KRAS

Contact our analyst Revita

BUY. Going to dominate
28th January 2018
Current price Rp520
Target price Rp720

Going to dominate

PT Krakatau Steel (Persero) Tbk (KRAS) the largest integrated steel producer in Indonesia plans to dominate in the domestic market by expanding Hot Steel Mill (HSM) # 2 production by 1.5 mn tons. As of 9M17, progress has reached 35.93%. KRAS is targeting completion by 1H19.
After the expansion, total hot steel mill capacity will increase 63% to 3.9 mn tons and in total rolling mill capacity will increase 48% from 3.15mn tons to 4.65mn tons.
As of 2016, steel imports reached 54% while as of 1H17 KRAS has markets shares of HRC at 35.85%, CRC 25.37% and WR 3.92%. By increasing its capacity KRAS can take market share from imports and help the local supply shortage.

Expects higher margin

Higher average selling price of all steel products will increase margins.
Higher efficiency in 2018 will come from a new blast furnace complex which as of 9M17 was 99.43% completed.
KRAS also plans to reduce financial expenses from a bond issuance this year as part of capital restructuring.
We are targeting 2017-2018 EBITDA margin will average 17% with 2018 net profit margin of 2.55% compared to net loss in 2017.

Valuation: 38% upside

Based on DCF, with WACC 9.0%, we are targeting within one year KRAS target price of IDR.720/share or 22.7x PER.
38% upside potential, BUY