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Dharma Polimetal (DRMA IJ) (Buy) - Leveraging manufacturing expertise

Dharma Polimetal (DRMA IJ) (Buy) - Leveraging manufacturing expertise

Automobiles n Components JT DT GH 330 27th Dec, 2024

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Leveraging manufacturing expertise

Maintain Buy with lower TP of IDR1,550; cut earnings estimates by 6.5%/9.0%/9.3% for FY24F/25F/26F

We cut our FY24F/25F/26F earnings estimates for DRMA by 6.5%/9.0%/9.3% on likely subdued 4W wholesales in 2024F and the lack of aftermarket license. We estimate Indonesia's 4W wholesales to decline ~18% from ~1 mn units in 2023 to 850k units in 2024F. We believe DRMA's YTD share price decline of 36% (vs. JCI index down 2.4%) suggests that the market has largely factored in these headwinds. We are constructive on the company’s expansion into the non-auto business such as battery ecosystem.

We retain our Buy call owing to our long-term recovery thesis and DRMA’s position as an agnostic player, and potential to gain from automotive sector growth (refer to our long-term thesis report here); we maintain Buy rating and lower TP to IDR1,550.

Purchasing power recovery in 2025F to support auto wholesales

We expect 2025F to be an year of recovery, as the government has introduced a stimulus package to improve purchasing power. As such, we believe DRMA could still record organic growth — specifically from getting new orders from new models/principals. In the past two years, DRMA has received new orders from new models such as Toyota (7203 JP, Neutral) Yaris Cross (4W), or Stylus in 2W which has improved its scale and profitability. We believe this track record will continue and support growth.

Leveraging manufacturing expertise to the non-auto segment

DRMA has been venturing into the non-autos business, specifically in battery. Specifically, the company has been expanding into the battery pack business (and potentially other value chains of battery ecosystem — such as recycle & pre-treatment, according to the company). DRMA, through its subsidiary, has built a new factory in Jababeka for the manufacturing of battery pack, according to the company.

Maintain Buy and lower TP to IDR1,550, implying 69% upside

We maintain our Buy rating with a lower TP of IDR1,550, factoring in the efforts to optimize costs at DRMA and prepare for an eventual market recovery. We value DRMA using DCF methodology-FCFF valuations, with 2.5% terminal growth and 7.6% WACC (unchanged; refer to Fig. 7). The stock has fallen 36% YTD, reflecting concerns over the sluggish 4W market. We view that current valuation is undemanding, trading at 7.1x FY25F P/E with a 23.4% ROE. Any upside surprise on wholesale or successful aftermarket entry may drive a re-rating. Downside risks include: 1) further margin erosion in the 4W segment and continued sluggish recovery in 4W sales; 2) slower economic growth; and 3) low liquidity of the stock turnover.


Year-end 31 DecFY23FY24FFY25FFY26F
Currency (IDR)ActualOldNewOldNewOldNew
Revenue (bn)5,5415,5795,4996,0315,9166,5906,467
Reported net profit (bn)612597572651606707657
Normalised net profit (bn)612597572651606707657
FD normalised EPS130.01126.95121.45138.37128.83150.31139.54
FD norm. EPS growth (%)55.2-2.4-6.69.06.18.68.3
FD normalised P/E (x)7.1–7.6–7.1–6.6
EV/EBITDA (x)5.3–5.4–4.7–4.0
Price/book (x)2.3–1.8–1.5–1.3
Dividend yield (%)3.6–3.3–3.5–3.8
ROE (%)37.227.826.824.723.422.421.3
Net debt/equity (%)7.00.51.3net cashnet cashnet cashnet cash
Source: Company data, Verdhana estimates

Key data on Dharma Polimetal

Income statement (IDRbn)
Year-end 31 Dec
FY22
FY23
FY24F
FY25F
FY26F
Revenue
3,905
5,541
5,499
5,916
6,467
Cost of goods sold
-3,291
-4,569
-4,554
-4,918
-5,387
Gross profit
614
973
946
999
1,081
SG&A
-235
-334
-337
-360
-393
Employee share expense
Operating profit
379
639
609
639
687
EBITDA
505
863
828
915
1,013
Depreciation
-126
-225
-219
-276
-326
Amortisation
EBIT
379
639
609
639
687
Net interest expense
-39
-33
-38
-40
-43
Associates & JCEs
Other income
154
164
169
186
206
Earnings before tax
494
769
740
785
850
Income tax
-97
-144
-155
-165
-179
Net profit after tax
397
626
585
620
672
Minority interests
-3
-14
-13
-14
-15
Other items
Preferred dividends
Normalised NPAT
394
612
572
606
657
Extraordinary items
Reported NPAT
394
612
572
606
657
Dividends
-99
-154
-144
-153
-166
Transfer to reserves
295
458
427
453
491
Valuations and ratios
Reported P/E (x)
11.0
7.1
7.6
7.1
6.6
Normalised P/E (x)
11.0
7.1
7.6
7.1
6.6
FD normalised P/E (x)
11.0
7.1
7.6
7.1
6.6
Dividend yield (%)
2.3
3.6
3.3
3.5
3.8
Price/cashflow (x)
16.1
5.1
5.1
4.8
4.3
Price/book (x)
3.1
2.3
1.8
1.5
1.3
EV/EBITDA (x)
9.2
5.3
5.4
4.7
4.0
EV/EBIT (x)
12.3
7.2
7.4
6.7
5.9
Gross margin (%)
15.7
17.6
17.2
16.9
16.7
EBITDA margin (%)
12.9
15.6
15.1
15.5
15.7
EBIT margin (%)
9.7
11.5
11.1
10.8
10.6
Net margin (%)
10.1
11.0
10.4
10.2
10.2
Effective tax rate (%)
19.7
18.7
21.0
21.0
21.0
Dividend payout (%)
25.2
25.2
25.2
25.2
25.2
ROE (%)
32.0
37.2
26.8
23.4
21.3
ROA (pretax %)
16.4
23.2
18.7
17.4
17.0
Growth (%)
Revenue
55.4
41.9
-0.8
7.6
9.3
EBITDA
146.0
71.1
-4.1
10.4
10.8
Normalised EPS
1,492.9
55.2
-6.6
6.1
8.3
Normalised FDEPS
1,492.9
55.2
-6.6
6.1
8.3
Source: Company data, Verdhana estimates
Cashflow statement (IDRbn)
Year-end 31 Dec
FY22
FY23
FY24F
FY25F
FY26F
EBITDA
505
863
828
915
1,013
Change in working capital
-305
54
51
25
34
Other operating cashflow
69
-70
-38
-33
-31
Cashflow from operations
269
847
842
907
1,016
Capital expenditure
-226
-799
-631
-563
-613
Free cashflow
44
48
211
344
403
Reduction in investments
-41
-35
3
-13
-17
Net acquisitions
Dec in other LT assets
Inc in other LT liabilities
Adjustments
-37
273
2
-15
-20
CF after investing acts
-34
287
216
316
366
Cash dividends
-72
-99
-154
-144
-153
Equity issue
Debt issue
-114
-3
-4
39
51
Convertible debt issue
Others
0
-1
40
19
25
CF from financial acts
-186
-103
-118
-86
-77
Net cashflow
-220
183
98
230
290
Beginning cash
415
195
379
476
706
Ending cash
195
379
476
706
996
Ending net debt
320
133
32
-160
-398
Balance sheet (IDRbn)
As at 31 Dec
FY22
FY23
FY24F
FY25F
FY26F
Cash & equivalents
195
379
476
706
996
Marketable securities
Accounts receivable
636
625
620
444
420
Inventories
432
416
501
710
776
Other current assets
98
86
85
92
101
Total current assets
1,361
1,506
1,683
1,952
2,293
LT investments
134
168
165
177
194
Fixed assets
938
1,511
1,924
2,211
2,499
Goodwill
Other intangible assets
Other LT assets
251
200
199
214
234
Total assets
2,684
3,386
3,970
4,554
5,219
Short-term debt
354
220
218
235
256
Accounts payable
619
645
777
836
913
Other current liabilities
83
72
71
77
84
Total current liabilities
1,056
937
1,066
1,147
1,254
Long-term debt
161
292
290
312
341
Convertible debt
Other LT liabilities
64
126
125
135
147
Total liabilities
1,281
1,355
1,481
1,594
1,742
Minority interest
12
127
126
136
148
Preferred stock
Common stock
809
809
809
809
809
Retained earnings
623
1,136
1,553
2,015
2,519
Proposed dividends
Other equity and reserves
-42
-42
0
0
0
Total shareholders' equity
1,390
1,903
2,362
2,825
3,328
Total equity & liabilities
2,684
3,386
3,970
4,554
5,219
Liquidity (x)
Current ratio
1.29
1.61
1.58
1.70
1.83
Interest cover
9.7
19.2
16.0
15.9
16.0
Leverage
Net debt/EBITDA (x)
0.63
0.15
0.04
net cash
net cash
Net debt/equity (%)
23.1
7.0
1.3
net cash
net cash
Per share
Reported EPS (IDR)
83.76
130.01
121.45
128.83
139.54
Norm EPS (IDR)
83.76
130.01
121.45
128.83
139.54
FD norm EPS (IDR)
83.76
130.01
121.45
128.83
139.54
BVPS (IDR)
295.38
404.41
502.01
600.22
707.28
DPS (IDR)
21.12
32.78
30.62
32.48
35.18
Activity (days)
Days receivable
47.6
41.5
41.4
32.8
24.4
Days inventory
62.6
33.9
36.9
45.0
50.3
Days payable
93.0
50.5
57.1
59.8
59.3
Cash cycle
17.2
24.9
21.2
17.9
15.5
Source: Company data, Verdhana estimates
Company profileDRMA was established in 1989. The company is engaged in the business of automotive components for motorcycles and cars. DRMA has become part of the integrated automotive supply chain with innovative and quality spare parts and components products according to world-class manufacturer standard.
Valuation MethodologyWe value DRMA using DCF-FCFF valuations, with 2.5% terminal growth and 7.6% WACC, to arrive at our TP of IDR1,550. The benchmark for the stock is JCI.
Risks that may impede the achievement of the target priceDownside risks include 1) further margin erosion in the 4W segment, continued sluggish recovery in 4W sales; 2) slower economic growth; and 3) low liquidity of the stock turnover.
ESGThe implementation of ESG aspects is attributed to DRMA’s capacity in contributing to Indonesia’s EV industry from manufacturing the components and R&D towards battery-related products.
Fig. 1: DRMA’s gross margin and sales trends by segment

Source: Company data, Verdhana research

 

Fig. 2: DRMA— Revenue and domestic unit sales forecasts

Source: Company data, Verdhana estimates

 

Fig. 3: DRMA— Core NPAT

Source: Company data, Verdhana estimates

 

Fig. 4: 4W wholesales

Source: Gaikindo, Verdhana research

 

Fig. 5: Toyota Yaris cross wholesales

Source: Gaikindo, Verdhana research

 

Fig. 6: DRMA subsidiary in energy

Source: Company data, Verdhana research

 

Fig. 7: DRMA valuation

IDRbn2024F2025F2026F2027F2028F2029F2030FTerminal Value     
EBITDA           828           915        1,013        1,190        1,280        1,361        1,426WACC calculation 
(-) Tax           155           165           179           208           218           226           230Cost of Equity 
(-) Capex           631           563           613           669           667           699           759Rf6.8%
(+) Δ Chg in working capital              51              25              34              43              56              66              78 Beta            0.8
FCFF              93           212           255           355           451           501           515                 10,439MRP7.5%
 CoE13%
 Equity weight23%
  1234566 
PV factor93%86%80%75%69%65%65%Cost of Debt 
PV Value           220           286           337           348           333                    6,743CoD7.5%
 After-tax CoD5.9%
Equity value (IDRbn)        7,273Debt weight77%
Net debt (cash)              32 
Enterprise value (IDRbn)        7,241WACC7.6%
Sh outstanding (mn)        4,706Terminal Growth2.5%
Target px (IDR/sh)        1,550            
Source: Company data, Verdhana estimates

 


INVESTMENT RATINGS
A rating of ‘Buy’, indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of ‘Neutral’, indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of ‘Reduce’, indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of ‘Suspended’, indicates that the rating, target price, and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies that are labelled as ‘Not Rated’ or ‘No Rating’ are not in regular research coverage. Benchmark is Indonesia Composite Index (‘IDX Composite’). A ‘Target Price’, if discussed, indicates the analyst’s forecast for the share price with a 12-month time horizon, reflecting in part of the analyst’s estimates for the company’s earnings, and may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market in general. 

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ANALYST CERTIFICATION
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Rating Table

Rating
Remains
Buy
Target price
Reduced from IDR 1,800
IDR 1,550
Closing price
23 December 2024
IDR 920
Implied upside+68.5%
Market Cap (USD mn)267.7
ADT (USD mn)0.1

Relative performance chart

Source: LSEG, Verdhana
M cap (USDmn)
267.7
Free float (%)
22.0
3-mth ADT (USDmn)
0.1
(%)
1M
3M
12M
Absolute (IDR)
-9.8
-16.7
-32.1
Absolute (USD)
-11.5
-21.8
-35.0
Rel to Jakarta Stock Exchange Composite Index
-8.4
-8.0
-30.2

Research Analysts

Jupriadi Tan (jupriadi.tan@verdhana.id), 

David Tjahjadi (david.tjahjadi@verdhana.id), and 

Gerald Hugo (gerald.hugo@verdhana.id)

Tags: AUTOS, AUTO PARTS, DRMA, DRMA JK, DRMA IJ, Jupriadi Tan, David Tjahjadi, Gerald Hugo
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