Hexindo Adiperkasa

[karlmarx]

I took a look at Total Bangun and cannot believe how this construction service business does not require much in working capital, and spits out most of its earnings as dividends.

And yet its share price has been going lower over the years.

Not only are some of these companies cheap, but so is IDR.

[ksir]

I took a look at Total Bangun and cannot believe how this construction service business does not require much in working capital, and spits out most of its earnings as dividends.

And yet its share price has been going lower over the years.

Not only are some of these companies cheap, but so is IDR.

Its biz model is more like Boustead Project, main contractor with alot of subcons.
Providing Project Management & engineer services.

Their main problem is in capital allocation.
Their management are capable engineers and good executor.
Capable allocation? Quite bad! Otherwise buying back their shares now is by-and-large, their best option now.
They also spent $ in financial assets which are quite stupid as well.

They also own some lands & resort units that I suspect were given to them as exchange of bad receivables.
Which until now awfully idled!

From my holding, I am more confident with Prodia business albeit not as cheap.

Hardcore deep value investors may want to look at listed Property companies in Indo.
They have been depressed for years.
Some of the notable rather interesting companies are:
$PWON, $JRPT, $RDTX, $BSDE, $PJAA.
I particularly interested in the first 3 which are net cash or nearly net cash.


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[karlmarx]

In United Tractor's latest 3M operation update, Hexindo's Hitachi captured a larger market share from United Tractor's Komatsu.

For the period 3M20, Hitachi has 29% while Komatsu has 33%.
For the period 3M19, Hitachi has 20% while Komatsu has 38%.

UT 3M20 operational update: http://www.unitedtractors.com/sites/defa...202020.pdf

UT 3M19 operational update:
http://www.unitedtractors.com/sites/defa...202019.pdf

United Tractors' sales has traditionally been over-represented by the mining industry. The top two mining contractors in Indonesia -- PAMA (itself) and BUMA (Delta Dunia) -- primarily use Komatsu equipment. A recession in the mining industry thus hurts UT more.

Hexindo has been mindful of maintainng even exposure to each industry. And while its sales to mining and palm oil sectors will also face lower demand, the demand from forestry (for production of paper and pulp products), and construction may be slightly more resilient.

From UT's market data, it looks like Hexindo will fall short of its 4Q19 sales projection. The impact on projected FY19 earnings should be small, as gross margins on equipment sales are low.

Hexindo FY19 projections:
https://www.hexindo-tbk.co.id/wp-content...d_2019.pdf

Even so, it is likely that FY20 will be a poor year for Hexindo's sales. But if the company can grow its market share during this difficult period, it may enjoy a larger recurring base of service and maintenance revenue when the heavy equipment market recovers over the long-term.

[karlmarx]

After following this for almost 2 years, the heavy equipment market has turned really hot right now with coal prices highest in the last 10 years.

Profit and dividend for Hexindo in FY21 should be similar to pre-pandemic FY19, given the strong momentum thus far.

But Chinese equipment manufacturers like Sany have entered and captured more than a quarter the market within the first half of 2021. In the longer term, the larger scale of Chinese manufacturers pose a real threat to smaller Japanese manufacturers like Hitachi. Some of the Japanese manufacturers may consolidate in response to that.

https://www.unitedtractors.com/wp-conten...f-2021.pdf

There is a lot of bad press coverage on coal, but it is not likely that Indonesia will stop its use and switch to costlier alternatives like gas. Experiments on the gasification of coal are already on going. But over the long-term, the market for excavators in Indonesia may not see (much) growth.

When the current coal prices cool, the share price of equipment distributors like Hexindo should also come down.

For now, investors get to enjoy a forward dividend yield of 10% for FY20, and possibly 15% for FY21. But the results will probably moderate from FY22 onwards. And the yield will likely not compress unless the market can be convinced that there is some potential for growth.

[karlmarx]

Hexindo released it AR and I was surprised (confirmation bias) that Pangolin became one of the top 10 shareholders over the past year.

https://www.idx.co.id/StaticData/NewsAnd...409688.pdf

I wonder what they think of Chinese competitors like Sany.

[karlmarx]

The unexpected 'energy crisis' has sent most old energy stocks up. Hexindo also unexpectedly distributed a bumper dividend that was twice of the previous year. Management was probably confident of earnings this FY.

With higher energy prices, old energy is finally enjoying its day in the sun after a few years of negative investor sentiment. But new energy will also be more motivated to expand and gain market share. Equipment suppliers like Hexindo may do well for the next 1-2 years, but this is still a very cyclical business. And it is a cyclical business that will only to be under pressure from climate goals. I do believe the current high demand for coal is transitory, though it definitely will still be part of developing countries' energy mix.

And it is not necessary for a product/service to be completely redundant for its business to suffer; all it takes is for demand to be lower than supply to hurt (a lot).

After the bumper dividend, recent valuations for Hexindo looks about fair.