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Danareksa Equity Snapshot - GMFI 17 Mei 2018
May 17, 2018 09:29

Garuda Maintenance Facility(GMFI IJ)

Operationally still sound


Garuda Maintenance Facility (GMFI) reported 1Q18 net profits of USD7mn (-27.3% yoy, -42.5% qoq). While the revenues are in-line, the net profits are below our forecast on higher expenses which squeezed the margins. We still like the company given its plans to become a top-10 MRO company globally through organic and inorganic expansion. Maintain BUY with a target price of IDR480 (based on DCF valuation).


Lower quarterly profits.  GMFI posted 42.5% qoq lower quarterly net profits, mainly due to: a) 10.0% qoq lower revenues on more maintenance work in 4Q17 particularly in November 2017 and b) other losses in 1Q18 vs. other gains in 1Q17 in the absence of interest income from the late payment of receivables of USD4.4mn booked in 4Q17. On the operational side, GMFI managed to post 21.5% qoq higher operating profits thanks to lower staff and subcontract expenses (down by 19.0% qoq and 25.8% qoq respectively). Hence, the operating margin improved to 11.0% in 1Q18 from 8.2% in 4Q17.


Absence of other gains dragged down the yearly net profits.  Although GMFI managed to book 9.3% yoy higher revenues thanks to higher revenues from repair and overhaul (+15.9% yoy), the company booked 27.3% yoy lower net profits of USD7mn in 1Q18. This mainly reflects: a) 9.9% yoy higher operating expenses (mainly on 16.5% yoy higher material expenses for engines and components) and b) the absence of interest income from the late payment of receivables amounting to USD3.4mn in 1Q17.


Strategic partner to give GMFI new capabilities. GMFI is expected to complete the strategic partner process whereby the latter buys a maximum 20% stake in the company: 10% from the issuance of new shares and another 10% from Garuda Indonesia’s shares in 2Q18. From the strategic partner, which will be a global MRO player, GMFI is expected to obtain new capabilities mainly in engine and components maintenance.


Maintain BUY.  Maintain BUY with a target price of IDR480 (based on DCF valuation and WACC of 10.8%). We like the company given its planned expansion through organic and inorganic growth and the compelling domestic MRO business which will enlarge GMFI’s customer base beyond Garuda group affiliates. Our target price implies 16.8x 2018F PE.


… read more 20180517 GMFI