trim company focus - trimegah...nov 26, 2013 · mcb posted 9m13 sales of rp113bn (+62.8% yoy),...

TRIM COMPANYFOCUS

Muhamad Makky [email protected]

Frederick Daniel Tanggela

[email protected]

Nipress Strong growth outlook

Sales (Rpbn) 579 703 987 1,307 1,646

Net Profi t (Rpbn) 18 22 41 61 92

EPS (Rp) 12 15 28 42 63

EPS Growth (%) 40.8 20.9 91.4 47.8 51.1

DPS (Rp) - - - - -

BVPS (Rp) 113 138 166 385 448

P/E (x) 32.4 26.8 14.0 9.5 6.3

P/BV (x) 3.5 2.9 2.4 1.0 0.9

Strong earnings growth driven by industrial battery expansion

NIPS will offer up to 742.9mn new shares with fund raising target of Rp260bn

to fi nance its expansion plan in automotive and industrial battery. The right

will be offered within the range of Rp350-Rp450 per share, translating to an

attractive pre diluted PE14 of 4.1x – 5.3x and post diluted PE14 of 8.4x –

10.8x. On top of that, we expect earnings to jump again in 2015 post the initial

production of its new industrial battery factory, which will be built using the right

proceed. Higher volumes and profi t margin from industrial battery would allow

2015 earnings to increase by 51.1% YoY to reach Rp92.1bn with Rp51.8bn

(56.2%) of the earnings will be contributed by the industrial battery project,

which will only use 60% of the new factory production capacity in 2015.

SOTP valuation of Rp530/share with 33% upside and a BUY rating

We recommend a BUY given a 33% upside to our SOTP valuation TP from

yesterday’s closing price of Rp398. Applying 12.3% WACC and 5% terminal

growth rate, we arrive at the fair value of Rp282/share for NIPS’ existing

business and fair value of Rp250/share for the industrial battery project. Thus,

we set our post-money TP for the counter at Rp530/share (rounded).

Automotive battery will remain improve on increasing vehicle population

Vehicle population increased with 2000-12 CAGR of 14.3%. We expect vehicle

population would remain improve with 2013-18 CAGR of around 10%. Thus,

with relatively unchanged market share, we expect NIPS’ AMB and MCB sales

volemes to grow with 2013-18 CAGR of 9.1% and 8.6%, respectively.

Pioneer in local industrial battery production

Our telecommunication universe of three companies owned total of 131,656

units of BTS in 3Q13. With approximately 36 batteries needed per BTS and

2-year average life-cycle, we believe industrial battery demand per annum

stood at around 2.34mn units. At current production volumes of 170k units,

NIPS market share reach only 7.2% with the remaining 92.3% of total demand

supplied by imported products. NIPS currently is the only local industrial

battery producer. Thus, we believe the company’s strategy to build industrial

battery factory is perfect in terms of timing.

BUY - Rp530

Stock Price

Nov 26, 2013

Year end Dec 2011 2012 2013E 2014F 2015F

Forecast & Rating (post-dilution)

Reuters Code NIPS.JK

Bloomberg Code NIPS.IJ

Issued Shares (m) 720

Mkt Cap (Rpbn) 284

Average Daily T/O (m) 0.4

52-Wk range Rp547 / Rp103

Stock Data

PT. Tritan Adhitama Nugraha 37.1%

Others 11.6%

Public 51.3%

Major Shareholders:

EPS 13E 14F

Consensus (Rp) - -

TRIM VS Cons (%) - -

Consensus

Share Price Rp398

Sector Automotive

Target Price Rp530 (33%)

Prev. TP Rp350

Company Update

NIPS is the only local owned lead-acid battery in Indonesia producing auto mobile battery (AMB), motor cycle battery (MCB) and industrial battery

-

100

200

300

400

500

600

11/22/2012

1/22/2013

3/22/2013

5/22/2013

7/22/2013

9/22/2013

11/22/2013

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2,000,000

3,000,000

4,000,000

5,000,000

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8,000,000

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10,000,000

Volume Price

TRIM Company Focus - Nov 26, 2013

2

Figure 2. Sales contribution– AMB, MCB, Industrial, 2008-18E

Source: Company, TRIM Research

Figure 3. Export vs domestic sales, 2008-18E


Figure 1. AMB, MCB, Industrial battery sales, 2008-18E


0

200

400

600

800

1,000

1,200

2008

2009

2010

2011

2012

2013E

2014E

2015E

2016E

2017E

2018E

(Rp

bn

)

MCB Industrial AMB

88% 85% 86%73%

58%50% 46% 44% 43% 44%

12% 15% 13%

15%

14%

12%11% 11% 10% 11%

12%

28%38% 43% 45% 46% 45%

0%

20%

40%

60%

80%

100%

2009

2010

2011

2012

2013E

2014E

2015E

2016E

2017E

2018E

AMB MCB Industrial

32% 34%

50%63%

73%82% 84% 85% 86% 86% 85%

68% 66%

50%37%

27%19% 16% 15% 15% 14% 15%

0%

20%

40%

60%

80%

100%

2008

2009

2010

2011

2012

2013E

2014E

2015E

2016E

2017E

2018E

Domestic Export

Increasing contribution from industrial battery

AMB remains the largest revenues contributor with 9M13 sales of Rp370bn (-5% YoY), accounting for

54% of total revenues. MCB posted 9M13 sales of Rp113bn (+62.8% YoY), accounting for 16.6% of total

revenues. Industrial battery contributed 29% of total revenues, posted the highest 9M13 sales growth of

7.6x YoY to reach Rp198bn, while lithium posting the least signifi cant portion of 0.4% of total sales.

Helped by increasing local AMB and MCB demand, coupled with 100% domestic sales in industrial battery,

the domestic sales contribution increased from 32.5% (2008) to 80.2% of total sales in 9M13.


3

Automotive battery demand remain improving

NIPS holds 18% and 13% market share in AMB industry and MCB industry, respectively. Although it holds

the third largest market share after GS (owned by Astra Autoparts – AUTO) and Yuasa, the company’s

market share in AMB segment increased to 18% in 2012, from 6.5% in 2009.

In 2011, Indonesia 4W sales reached 894.1k units (+16.9% YoY) while 2W sales hitting historical high of

8mn units (+8.7% YoY). 4W sales remained strong in 2012, reaching 1.1 units (+24.8% YoY) while 2W

sales dropping by 11.8% YoY to 7.1mn units. With high 4W and 2W sales volumes in 2011-12, vehicle

population increased by 11% YoY in 2011 and 10% YoY in 2012.

Figure 4. NIPS’ market share in AMB and MCB

Source: GIAM, Company

45%

20%

18%

17%GS

Yuasa

NIPS

Others

AMB

34%

38%

13%

15%

MCB

Figure 5. 4W sales, 2005-10M13

source: Gaikindo

Figure 7. Vehicle population 2000-12

Source: BPS

Figure 6. 2W sales, 2005-10M13

source: AISI

534

319

434

608

486

765

894

1116

1020

0

200

400

600

800

1000

1200

2005

2006

2007

2008

2009

2010

2011

2012

10M13

(th

ou

san

d u

nit

)

5.14.4 4.7

6.25.9

7.48.0

7.16.5

0

2

4

6

8

10

2005

2006

2007

2008

2009

2010

2011

2012

10M13

(nm

un

its)

19 21 2327

3138

43

5562

67

77

86

94

0

20

40

60

80

100

2000

2001

2002

2003

2004

2005

2006

2007

2008

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2012

(Mn

un

its)

CAGR: 14.3%


4

Despite volatile sales growth in 4W and 2W segments, vehicle population posted steady growth in 2000-

12 with CAGR of 14.3%. As we expect 4W sales to increase by 12% pa in 2013-18 and 2W to post 2013-

18 CAGR of 9%, we apply vehicle population CAGR assumption of 10% in 2013-18.

As we expect steady growth rate in vehicle population, demand for automotive battery replacement would

also stable at around 9% pa in 2013-18, in our view. Thus, we expect NIPS’ AMB sales volumes to

increase by 9.1% pa in 2013-18 while MCB sales volumes improving by 8.6% pa in 2013-18, translating

to combined AMB and MCB sales volumes CAGR of 8.9% in 2013-18, in-line with our vehicle growth

assumption.

To tap increasing demand in AMB, the company will increase AMB production capacity to 3mn units per

annum (pa). Thus, the company will spend Rp57.2bn capex for automotive battery expansion which will

be fi nanced around 60% from equity and 40% from debt. The Company will allocate Rp21.9bn for building

expansion and Rp35.3bn for machinery.

Battery price comparison – NS clearly cheaper for 4W

Nipress markets its battery under the brand ‘NS’ while Astra markets two brands: ‘GS’ and ‘Yuasa’. We

checked NS (Nipress) battery price versus GS (Astra) and Yuasa (Astra) in the replacement market. The

result of our price check is NS battery price is cheaper than GS and Yuasa for all the popular 4W battery

types by capacity, particularly versus GS (NS is priced at 12% discount for all capacity). For 2W, GS And

Yuasa pricing are as competitive as NS.

The 35-45AH (Ampere Hour) types of capacity are mostly used for smaller cars and small MPVs (Multi

Purpose Vehicles) i.e. Toyota Avanza and Daihatsu Xenia, which is the most popular car segment in

Indonesia. The 50-60 AH types of capacity are usually used for mid-sized MPVs i.e. Toyota Kijang.

Figure 8. NIPS’ AMB sales volumes

source: Company, TRIM Research

Figure 9. NIPS’ MCB sales volumes

source: Company, TRIM Research

1.11.3

1.9 1.92.1

2.32.5

2.7

3.03.2

0

1

2

3

4

2009

2010

2011

2012

2013F

2014F

2015F

2016F

2017F

2018F

(nm

un

its)

CAGRCAGR: 21.5% CAGR: 9.1%

0.7

1.11.3

1.8

2.32.5

2.72.9

3.23.4

0

1

2

3

4

2009

2010

2011

2012

2013F

2014F

2015F

2016F

2017F

2018F

(mn

un

its)

CAGR: 40.1% CAGR: 8.6%

Figure 10. Production capacity, volumes and utilization rate


2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

AMB

Installed Capacity (mn units) 2.0 2.0 2.0 2.5 2.5 3.0 3.0 4.0 4.0 4.0 5.0 5.0

Production volumes (mn units) 1.5 1.1 1.4 2.0 2.1 2.2 2.4 2.6 2.8 3.1 3.3 3.6

Utilisation Rate 74% 55% 71% 78% 82% 73% 79% 65% 71% 77% 66% 72%

Sales (mn units) 1.5 1.1 1.3 1.9 1.9 2.1 2.3 2.5 2.7 2.9 3.2 3.4

MCB

Installed Capacity (mn units) 3.0 3.0 3.0 3.0 3.0 3.0 4.0 4.0 4.0 5.0 5.0 5.0

Production volumes (mn units) 1.4 0.9 1.2 1.4 1.9 2.4 2.6 2.9 3.1 3.3 3.6 3.9

Utilisation Rate 46% 28% 40% 47% 63% 80% 66% 71% 77% 67% 72% 78%

Sales (mn units) 1.3 0.7 1.1 1.3 1.8 2.3 2.5 2.7 2.9 3.2 3.4 3.7


5

22,364

44,048

6,256

4,776

4,579 332 524

First mover in Indonesia industrial battery

Currently, NIPS assembles industrial battery, mostly for telecommunication base transceiver station

(BTS). The batteries are used as the last back-up source of energy for the towers. In the remote area,

given unstable primary electricity supply, the battery could be used more often as back-up power source.

Telecommunication companies are very strict on service quality. Thus, the batteries will be replaced in 2

years (average life time of the batteries). A telecommunication BTS would need around 24 to 48 batteries,

depending on the voltage of each battery and required power in the BTS. With total telecommunication

BTS of around 130,000 units in Indonesia and assuming average 36 batteries needed per BTS, we

forecast BTS batteries annual demand of around 2.34mn units per annum.

Source: various sources, TRIM Research

Figure 11. Retail price comparison, NS, GS and Yuasa

Battery typeCapacity

(AH)NS GS (Astra) Yuasa (Astra) NS vs GS NS vs Yuasa

in USD in USD in USD

4W battery 35 35.5 40.3 36.3 -12% -2%

45 38.7 44 39.6 -12% -2%

50 41.3 46.9 42.2 -12% -2%

60 47.9 54.5 49 -12% -2%

2W battery 5 10.4 9.8 8.8 6% 18%

7 17.1 18.5 16.7 -8% 2%

8 19.6 22.3 20.1 -12% -2%

Figure 13. BTS density in Indonesia

Souce:Depkominfo

Figure 12. BTS growth in Indonesia

Source: TRIM Research

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

2010 2011 2012 1Q2013 2Q2013 3Q2013

Telkomsel Indosat XL

23% CAGR (2010-2012)


6

We expect BTS number will further increase as currently the BTS are mostly centralized in Java and

Sumatera with only 8% of Indonesia area covered by GSM or around 24% of Indonesia land surface

covered by GSM. We believe the remaining 76% uncovered zones are remote areas; hence, we expect

additional demand for industrial batteries which are needed for power banks in the rural area with unstable

primary energy supply.

NIPS is the only local producer of telecommunication batteries in Indonesia, with initial assembly volumes

of 2,889 units in 2011, before further increasing to 59.9k units in 2012 and approximately 76k units in

1H13. We forecast NIPS’ 2013 industrial battery sales volumes will reach 170k units, or around 7.3%

market share in telecommunication battery industry with the remaining 92.7% of total demand are supplied

by imported products.

Telecommunication BTS are scattered across Indonesia. Thus, NIPS’ industrial battery should be more

competitive compared to the imported products, in our view. Users should be benefi ted by shorter order-

to-delivery time of local products. Additionally, NIPS would also more competitive in terms of supply

for unscheduled battery replacement, which could be caused by battery malfunction. These, would also

translate to customers’ lower inventory costs.

NIPS to build industrial battery factory fi nanced by right issue proceed

To increase margin and enhance value add of the company, NIPS plans to build an industrial battery

factory with initial capacity of around 544k units. The new factory will be located within NIPS’ existing

industrial area of 10ha, which are not fully utilized yet. Construction of the new factory will start in 1Q14

with completion target in 2Q15. Initial 2015 production volumes is expected to reach 326 units while full

capacity utilization rate of 85% would be achieved in 2018 with annual production of around 462 units.

NIPS will spend Rp280.8bn capex for industrial battery expansion which will be fi nanced by right issue

proceed (~60%) and debt (~40%). NIPS targets 2015 sales volumes will reach 394 units, arising from

326 units of production volumes and 68 units of assembling volumes. Sales volumes would increase with

2015-19 CAGR of 11%. Approximately Rp39bn of the industrial battery capex will be used for factory

building while the remaining Rp241.8bn will be spent for machineries.

Figure 14. GSM area coverage

Source: Mobile development intelligence

84%

64%

56%

47%43%

29%25% 24%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Phillipines Thailand India Malaysia Cambodia Brazil China Indonesia

Source: Company

Figure 15. Industrial battery capacity, production and sales volumes

2013 2014 2015 2016 2017 2018 2019

Industrial Battery

Installed capacity ('000) 200 200 544 544 544 544 544

Production Vol 75 150 326 408 435.2 462.4 462.4

Utilization rate 38% 75% 60% 75% 80% 85% 85%

assembly 97 129 68 68 120.8 124.6 135.6

Sales and assembly 172 279 394 476 556 587 598


7

We expect industrial battery sales to increase signifi cantly helped by high local demand and perfect

timing in factory expansion. After reaching its full capacity of around 600k units (combined production and

assembling capacities), NIPS industrial battery market share (telecommunication only) will increase to

25.6%, in our view. These, would allow company to post Rp1.06tr sales in 2018. It is worth noting that we

applied a very conservative price CAGR assumption of 2% in 2013-18.

Increasing margins on industrial battery expansion and stronger balance sheet

The margin of automotive battery is relatively low with approximately 7% EBIT margin in 2013. In 2016

onward, we expect EBIT margin will relatively stable at 10.4%, helped by higher contribution from industrial

batteries which we expect to contribute around 46% of total sales and provide higher EBIT margin of

12.9%.

We also expect net margin to further improve in 2016 onward, backed by stronger balance sheet,

allowing the Company to fi nance high working capital needs using its retained earnings. With current

cash conversion cycle of 121 days, NIPS has to fi nance working capital as much as 30% of annual sales.

These, had hurt NIPS’ net margin in the past. However, we expect strong earnings growth would translate

to higher retained earnings and lower net DER ratio, allowing the company to fi nance working capital

needs with equity, which in the end translate to lower interest expense and higher net margin.

Figure 16. Industrial battery sales and sales volumes


260

170

280

394

476

556587

386

274

492

713

861

1,0061,062

0

200

400

600

800

2011 2012 2013E 2014E 2015E 2016E 2017E 2018E

(th

ou

san

d u

nit

s)

-400

0

400

800

1,200

Industial battery sales vol (LHS) Industrial battery sales (RHS)

(Rp

bn

)

Figure 17. Gross, operating and net margins


13.6

15.5 15.517.0 16.5

17.4 17.8 18.1 18.1 18.1

2.6

5.97.3 7.8 8.5

9.5 10.1 10.4 10.4 10.4

3.1 3.14.2 4.9

5.7 6.4 6.5 6.7

1.33.2

0.0

5.0

10.0

15.0

20.0

2009

2010

2011

2012

2013E

2014E

2015E

2016E

2017E

2018E

(%)

GPM OPM NPM


8

Figure 18. Net DER vs Interest expense


Capex and right issue proceed

NIPS needs Rp57.2bn for automotive battery expansion, Rp280.8bn for industrial battery expansion and

Rp112.8bn for working capital, totalling funding requirement of Rp430.8bn, which will be fi nanced as

much as Rp260bn from equity and Rp170.8bn from bank loan. Thus, the company plans to issue as much

as 742.9mn new shares with offering price of Rp350-450/share, to meet the equity fi nancing requirement

of Rp260bn.

1.1

0.9

1.2

1.0

1.2

0.50.6

0.4 0.40.3

4.5

2.42.8 3.0 3.2

3.5

3.0

2.4 2.21.9

0.0

0.5

1.0

1.5

2.0

2009 2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E

(x)

-3

-1

1

3

5

(%)

Net DER (LHS) Interest expense (% of sales - RHS)

Source: Company

Figure 19. Capex Plan

Capex Plan 2014

Automotive Plant Expansion

Building IDR mn 21.88

Machinery IDR mn 35.31

Total Investment IDR mn 57.19

Industrial Plant Expansion

Building IDR mn 39.03

Machinery IDR mn 241.745

Total Investment IDR mn 280.775

Rights Issue Use of Proceeds

Industrial Plant Expansion IDR mn 147.18

Working Capital IDR mn 82.8 - 112.820

Grand Total IDR mn 230.000 - 260.000

Financing Structure

Capex Requirement : Rp338bn

Debt Financing : Rp170.8bn

Equity Financing : Rp147.2bn

W/C Requirement : Rp112.8bn (100%

Equity)

Total Funding Requirement : Rp430.8 bn


9

Valuation of Industrial Battery Project

For the valuation purpose, we divide company business in two categories: Existing business and Industrial

battery project. Existing business valuation includes cash fl ow generated from automobile battery (AMB)

sales, motorcycle battery (MCB) sales and industrial battery sales in 2013-14 while excluding industrial

battery sales in 2015 onwards. Industrial battery project valuation consists of the cash-fl ows generated

from the new factory which will commence operation in 2Q15.

NIPS will build industrial battery factory with capex of Rp280bn, which will be spend in 2014-15. The

factory is expected to commence operation in 2Q15 with initial production of around 320 units in 2015,

before increasing to around 410 units in 2016 and 435 units in 2017. Currently, most of NIPS’ industrial

batteries are being assembled with EBIT margin of around 10.1%. We expect EBIT margin will improve

to 14% in 2015-18 as battery productions provide higher margin compared to the assembled industrial

batteries.

Figure 20. DCF Valuation - Industrial Battery Project

Risk Free Rate 7.5% 7.5%

Market Premium 6.0% 6.0%

Stock Beta 1.20 1.00

Cost of Equity 14.7% 13.5%

debt portion 40.0% 40.0%

equity portion 60.0% 60.0%

Cost of debt 11.0% 7.0%

tax 21.5% 25.0%

WACC 12.3% 10.2%

FREE CASH FLOW TO FIRM

Periods 0 1 2 3 4 5 6 7 8 9 10

Years 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

EBIT (1-tax) 64.3 77.7 90.7 95.8 97.6 100.5 103.5 106.6 109.8 113.1

Depreciation (20 yr) 10.5 10.5 10.5 10.5 10.5 10.5 10.5 10.5 10.5 10.5

Capex 180.0 100.0 18.4 21.5 22.7 23.1 23.8 24.5 25.2 26.0 26.8

Chg in NCWC 53.3 38.0 37.1 14.4 15.1 15.6 16.0 16.5 17.0 17.5

FCFF -180.0 -78.5 31.8 42.7 69.3 69.9 71.7 73.5 75.4 77.4 79.4

Discount Factor 1.00 1.12 1.26 1.42 1.59 1.78 2.00 2.25 2.52 2.83 3.18

PV of FCFF -180.0 -70.0 25.2 30.1 43.6 39.2 35.8 32.7 29.9 27.3 24.9

1,145.6

Project IRR 21%

Sum of PV of FCFF 38.8

PV of Terminal Value 360.0

Cash 50.0

debt (80.0)

EV (Rpbn) 368.7

new shares (bn) 0.743

Project Value (Rp/share) 495

shares (bn) - fully diluted 1.5

Fully diluted 252


Stage 1 Stage 2


10

We apply a 20-year straight-line depreciation assumption and a conservative EBIT CAGR expectation of

5.9% in 2015-24. Thus, with initiate investment of Rp281bn and annual maintenance capex of around 2%

of industrial battery sales, we arrive at project IRR of 21%. Additionally, for the project’s FCFF valuation,

as we apply WACC assumption of 12.3% in stage-one, 10.2% in stage-two, and terminal growth rate of

5%, we arrive at EV of the project of Rp366bn, or Rp495 per share (742.8mn new shares). With right

exercise price range of Rp350-Rp450, the discount is ranging at 29.3% to 9.1%.

Existing business and SOTP valuations, BUY with 33% upside

Existing business EBIT dropped signifi cantly in 2015 as we exclude cash-

battery post the completion of the new factory in 2Q15. Using two stages FCFF model, WACC assumption

of 12.3% (1st stage) and 10.2 (2nd stage), 5% terminal growth rate, and full dilution number of shares, we

arrive at existing business FCFF value of Rp282/share.

With existing business fully diluted value of Rp282/share and industrial project fully diluted value of Rp250/

share, we set NIPS’ SOTP target price at Rp530/share (rounded). Thus, we put a BUY recommendation

on the counter with 33% upside from current price. Additionally, we also recommend investors to subscribe

the right issue with attractive offering price of Rp350-450/share, 15%-34% discount to our TP.

Figure 21. DCF Valuation - SOTP

Risk Free Rate 7.5% 7.5%

Market Premium 6.0% 6.0%

Stock Beta 1.20 1.00

Cost of Equity 14.7% 13.5%

debt portion 40.0% 40.0%

equity portion 60.0% 60.0%

Cost of debt 11.0% 7.0%

tax 21.5% 25.0%

WACC 12.3% 10.2%

FREE CASH FLOW TO FIRM

Periods 1 2 3 4 5 6 7 8 9 10

Years 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

EBIT x (1 - tax) 93 57 66 74 82 91 96 102 107 113

Less: Capital Expenditure 60 12 12 30 15 15 16 17 18 19

Changes in Working Capital 86 (105) 32 38 39 43 45 48 51 53

Add: Depreciation & Amortization 15 18 18 17 18 18 19 20 21 22

FCFF (37) 168 40 23 46 51 54 57 60 63

Discount Factor 1.00 1.12 1.26 1.42 1.59 1.78 2.00 2.25 2.52 2.83

PV of FCFF (37) 150 31 16 29 29 27 25 24 22

Terminal Value 1,032 1,089 1,149 1,212 1,236

Sum of PV of FCFF 316.8

PV of Terminal Value 436.1

Add: Cash & Marketable Sec 14.2

Less: Debt 367.0

EV 400.1

Total Share (billion) 1.463

Fair Value of automotive battery IDR 274

Fair Value of industrial battery IDR 252

SOTP value per share 530

upside 34.2%


Stage 1 Stage 2


11

Business Risks

• Lead price volatility

Approximately 60% of production costs are lead costs. However, we note the company managed to

maintain gross margin improvement in 2008-12 despite lead price volatility. The company proved to be

able to pass through increasing lead price in terms of higher selling prices. Additionally, we note that lead

prices in 2008-YTD’13 are less volatile compared to other metal prices.

Source: Bloomberg, TRIM Research

Figure 22. Metal prices and deviation

Average 2008-YTD'13 Std Deviation Percentage of deviation

Aluminum 2,120 407 19.2%

Lead 2,092 422 20.2%

Copper 7,296 1,556 21.3%

Tin 20,251 4,860 24.0%

Nickel 18,905 4,955 26.2%

2,088

1,726

2,1472,397

2,062 2,140

13.5 13.6

15.5 15.517.0 16.5

1,000

2,000

3,000

4,000

5,000

2008 2009 2010 2011 2012 2013

(US

D/t

on

)

-

5.0

10.0

15.0

20.0

(%)

Lead price (LHS) Lead price yr avg (LHS) NIPS' gross margin (RHS)

Figure 23. Lead price vs NIPS’ gross margin

Source: Company, Bloomberg, TRIM Research

20,505

17,81819,504

21,06019,334

-

5,000

10,000

15,000

20,000

25,000

2008 2009 2010 2011 2012

(Rp

/kg

)

200,000

220,000

240,000

260,000

280,000

300,000

(Rp

per

un

it)

AMB ASP (RHS) Lead Price (LHS)

Figure 24. Lead price vs NIPS’ AMB & MCB selling prices

Source: Company, Bloomberg, TRIM Research

20,505

17,81819,504

21,06019,334

0

5,000

10,000

15,000

20,000

25,000

2008 2009 2010 2011 2012

(Rp

/kg

)

50,000

55,000

60,000

65,000

70,000

75,000

(Rp

per

un

it)

MCB ASP (RHS) Lead Price (LHS)


12

Figure 25. IDR vs NIPS’ gross margin

Source: Bloomberg, Company, TRIM Research

• IDR depreciation

The company growth in the top-line to bottom-line would be mostly driven by industrial battery sales,

which are 100% domestic. We expect domestic sales to further increase and reached 85% of total sales

in 2018, from 82% in 2013. However, industrial battery despite being supplied domestically, the sales are

in USD. We forecast USD sales to account for around 47% of total sales in 2013 and will increase to 60%

in 2018. As USD based costs form approximately 60% of total costs (including opex and fi nance costs),

the company is naturally hedged against IDR fl uctuations, in our view. Additionally, we also believe that

the company will be able to pass through higher forex in terms of higher AMB and MCB selling prices,

backed by: 1) increasing selling prices from competitors which experience similar risk with NIPS, 2) with

average AMB retail price of around Rp500k (USD44) per unit, car owner will not postponed car battery

replacement when IDR depreciates, as battery price account for only 0.16% - 0.33% of the new car price

(Rp150mn-Rp300mn).

9694

10396

90838772

9388

10268

13.5 13.6

15.5 15.5

17.0 16.5

8000

9000

10000

11000

12000

13000

2008 2009 2010 2011 2012 2013

(Rp

/US

D)

-

4.0

8.0

12.0

16.0

20.0

(%)

IDR (LHS) IDR yr avg (LHS) Gross margin (RHS)

Figure 26. Sales in Rupiah vs sales in USD

Source: Bloomberg, Company, TRIM Research

32% 34%50%

63% 61%53%

46% 42% 40% 39% 40%

68% 66%50%

37% 39%47%

54% 58% 60% 61% 60%

0%

20%

40%

60%

80%

100%

2008

2009

2010

2011

2012

2013E

2014E

2015E

2016E

2017E

2018E

Rupiah sales USD sales


13

• Increasing minimum wage

We note that labor costs account for only 4.5%-5.2% of total cost excluding fi nancing costs, in 2011-

9M13. Thus, our sensitivity analysis reveals that every 10% higher labor costs will translate to around

0.5% lower net margin. With NIPS’ expected net margin of only 4.2%, a 10% higher labor cost would

lower net profi t by 12%. However, we have apply 23% increase in direct labor cost in 2013 and 17% labor

cost increase in 2014 before increasing by 8% pa in 2015 onwards.

• Increasing interest rate

We have applied average cost of debt assumption of 11.5% in 2014, a 175bps increase from 2013

average cost of debt of 9.8%. We note that with 2014 net debt to equity ratio of 0.5x, and total debt of

Rp367bn, every 1% higher interest cost would translate to 4.5% lower net profi t.

• Competition risks

We believe market share in AMB will not change very much with GS-Astra holds the highest market share,

followed by Yuasa and then Nipress. Market share in MCB would also remain, in our view, with Yuasa

holds the largest market share followed by GS-Astra and then Nipress. It is worth noting that in 2004,

Yuasa Japan merged with Japan Storage Battery to form GS Yuasa Corporation. Thus, non afi liated

Original Equipment Manufacturer (OEM) will need alternative battery supplier to create competitiveness

and avoid monopoly. Thus, we expect automotive battery price to remain sticky while demand in terms of

volumes for NIPS would remain.

The risk of new comer competitor in industrial battery, while it remains possible but we believe NIPS

would have the advantage as the fi rst domestic player in the market. Based on NIPS’ experience it will

take at least three years for the new comer to face the learning curve. By that time, NIPS’ market share in

industrial battery would remain the largest.

Source: Bloomberg, TRIM Research

Figure 27. Labor cost (Rpbn)

2011 2012 9M13

Total Labor Cost Total Labor Cost Total Labor Cost

Production cost 504.1 19.6 594.5 20.1 610.0 23.6

Selling Expense 22.1 2.1 29.6 4.7 20.6 4.6

G&A Expense 25.9 3.4 34.7 5.0 22.1 5.9

Total 552.0 25.1 658.8 29.8 652.7 34.1

Percentage 4.6% 4.5% 5.2%


14

Source: Company

Figure 28. Share Ownership

Shareholder Name Number of Shares Percentage

PT. Tritan Adhitama Nugraha 267,210,000 37.11

Haiyanto 43,668,000 6.07

Ferry Joedianto 39,240,000 5.45

Joelistio R Tandiono 28,440,000 3.95

Ratnawati 10,800,000 1.50

Feliawati RobertusTandiono 10,800,000 1.50

Public (below 5%) 355,380,000 44.42

Total 720,000,000 100.00

Company in brief

NIPS was established by joint venture of Nippondenchi Kogyo Co and PT. Pemuda Express in November

1970 and founded by Mr. Robertus Tandiono. They started to create positive and negative plates for

automobile batteries in the beginning of business. The company is focusing on produce automobile

batteries, motorcycle batteries, golf cart batteries, and motive power batteries. They innovated themselves

by making battery for industrial sector afterward. Furthermore, Nipress went to the public and listed in

Jakarta and Surabaya Stock Exchange in 1991. NIPS successfully raised Rp20bn from the IPO.

Currently, NIPS’ factory is located in Cileungsi, Bogor-West Java. The land area of factory is approximately

10ha, which are not fully utilized yet. NIPS could produce 2.5mn units automobile battery (AMB) in

maximum capacity in 2012 while we estimate that the production capacity will increase to 3.0mn units

per annum in 2013 (+20% YoY).

Production volume in 2012 reached 2.05mn units. In 2013, we predict the production volumes to stand

at 2.18mn units (+6.34% YoY). On the other hand, the installed capacity for motorcycle battery reached

3.0mn units in 2012 while it remains the same in 2013 based on our projection. NIPS produced 1.89mn

units motorcycle battery in 2012 while the production volume may grow at 2.39mn unit (+26.5% YoY) in

2013. In addition, NIPS initiated industrial battery assembling in 2011 with 2,889 units. In 2012, NIPS

produced 59,954 units industrial battery which we expect that NIPS could enhance production volumes

to 160,000 units in 2013 (+166.9% YoY).

History Timeline

• 1970 Nippondenchi Kogyo Co and PT. Pemuda Express joint venture to formed PT. Nipress

• 1974 Company alteration status from foreign investment to domestic investment

• 1982 Initiated the production of positive and negative plates for motorcycle batteries

• 1985 Using battery indicator for automobile battery and fi rst export to Asia Countries

• 1991 IPO and listed in Jakarta and Surabaya Stock Exchange

• 1995 The factory was built in Jl. Raya Narogong km.26 Cileungsi, Bogor-West Java

• 1999 Achieved certifi cation of DIN ES ISO 9001:1994 and DIN ES ISO 9001:2000, launched

Golf Cart Battery and 6TN for military purpose

• 2003 AEDSI Project – KAIZEN PROGRAM 2003-2007 participation

• 2004 NS Absolute dry charged battery launching

• 2006 NS Accurate launching

• 2007 Achieved ISO 14001:2004 from TUV NORD and TS 14969 from RW TUV

• 2008 NS Advance launching

• 2010 Achieved OHSAS 18001:2007

• 2011 NS Accelerate AGM VRLA launching. First industrial battery in Indonesia

• 2012 Dahlan Iskan has appointed Nipress to develop lithium battery for National Electric

Vehicle

• 2013 VRLA technology is being expanded for motorcycle


15

Board Of Commissioners

Ferry J Robertus Tandiono – President Commissioner

He was born in Surabaya in 1952, he graduated from KIEL University, Germany in

1976. In 1976, he started his career in Nipress as Production Supervisor until 1982. He

became Production Manager from 1983-1986 afterwards. In 1987, he was appointed as

Director until 1991. After EGM held on 12 Oct’ 2012, he managed to become Chairman

2012.

Feliawati - Commissioner

Born in Surabaya in 1953, she fi nished her study in English Literature in Singapore in

1974. She initiated her career as Director in Overseas Express Bank in between 1978-

1981. She became Director in Indonesian Development Bank from 1981-1982.

She joined Nipress in 1990 and appointed as Finance Director until 2012. She became

commissioner after EGM was held in 12 Oct’ 2012.

Raja Sirait – Independent Commissioner

He was appointed as Independent Commissioner in 2012. He is currently working in

Managing Partner Law Firm Raja Sirait & Partners.

Board of Directors

Jackson Tandiono – President Director

He was born in Jakarta in 1975, he graduated from University Southern California with

Bachelor of Science in Finance in 1998. After completed his study, he continued his

career in business activities in Los Angeles and joined with Nipress as Production

Supervisor in 2000. He then became Management Trainee and Quality Assurance

Manager after 1 year working in Nipress. Jackson improved himself by participated in

AOTS (Association for Overseas Technical Scholarship) in Japan in 2003 and 2004 in Osaka with The

Best Scoring Contestant predicate. In 2006, he became Deputy of Finance Director.

Annual Share Holder Meeting was held in 2006, he was appointed as Manufacture Director. Moreover,

he was elevated as CEO of Nipress in EGM held on 12 Oct’ 2013.

Richard Tandiono - Director

He was born in 1980, he graduated from University of Southern California with major

Industrial and System Engineering in 2002. He continued his study and held Master

of Science Degree in Engineering Management in University of Southern California in

2004. He started his career in Nipress as Plant Manager in 2006 and he became an

Operation Director since Oct’2012.

Herman Selamat - Director

He was born in Surabaya in 1958, he completed his Bachelor Degree in Marketing

in Surabaya University in 1987. After fi nished his bachelor program, he managed to

complete his Master in Finance from Surabaya University.

He initiated his career as Marketing Director in battery company in Surabaya in 1993.

He joined with Nipress in 1997 as Marketing Director afterwards.


16

Figure 30. NS Accurate Battery

Source: Nipress

Products and sales

NIPS produces automobile batteries (AMB), motorcycle batteries (MCB) and industrial batteries. In

1H13, NIPS sold 906k units AMB with average price of Rp281k/unit, 1.09mn units MCB with average

price of Rp70.5/unit and 76,246 units industrial battery with average price of Rp1.7mn/unit.

Automotive Battery (AMB and MCB)

NIPS produced various types of automotive batteries (AMB and MCB) which could be categorized in to:

NS Absolute is NIPS’ products which apply dry charged technology. NS Absolute is available for both

automobile (AMB) and motorcycle (MCB). Sales of NS Absolute reached approximately 2.1mn units in

10M13, which exported or sold to the domestic market in the form of AMBs and MCBs. The features that

can be found in this product comprise:

• Long life & high cranking

• Polyethylene envelope separator

• Strong construction

• Special alloy & central lug for grid system

• Short circuit eliminated

• Short circuits hazards between plate

NS Accurate is an AMB that carries hybrid technology. This battery has fulfi lled the OE Specifi cation

standard and has a large load capacity. NS Accurate is only available for automobile. In 10M13, NS

Accurate sales stood at around 131k units. The features of NS Accurate can be found as follow:

• Positive PbSb - Negative PbCa

• Filled bu high quality electrolyte to produce battery endurance

• Compatible with every class of vehicles

Figure 29. NS Absolute Battery

Source: Nipress


17

NS Advanced is high performance car battery that equips Sealed MF Technology. This battery has high

reserve capacity which meets the high equipped vehicles. Nipress produce NS Advanced for automobile

and motorcycle. NS Advance has been sold in 10M13 at around 603k units, in the form of AMBs and

MCBs. The features of the battery comprise:

• Dual technology

• Positive PbCa - Negative PbCa

• No leakage with double sealed system for anti-spill guarantee

• Acquire OE Specifi cation standard

Figure 31. NS Advance Battery

Source: Nipress


18

Figure 32. NS Industrial batteries

Source: Nipress

Industrial Battery

NIPS also produced various type of industrial battery which can be identifi ed as follow:

NS Highlander is battery that focuses on transportation power. NS Highlander is compatible with electric

car, electric bike, truck, golf cart, fl eet, and other utility vehicles. The features that can be found in this

battery comprise:

• Ideal for traction applications in industrial vehicles such as fork lifts

• Able to withstand the stress of repetitive cycling and vibration

• Very high reserve capacity and recharge acceptance

NS Accelerate is battery that built to meet the needs of industrial segments. NS Accelerate is capable

to fulfi l the wide range of capacities. The major focus of this battery includes telecommunications, power

utilities, railways, defence and other heavy industries. The features of this battery can be found as follow:

• For deep cycling and traction applications from aerial work platforms and cleaning machines to

utility vehicles

• AGM technology for superb shock and vibration resistance

• Exceptionally long lasting – up to eight times the cyclic stability of conventional batteries


19

Balance Sheet (Rpbn)

Key Ratio Analysis

Interim Result (Rpbn)

3Q12 4Q12 1Q13 2Q13 3Q13

Sales 486 703 208 254 685

Gross Profi t 72 119 33 40 105

Operating Profi t 38 55 17 28 62

Net Profi t 16 22 9 16 31

Gross Margins (%) 14.8 17.0 16.1 15.9 15.3

Opr Margins (%) 7.8 7.8 8.0 10.9 9.1

Net Margins (%) 3.3 3.1 4.5 6.3 4.6

Income Statement (Rpbn)

Year end 31 Dec 2011 2012 2013E 2014F 2015F

Revenue 579.2 702.7 987.4 1,306.6 1,645.8

% growth 44.5 21.3 40.5 32.3 26.0

Gross Profi t 90.0 119.3 163.1 227.1 293.4

Opr Profi t 42.1 55.0 84.0 123.7 166.6

EBITDA 51.4 66.9 97.2 139.1 195.7

% growth 60.8 30.2 45.2 43.2 40.6

Int inc/(exp) (16.1) (21.3) (31.4) (46.0) (49.2)

Other inc/(exp) (16.1) (21.3) (31.4) (46.0) (49.2)

Pre-tax Profi t 24.8 29.4 52.6 77.7 117.3

Tax (6.9) (7.8) (11.3) (16.7) (25.2)

Minority Int. - - - - -

Extra. Items - - - - -

Net Profi t 17.8 21.6 41.3 61.0 92.1

% growth 40.8 20.9 91.4 47.8 51.1

Year end 31 Dec 2011 2012 2013E 2014F 2015F

Profi tability

Gross Margins (%) 15.5 17.0 16.5 17.4 17.8

Op Margins (%) 7.3 7.8 8.5 9.5 10.1

EBITDA Margins (%) 8.9 9.5 9.8 10.6 11.9

Net Margins (%) 3.1 3.1 4.2 4.7 5.6

ROE (%) 10.7 10.7 17.0 10.8 14.0

ROA (%) 4.0 4.1 6.0 5.5 7.3

Stability

Current ratio (x) 1.1 1.1 1.1 1.4 1.8

Net Debt/Equity (x) 1.2 1.0 1.2 0.5 0.6

Int Coverage (x) 2.6 2.6 2.7 2.7 3.4

Effi ciency

A/P days 35 38 38 38 38

A/R days 86 83 82 80 80

Inventory days 91 77 77 77 77

Capital History

Date

24-Jul-91 IPO @ Rp5,000

18-Oct-13 Stock Dividend

25-Nov-13 Stock Split 20:1

Cash Flow (Rpbn)

Year end 31 Dec 2011 2012 2013E 2014F 2015F

EBIT 42.1 55.0 84.0 123.7 166.6

Depr/Amort 9.3 12.0 13.2 15.4 29.1

Chg in Working Capital (67.5) (27.5) (80.1) (85.6) (116.5)

Others (12.7) (8.0) (13.8) 9.7 18.2

CF's from oprs (28.8) 31.5 3.3 63.2 97.4

Capex (28.5) (22.8) (50.0) (240.0) (112.0)

Others - - - - -

CF's from investing (28.5) (22.8) (50.0) (240.0) (112.0)

Net change in debt 61.9 15.2 103.4 46.0 25.4

Others (9.0) (21.3) (38.1) 203.6 (85.1)

CF's from fi nancing 52.9 (6.1) 65.3 249.7 (59.7)

Net cash fl ow (4.3) 2.5 18.6 72.9 (74.3)

Cash at BoY 9.7 5.3 7.9 26.5 99.3

Cash at EoY 5.3 7.9 26.5 99.3 25.0

Free Cashfl ow (56.4) 2.0 (51.0) (213.0) (68.6)

Year end 31 Dec 2011 2012 2013E 2014F 2015F

Cash and Deposits 5.3 7.9 26.5 99.3 25.0

Other Current Assets 261.0 300.3 409.9 527.0 669.7

Net Fixed Assets 178.1 216.0 252.8 477.4 560.3

Other Assets 2.2 1.4 1.1 0.9 0.7

Total Assets 446.7 525.6 690.4 1,104.7 1,255.7

ST Debt 186.1 207.8 296.2 326.6 232.1

Other Current Liabilities 59.7 71.5 101.0 132.5 158.7

LT Debt 16.3 9.8 24.8 40.4 160.4

Other LT Liabs 18.6 21.6 25.4 41.2 48.5

Minority Interest - - - - -

Total Liabilities 280.7 310.7 447.4 540.8 599.7

Shareholder's Equity 166.0 201.6 242.9 563.9 656.0

Net Debt/(cash) 197.1 209.7 294.5 267.7 367.4

Net Working Capital 20.5 28.9 39.2 167.3 303.9

PT Trimegah Securities Tbk

18th Fl, Artha Graha Building

Jl. Jend. Sudirman Kav. 52-53

Jakarta 12190, INDONESIA

Tel : (6221) 2924 9088 Fax : (6221) 2924 9163

DISCLAIMER

This report has been prepared by PT Trimegah Securities Tbk on behalf of itself and its affi liated companies and is provided for information purposes

only. Under no circumstances is it to be used or considered as an offer to sell, or a solicitation of any offer to buy. This report has been produced

independently and the forecasts, opinions and expectations contained herein are entirely those of Trimegah Securities.

While all reasonable care has been taken to ensure that information contained herein is not untrue or misleading at the time of publication, Trimegah

Securities makes no representation as to its accuracy or completeness and it should not be relied upon as such. This report is provided solely for

the information of clients of Trimegah Securities who are expected to make their own investment decisions without reliance on this report. Neither

Trimegah Securities nor any offi cer or employee of Trimegah Securities accept any liability whatsoever for any direct or consequential loss arising

from any use of this report or its contents. Trimegah Securities and/or persons connected with it may have acted upon or used the information herein

contained, or the research or analysis on which it is based, before publication. Trimegah Securities may in future participate in an offering of the

company’s equity securities.

trim company focus - trimegah...nov 26, 2013 · mcb posted 9m13 sales of rp113bn (+62.8% yoy),...

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