KRAS
Contact our analyst Revita
BUY, 71% upside potential
27th January 2021
Current price Rp655
Target price Rp1120
27th January 2021
Current price Rp655
Target price Rp1120
Production target 170000 ton/months
The Covid19 pandemic caused steel demand to decline significantly. Steel consumption in Indonesia was 5.9 million tons in H120, a decrease of 18% from 2019 (y-o-y). KRAS’s sales decreased in 2Q20 in line with the impact of Covid-19. As of 1Q20, sales increased to 143000 tons/month compared to 2019FY, 127000 tons/month. As of 2Q20, sales realization decreased to 87000 tons/month. As of 3Q20, sales began to recover to 151000 tons/month. KRAS targets steel production in 2021 at 170000/month in line with the government's economic recovery program in 2020 which will begin to see its impact in 2021 if Covid-19 subsides and the vaccine succeed.
Improving operating margin
The Company continues to make efficiencies to improve the operating costs,and 9M20 shows a decrease in opex. As of 9M20, opex compared to 2019FY has decreased by 50%. Operating costs in 9M20 decreased -73%yoy compared to 9M19 so that in 9M20 the OPM was 8% compared to a 9M19 OPM of -9%. We estimate that in 2021, KRAS will continue to show an improved performance in line with the impact of efficiency in the company's operating expenses. We estimate OPM 2020F and 2021F at 5.14% and 6.78% respectively compared to -31.59% in 2019FY.
Progress of strategic projects
The company's strategic project, HSM (Hot Strip Mill) #2 project which will increase HRC production capacity by 1.5 million tons is progressing. Construction is already 100% but commissioning was delayed as the process requires technicians from Germany because HSM#2 uses German technology. The commissioning is now underway and we expect to see results in January 2021 and the first coil production around April 2021. The new Blast Furnace is being discussed with prospective partners. These projects will lead to improvements in technology and improve the competitiveness and performance of Krakatau Steel.
Valuation: 71% upside
Based on EV/EBITDA at 6x, we have a one year target price (TP) for KRAS of IDR 1120 or 71% upside
The Covid19 pandemic caused steel demand to decline significantly. Steel consumption in Indonesia was 5.9 million tons in H120, a decrease of 18% from 2019 (y-o-y). KRAS’s sales decreased in 2Q20 in line with the impact of Covid-19. As of 1Q20, sales increased to 143000 tons/month compared to 2019FY, 127000 tons/month. As of 2Q20, sales realization decreased to 87000 tons/month. As of 3Q20, sales began to recover to 151000 tons/month. KRAS targets steel production in 2021 at 170000/month in line with the government's economic recovery program in 2020 which will begin to see its impact in 2021 if Covid-19 subsides and the vaccine succeed.
Improving operating margin
The Company continues to make efficiencies to improve the operating costs,and 9M20 shows a decrease in opex. As of 9M20, opex compared to 2019FY has decreased by 50%. Operating costs in 9M20 decreased -73%yoy compared to 9M19 so that in 9M20 the OPM was 8% compared to a 9M19 OPM of -9%. We estimate that in 2021, KRAS will continue to show an improved performance in line with the impact of efficiency in the company's operating expenses. We estimate OPM 2020F and 2021F at 5.14% and 6.78% respectively compared to -31.59% in 2019FY.
Progress of strategic projects
The company's strategic project, HSM (Hot Strip Mill) #2 project which will increase HRC production capacity by 1.5 million tons is progressing. Construction is already 100% but commissioning was delayed as the process requires technicians from Germany because HSM#2 uses German technology. The commissioning is now underway and we expect to see results in January 2021 and the first coil production around April 2021. The new Blast Furnace is being discussed with prospective partners. These projects will lead to improvements in technology and improve the competitiveness and performance of Krakatau Steel.
Valuation: 71% upside
Based on EV/EBITDA at 6x, we have a one year target price (TP) for KRAS of IDR 1120 or 71% upside
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