## HERO, margins positive again

Current, target price Rp945, 1,133 (+20%)

May 14th, 2021

1 minute read

Sales, down again

Cashflow, to turn positive

1 minute read

Sales, down again

- Sales declined by -13% in the first quarter to 1,763 billion rupiah, which is -21% compared to our forecast.
- This is after a 6% increase in the fourth quarter & brings the quarterly average growth to -9%.
- We predict positive average growth of 7% a quarter in this next 12 months which will bring sales back to 2,235 billion rupiah by the first quarter of 2022.

Cashflow, to turn positive

- Cashflow was negative -124 billion rupiah in the first quarter after positive 214 billion rupiah in the fourth quarter.
- Average quarterly cashflow is still negative -86 billion rupiah.
- We use flat investment spending of -48 billion rupiah, which with higher sales, gives a positive average quarterly cashflow of 40 billion rupiah in this next 12 months.

## Sales lower again, but margins positive, cashflow negative, but expecting positive, cheap at 0.45X sales, slightly higher target price...

Balance sheet, higher leverage

Profit, positive margins

Value, at 0.45X sales

- With negative cashflow, the net leverage of cash minus total liabilities was -3,036 billion rupiah in the first quarter from -2,908 billion rupiah in the fourth quarter & -3,068 billion rupiah a year ago.
- With our forecast positive cashflow & assuming a dividend payout of -6 billion rupiah...
- ...net leverage will improve to -2,883 billion rupiah in 12 months time.

Profit, positive margins

- The net loss was down to -2 billion rupiah in the first quarter from -875 billion rupiah in the fourth quarter.
- The cash cost ratio of net profit add back non cash costs minus sales as a percent of sales was down to -96%.
- We use the same -96% costs, to predict a positive next 12 months profit of 60 billion rupiah.

Value, at 0.45X sales

- HERO cumulative net capital is at -418 billion rupiah from the last five years.
- At the current market value of 3,953 billion rupiah, based on forecasts it’s 0.45X sales, 0.79X assets, 2.07X equity, with a 3.2% profitability & a 0.2% yield.
- Our free cashflow forecast is 168 billion rupiah. At 1.6% with a 0.45X adjustment, gives a 20% higher target price of 1,133 rupiah.