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WEGE, strong cashflow
🎯 🏗 📈 Rp464
Last 12-month cashflow -Rp443bn ⬆️
October 27th, 2020
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Sales
Sales fell -65% from a year ago in the 3Q to Rp425bn after -33% in the 2Q, the seventh quarter in a row of negative growth & far below forecast. Cashflow receipts however, were higher, Rp946bn & the order book grew +8% from the 2Q. We expect a recovery in sales from the 4Q back to Rp985bn by 2Q 2021.
Cashflow
Despite the lower sales, free cashflow was strong, +Rp300bn in the 3Q excluding working capital, because of both higher receipts as well as positive investment cashflow. Amazingly this is the 3rd highest quarterly cashflow. A predicted return to small investment spending combined with our higher sales forecast gives an average quarterly free cashflow of Rp45bn in this next 12 months.
Sales fell -65% from a year ago in the 3Q to Rp425bn after -33% in the 2Q, the seventh quarter in a row of negative growth & far below forecast. Cashflow receipts however, were higher, Rp946bn & the order book grew +8% from the 2Q. We expect a recovery in sales from the 4Q back to Rp985bn by 2Q 2021.
Cashflow
Despite the lower sales, free cashflow was strong, +Rp300bn in the 3Q excluding working capital, because of both higher receipts as well as positive investment cashflow. Amazingly this is the 3rd highest quarterly cashflow. A predicted return to small investment spending combined with our higher sales forecast gives an average quarterly free cashflow of Rp45bn in this next 12 months.
Order book up ➡️ sales growth, positive cashflow, cheap valuation, higher target price...
Balance sheet
The balance sheet dipped briefly into net debt in the 3Q a year ago, but has since returned to net cash of Rp412bn in this 3Q , up only slightly from Rp388bn in the 2Q as working capital was negative. With our forecast positive free cashflow & assuming a Rp67bn dividend, net cash will be Rp523bn in 12 months time.
Profit
With lower sales, 3Q net profit was down -72% to Rp34bn. Income from JVs turned negative, but the cash cost ratio of net profit add back depreciation minus sales as a % of sales was lower at 87% from 92% last year. We use a 92% cost ratio to predict a net profit recovery to Rp70bn by the 3Q 2021.
Value
WEGE has been raising capital up to a cumulative Rp524bn by the 3Q. But that’s lower than Rp611bn last year. At Rp1.7tn, it’s 0.53x sales, only 0.31x assets, 0.74x equity with a 9.6% profitability & 3.9% yield. Our cashflow forecast is Rp178bn. At 1.6% with a 0.4x adjustment because of the negative growth gives a higher target price of Rp465.
The balance sheet dipped briefly into net debt in the 3Q a year ago, but has since returned to net cash of Rp412bn in this 3Q , up only slightly from Rp388bn in the 2Q as working capital was negative. With our forecast positive free cashflow & assuming a Rp67bn dividend, net cash will be Rp523bn in 12 months time.
Profit
With lower sales, 3Q net profit was down -72% to Rp34bn. Income from JVs turned negative, but the cash cost ratio of net profit add back depreciation minus sales as a % of sales was lower at 87% from 92% last year. We use a 92% cost ratio to predict a net profit recovery to Rp70bn by the 3Q 2021.
Value
WEGE has been raising capital up to a cumulative Rp524bn by the 3Q. But that’s lower than Rp611bn last year. At Rp1.7tn, it’s 0.53x sales, only 0.31x assets, 0.74x equity with a 9.6% profitability & 3.9% yield. Our cashflow forecast is Rp178bn. At 1.6% with a 0.4x adjustment because of the negative growth gives a higher target price of Rp465.
