## HERO, sales to recover

Target price Rp1,026

Last 12-month cashflow -Rp 550 billion

January 29th,, 2021

1 minute read

Sales

Sales dropped again by another -19% in the third quarter to Rp .9 trillion, the fifth negative growth quarter in a row. Average quarterly growth is now at -9%. We expect growth to turn back to positive with a quarterly average +11% in this next 12 months & sales to rise to Rp 2.8 trillion by the third quarter, 2021.

Cashflow

Operating cashflow was still negative but positive investment cashflow made total cashflow positive again +Rp 63 billion in the third quarter. Average quarterly cashflow is still negative at -Rp 138 billion. We assume low investment spending Rp 30 billion a quarter which with higher sales gives a positive average quarterly free cashflow of +Rp 34 billion in this next 12 months.

1 minute read

Sales

Sales dropped again by another -19% in the third quarter to Rp .9 trillion, the fifth negative growth quarter in a row. Average quarterly growth is now at -9%. We expect growth to turn back to positive with a quarterly average +11% in this next 12 months & sales to rise to Rp 2.8 trillion by the third quarter, 2021.

Cashflow

Operating cashflow was still negative but positive investment cashflow made total cashflow positive again +Rp 63 billion in the third quarter. Average quarterly cashflow is still negative at -Rp 138 billion. We assume low investment spending Rp 30 billion a quarter which with higher sales gives a positive average quarterly free cashflow of +Rp 34 billion in this next 12 months.

## Sales to recover, positive cashflow, slightly higher target price ...

Balance sheet

With the return to some positive cashflow, the balance sheet leverage of net cash minus total liabilities improved to -Rp 2.76 trillion in the third quarter up from Rp 3 trillion in the second quarter. With our forecast for positive cashflow ahead & assuming there’s no dividend payout, net cash will improve to -Rp 2.6 trillion in 12 months time.

Profit

The net loss improved in the third quarter to -Rp 137 billion from -Rp 159 billion in the second on lower non-cash costs. The cash costs ratio, net profit add depreciation minus sales as a percent of sales was flat at 102%. We use 97% costs as sales recover to predict a lower next 12 months loss -Rp 146 billion.

Value

HERO has raised a net Rp 150 billion of capital in the last five years. At the current market value of Rp 4 trillion, its at 0.4X sales, 0.7X assets, 1.32X equity with mo profitability or yield yet. Our free cashflow forecast is Rp 137 billion. At 1.6% with a 0.5X adjustment, this gives a higher target price of Rp1,026.

With the return to some positive cashflow, the balance sheet leverage of net cash minus total liabilities improved to -Rp 2.76 trillion in the third quarter up from Rp 3 trillion in the second quarter. With our forecast for positive cashflow ahead & assuming there’s no dividend payout, net cash will improve to -Rp 2.6 trillion in 12 months time.

Profit

The net loss improved in the third quarter to -Rp 137 billion from -Rp 159 billion in the second on lower non-cash costs. The cash costs ratio, net profit add depreciation minus sales as a percent of sales was flat at 102%. We use 97% costs as sales recover to predict a lower next 12 months loss -Rp 146 billion.

Value

HERO has raised a net Rp 150 billion of capital in the last five years. At the current market value of Rp 4 trillion, its at 0.4X sales, 0.7X assets, 1.32X equity with mo profitability or yield yet. Our free cashflow forecast is Rp 137 billion. At 1.6% with a 0.5X adjustment, this gives a higher target price of Rp1,026.