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HERO, a -43% lower target price
Current 1,775 Target 1,012 -+43%

November 7th 2021
1 minute read

Sales slumped -59%

• Sales slumped -59% in the third quarter to 780 billion rupiah vs our 1,905 billion rupiah forecast.
• This brings the quarterly average to -14% growth.
• We predict average growth of 47% in this next 12 months to bring sales to 2,751 billion rupiah in the third quarter of 2022.

Costs lower

• Despite lower sales, the cash cost ratio was lower at -113% in the third quarter giving an improved -197 billion rupiah net profit!
• The Cashflow cost ratio is better at -101% now.
• We use -96% cost ratio as sales recover to predict a 19 billion rupiah profit in the third quarter of 2022.

Cashflow positive from investment gains

• Free cashflow was positive 225 billion rupiah in the third quarter with 283 billion rupiah investment gains.
• Average quarterly Cashflow is at -167 billion rupiah now.
• We assume -48 billion rupiah investment spending which with higher sales gives a 16 billion rupiah Cashflow in the third quarter of 2022.

Balance sheet, lower leverage

• Cash dipped from 80 to 79 billion rupiah in the third quarter.
• Liabilities declined from 3,618 to 3,437 billion rupiah so net cash improved from -3,538 to -3,358 billion rupiah
• With our forecast cashflow & a -2 billion rupiah equity payout net cash will be -3,193 billion rupiah in 12 months time.

Valuation, expensive, a -43% lower target price

• HERO capital from the last 23 quarters improved to -883 billion rupiah in the third quarter & will be -716 billion rupiah in12 months time.
• At the current market value of 7,426 billion rupiah based on our forecasts it’s at 1.71 X assets with a 26 years payback & a 0% yield.
• Our cashflow forecast is 169 billion rupiah which means an expensive 44 X valuation.
• A 25 X valuation gives a -43% lower target price of 1,012 rupiah.

Data file & model