ASEAN Insight Provider, CrossASEAN Research

Angus Mackintosh

ASEAN Insight Provider

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/arwana-citramulia-tbk-pt" target="_blank" data-smartkarma-citation="entities:17042:1" rel="noopener">Arwana Citramulia (ARNA IJ),</a> Indonesia's largest and most efficient ceramic tile manufacturer, continues to go from strength to strength in FY2020, after a short lull in 2Q2020, benefiting from the lowering on the gas price in April 2020, together with continuing improvements in its product mix and cost structure. A conversation with management further unpinned our positive view on the company.
The next significant move by the company will be its move into the higher-end glazed porcelain tile market versus its current lower end ceramic red-bodied tiles. Here it will compete head-on with Chinese imports but management is confident that <a href="https://www.smartkarma.com/entities/arwana-citramulia-tbk-pt" target="_blank" data-smartkarma-citation="entities:17042:1" rel="noopener">Arwana Citramulia (ARNA IJ)</a> produces a better quality product, with a significant advantage on lead times, and providing much more attractive working capital terms to its customers. 
<a href="https://www.smartkarma.com/entities/arwana-citramulia-tbk-pt" target="_blank" data-smartkarma-citation="entities:17042:1" rel="noopener">Arwana Citramulia (ARNA IJ)</a> operated at 103% capacity utilization last year and plans to grow volumes by +10% in 2021, as well as improving its product mix further towards its Uno Digi brands, as well as its newer high-end offering, which should mean higher ASPs. 
Management sees further potential improvements in efficiencies in 2021, with even lower rejection rates in the production process and lower gas usage, which should help to drive better margins, along with the full-year impact on a lower gas price. 
<div class="content-highlight">
<a href="https://www.smartkarma.com/entities/arwana-citramulia-tbk-pt" target="_blank" data-smartkarma-citation="entities:17042:1" rel="noopener">Arwana Citramulia (ARNA IJ)</a> trades on 12.3x FY21E PER and 10.6x FY21E PER, compared to its 3-year average forward PER of 15.4x. We see the company as one of the best-managed industrials in Indonesia and this move into the higher-end tile market has the potential to drive the next leg of growth. 
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Arwana Citramulia (ARNA IJ), Indonesia's largest and most efficient ceramic tile manufacturer, continues to go from strength to strength in FY2020, after a short lull in 2Q2020, benefiting from the lowering on the gas price in April 2020, together with continuing improvements in its product mix and cost structure. A conversation with management further unpinned our positive view on the company.
The next significant move by the company will be its move into the higher-end glazed porcelain tile market versus its current lower end ceramic red-bodied tiles. Here it will compete head-on with Chinese imports but management is confident that Arwana Citramulia (ARNA IJ) produces a better quality product, with a significant advantage on lead times, and providing much more attractive working capital terms to its customers. 
Arwana Citramulia (ARNA IJ) operated at 103% capacity utilization last year and plans to grow volumes by +10% in 2021, as well as improving its product mix further towards its Uno Digi brands, as well as its newer high-end offering, which should mean higher ASPs. 
Management sees further potential improvements in efficiencies in 2021, with even lower rejection rates in the production process and lower gas usage, which should help to drive better margins, along with the full-year impact on a lower gas price. 

Arwana Citramulia (ARNA IJ) trades on 12.3x FY21E PER and 10.6x FY21E PER, compared to its 3-year average forward PER of 15.4x. We see the company as one of the best-managed industrials in Indonesia and this move into the higher-end tile market has the potential to drive the next leg of growth. 


Arwana Citramulia (ARNA IJ) - Garuda Versus Dragon

Indonesia's most efficient tile manufacturer, <a href="https://www.smartkarma.com/entities/arwana-citramulia-tbk-pt" target="_blank" data-smartkarma-citation="entities:17042:1" rel="noopener">Arwana Citramulia (ARNA IJ)</a> has a habit of showing its true quality in times of trouble and this time is no different.  A conversation with management revealed that the company continues to improve its product mix and operate at high utilisation levels, with 2Q2020 likely to remain above 85%, despite COVID-19. 
The company published strong 1Q2020 numbers, with sales up 18% and net margins significantly above last year on better product mix, with its higher-end Digi UNO tiles now around 60% of production. 
The company has adjusted its expectations for sales this year and expects a decline but remains confident it can achieve profits at the same level. 
The real game-changer for the company is the reduction in the gas price to US$6/mmbtu which came into force at the start of April. This will reduce costs and boost margins significantly and is not yet reflected in the share price. 
There will be some negative drag from the weaker currency on costs of imported materials but this should not be overly burdensome given the reduced gas price. 
<div class="content-highlight">
<a href="https://www.smartkarma.com/entities/arwana-citramulia-tbk-pt" target="_blank" data-smartkarma-citation="entities:17042:1" rel="noopener">Arwana Citramulia (ARNA IJ)</a> continues to demonstrate its resilience in the face of a renewed challenge from COVID-19 and should come out all the stronger, given the potential fallout for some of the competition. Management expects flat earnings this year but we expect a sharp rebound in FY21E and FY22E. This is a high-quality small-cap industrial with positive catalysts ahead, most notably the cut in the gas price, which happened 1st April but will drive higher margins going forward. 
</div>

Indonesia's most efficient tile manufacturer, Arwana Citramulia (ARNA IJ) has a habit of showing its true quality in times of trouble and this time is no different.  A conversation with management revealed that the company continues to improve its product mix and operate at high utilisation levels, with 2Q2020 likely to remain above 85%, despite COVID-19. 
The company published strong 1Q2020 numbers, with sales up 18% and net margins significantly above last year on better product mix, with its higher-end Digi UNO tiles now around 60% of production. 
The company has adjusted its expectations for sales this year and expects a decline but remains confident it can achieve profits at the same level. 
The real game-changer for the company is the reduction in the gas price to US$6/mmbtu which came into force at the start of April. This will reduce costs and boost margins significantly and is not yet reflected in the share price. 
There will be some negative drag from the weaker currency on costs of imported materials but this should not be overly burdensome given the reduced gas price. 

Arwana Citramulia (ARNA IJ) continues to demonstrate its resilience in the face of a renewed challenge from COVID-19 and should come out all the stronger, given the potential fallout for some of the competition. Management expects flat earnings this year but we expect a sharp rebound in FY21E and FY22E. This is a high-quality small-cap industrial with positive catalysts ahead, most notably the cut in the gas price, which happened 1st April but will drive higher margins going forward. 


Arwana Citramulia (ARNA IJ) - Jumping Jack Flash

Pan-Asia Equity Bottom-up, Wickhams Hill

Lloyd Moffatt

Pan-Asia Equity Bottom-up

Earlier this year in June Arwana published their 1H19 Results, continuing the positive trend of results since publishing our first report <a href="https://www.smartkarma.com/insights/deep-dive-arwana-citramulia-the-price-is-right" target="_blank" data-smartkarma-citation="insights:21542" rel="noopener">Arwana Citramulia - The Price Is Right</a> in June 2018. The stock has performed well, up 70% since the March’18 low of IDR314.
We recently met the company at their Jakarta headquarters to understand what will drive future earnings growth. The secular trend for investment in infrastructure and affordable housing underpins core demand, while profitability continues to improve thanks to the company's success transitioning customers towards higher-value, higher-margin product segments.
Our base case estimate for FY19 of IDR 220bn NPAT is 10% above management guidance that we have found to be overly conservative in the past. The main source for this difference is that we have assumed the proportion of Uno Digi will surpass 60% during 2H19, subsequently driving revenue and margins higher.
Beyond FY19 we expect earnings growth will moderate to 19% and 11% YoY through FY20 and FY21 respectively, with the introduction and take-up of large-format “Super Uno” tiles as the wild-card for 2021. 
The upside to our base case estimates largely centres around the company’s ability to raise prices, which has been dependent on overall economic strength in Indonesia and, to a lesser extent than in the past, capacity utilization across the industry.
As the best-positioned player in a market with such a long runway for growth, 17.7x FY+1 PER does not seem unreasonably high, particularly when there is good visibility that the valuation will fall to just 13.4x by FY21.

Earlier this year in June Arwana published their 1H19 Results, continuing the positive trend of results since publishing our first report Arwana Citramulia - The Price Is Right in June 2018. The stock has performed well, up 70% since the March’18 low of IDR314.
We recently met the company at their Jakarta headquarters to understand what will drive future earnings growth. The secular trend for investment in infrastructure and affordable housing underpins core demand, while profitability continues to improve thanks to the company's success transitioning customers towards higher-value, higher-margin product segments.
Our base case estimate for FY19 of IDR 220bn NPAT is 10% above management guidance that we have found to be overly conservative in the past. The main source for this difference is that we have assumed the proportion of Uno Digi will surpass 60% during 2H19, subsequently driving revenue and margins higher.
Beyond FY19 we expect earnings growth will moderate to 19% and 11% YoY through FY20 and FY21 respectively, with the introduction and take-up of large-format “Super Uno” tiles as the wild-card for 2021. 
The upside to our base case estimates largely centres around the company’s ability to raise prices, which has been dependent on overall economic strength in Indonesia and, to a lesser extent than in the past, capacity utilization across the industry.
As the best-positioned player in a market with such a long runway for growth, 17.7x FY+1 PER does not seem unreasonably high, particularly when there is good visibility that the valuation will fall to just 13.4x by FY21.

Arwana (ARNA IJ) – A Turnaround in Full Swing

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Equity Capital Markets

<a href="https://www.smartkarma.com/entities/allhome-corp" target="_blank" data-smartkarma-citation="entities:28227:1" rel="noopener">AllHome (AHM PM)</a> claims to have pioneered the “one-stop-shop” home improvement retailer in the Philippines. AllHome will launch book building on 13 September with pricing set for 26 September.<div class="content-highlight">In our initiation note, we noted that AllHome seems to have a long runway to maintain its high growth, improving margin equity story. However, our enthusiasm is tempered by AllHome’s significant cash burn. From a valuation perspective, we believe that the IPO will prove attractive to growth investors.</div>For reference, our previous notes on Topsports Initiation note: <a href="https://www.smartkarma.com/insights/allhome-ipo-initiation-cash-guzzling-growth" target="_blank" data-smartkarma-citation="insights:31460" rel="noopener">AllHome IPO Initiation: Cash-Guzzling Growth</a>  Benchmarking study: <a href="https://www.smartkarma.com/insights/allhome-ipo-benchmarking-points-to-a-trade-off-between-growth-margin-and-returns" target="_blank" data-smartkarma-citation="insights:32246" rel="noopener">AllHome IPO: Benchmarking Points to a Trade-Off Between Growth/Margin and Returns</a>

AllHome (AHM PM) claims to have pioneered the “one-stop-shop” home improvement retailer in the Philippines. AllHome will launch book building on 13 September with pricing set for 26 September.In our initiation note, we noted that AllHome seems to have a long runway to maintain its high growth, improving margin equity story. However, our enthusiasm is tempered by AllHome’s significant cash burn. From a valuation perspective, we believe that the IPO will prove attractive to growth investors.For reference, our previous notes on Topsports Initiation note: AllHome IPO Initiation: Cash-Guzzling Growth  Benchmarking study: AllHome IPO: Benchmarking Points to a Trade-Off Between Growth/Margin and Returns 

AllHome IPO: Valuation Tailored for Growth Investors

<a href="https://www.smartkarma.com/entities/allhome-corp" target="_blank" data-smartkarma-citation="entities:28227:1" rel="noopener">AllHome (AHM PM)</a> claims to have pioneered the “one-stop-shop” home improvement retailer in the Philippines. AllHome has started pre-marketing for an IPO to raise $404 million with pricing set for 26 September.<div class="content-highlight">In <a href="https://www.smartkarma.com/insights/allhome-ipo-initiation-cash-guzzling-growth" target="_blank" rel="noopener">our initiation note</a>, we noted that AllHome seems to have a long runway to maintain its high growth, improving margin equity story. However, our enthusiasm was tempered by AllHome’s significant cash burn. In this note, we benchmark AllHome against its most comparable peer – <a href="https://www.smartkarma.com/entities/wilcon-builder-s-supply" target="_blank" data-smartkarma-citation="entities:23685:1" rel="noopener">Wilcon Depot (WLCON PM)</a>. Overall, our analysis suggests that AllHome’s equity story is a trade-off between growth and margins vs cash generation and returns.</div>Readers interested in the other major IPO in the Philippines -<a href="https://www.smartkarma.com/insights/axelum-resources-ipo-initiation-making-a-meal-of-it" target="_blank" data-smartkarma-citation="insights:32103" rel="noopener">Axelum Resources IPO Initiation: Making a Meal of It</a>

AllHome (AHM PM) claims to have pioneered the “one-stop-shop” home improvement retailer in the Philippines. AllHome has started pre-marketing for an IPO to raise $404 million with pricing set for 26 September.In our initiation note, we noted that AllHome seems to have a long runway to maintain its high growth, improving margin equity story. However, our enthusiasm was tempered by AllHome’s significant cash burn. In this note, we benchmark AllHome against its most comparable peer – Wilcon Depot (WLCON PM). Overall, our analysis suggests that AllHome’s equity story is a trade-off between growth and margins vs cash generation and returns.Readers interested in the other major IPO in the Philippines -Axelum Resources IPO Initiation: Making a Meal of It 

AllHome IPO: Benchmarking Points to a Trade-Off Between Growth/Margin and Returns

Indonesia

PT Arwana Citramulia Tbk manufactures and distributes ceramic and porcelain tiles in Indonesia and internationally. The company offers a diverse product portfolio under brands such as Arna, Arwana Ceramics, and UNO. It was founded in 1993 and is headquartered in Jakarta, Indonesia.

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Arwana Citramulia (ARNA IJ)