ASP boost since the start of Plant 3 and Plant 2A rectification last year.

3) Dividend expectation: Attractive yield on the horizon

Given ARNA’s historically stable dividend payout ratio of ~70%, we anticipate a dividend declaration in March, implying a potential yield of ~6.4% at current prices.

Maintain Buy rating for ARNA with a TP of IDR940

At 9.5x FY25F P/E, ARNA currently trades at a discount compared to regional peers, despite maintaining a robust 23% ROE and stable profitability. The stock’s current valuation appears undemanding, especially with our expectation of an 18% earnings rebound in FY25, driven by ASP tailwinds, cost optimization efforts, and product mix enhancements.

We maintain our Buy rating with a DCF-based TP of IDR940, assuming a WACC of 12%. Our TP implies 13.8x/11.9x FY25F/FY26F P/E. We believe a combination of resilient demand, ASP upside, and operational efficiencies will support earnings recovery and drive further upside potential for ARNA in 2025. Risks to our call are: 1) sudden changes in government regulations (i.e., gas price and safeguard import duties), 2) fierce product competition, and 3) a slower demand recovery

Fig. 2: ARNA – Quarterly financial trend

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Michael Wildon Ng (michael.wildon@verdhana.id)

Edward Prima (edward.prima@verdhana.id)