INDY’s overhead costs are ballooning. Overhead is 21% of revenue and has grown 45% CAGR from 2010 to 2012. The main driver is salary which takes up nearly 33% of all overhead cost.
· While we view
recent bond issuance as positive (lowering overall borrowing cost from
8.5% to 6.6%), the main overhang is bloated costs, not interest expense
As a result of this high overhead cost, earnings are sensitive to
changes in revenue. Lowering INDY’s revenue by 6% (from PTRO and MBSS),
INDY’s earnings plunged by 40% in 13CL to $42m.
· As an
aside, we don’t think that MTU, INDY’s recent acquisition, may not be
able to start before 2015 due to legal concerns.
· We prefer
MBSS and PTRO because of their earnings visibility and cheap valuation.
MBSS (PE 4.8x 13CL) and PTRO (PE 4.6x 13CL)
· As a result we
downgrade INDY to Sell from O-PF. Our sum of the parts valuation
results in a change in target price to Rp1,360 per share from Rp1,580
me @ LOTS Trading Club (LTC)
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