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Danareksa Equity Snapshot - GMFI, 23 April 2019
April 23, 2019 10:09

Garuda Maintenance Facility(GMFI IJ)

Growth strategy will support future earnings


Garuda Maintenance Facility (GMFI) reported net profits of USD3mn (-15.4% qoq, -59.0% yoy) in 1Q19. While the revenues are within our expectation, the net profit is below our estimate and the consensus due to lower-than expected margins. Nonetheless, the company’s continuous expansion through organic and inorganic growth should support earnings going forward, we believe. Maintain BUY with a target price of IDR330 (based on DCF valuation).


Lower quarterly revenues dragged down profits.  GMFI’s net profits fell by 15.4% qoq to USD3mn in 1Q19 due to: a) 11.4% qoq lower revenues mainly from lower repairs and overhaul revenues (-13.9% qoq), and b) rising operating expenses from materials (+10.9% qoq). As such, the company recorded a lower operating margin of 6.9% in 1Q19 vs. 8.6% in 4Q18.


Higher expenses impacted the yearly net profits.  Although revenues rose by 3.7% yoy in 1Q19 on a yearly basis thanks to business expansion initiatives and more partnerships initiated in 2018, the net profits went down by 59.0% yoy due to higher expenses from materials (+21.0% yoy) and subcontracting (+13.3% yoy). Moreover, higher interest expenses also resulted in lowered net profits in 1Q19.


Lower receivables but operating cash flow was still negative.  We note that trade receivables declined by 16.7% ytd to USD145mn in 1Q19, mainly reflecting a decline in the trade receivables from Garuda Indonesia and Citilink Indonesia, while the trade receivables from Sriwjiaya remained steady. Moreover, the gross receivables declined by 38.2% ytd to USD104mn. Nonetheless, the trade and gross receivables were still higher by 8.2% yoy. As such, the company’s operating cash flow was negative USD25.7mn in 1Q19 vs. positive operating cash flow of USD2.5mn in 1Q18.


Growth strategy to support earnings. We foresee continued expansion through organic and inorganic growth through strengthening of the company’s engine services and better materials cost efficiency to support earnings in 2019. In addition, the joint operation between the parent company Garuda Indonesia (GIAA) and Sriwijaya Air (SJY) signed in 4Q18 will help GMFI to conduct end-to-end maintenance for SJY.


Maintain BUY.  We believe that the company’s continuous expansion and the compelling domestic MRO business will allow GMFI to enlarge its customer base beyond Garuda group affiliates to support earnings. Our target price of IDR330 is based on DCF valuation with WACC of 9.9%. Our TP implies 25.4x 2019F PE.



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