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Gajah Tunggal
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DISCLOSURE APPENDIX CONTAINS ANALYST CERTIFICATIONS AND THE STATUS OF NON US ANALYSTS. FOR OTHER IMPORTANT DISCLOSURES, visit www.credit-suisse.com/researchdisclosures or call +1 (877) 291-2683 US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION®
Client-Driven Solutions, Insights, and Access
10 June 2013
Asia Pacific/Indonesia
Equity Research
Tires & Rubber
Gajah Tunggal
(GJTL.JK / GJTL IJ) INITIATION
Full of grip ■ Initiate coverage with an OUTPERFORM rating. Gajah Tunggal (GT) is the
largest integrated SEA tyre manufacturer with own production of synthetic rubber and tyre cords. We believe the Indonesian tyre industry would benefit from the growing auto industry, where we started to see an inflection point in 4W population, growing at 11% CAGR over FY13-15E. GT’s valuation is undemanding, trading at 8.0x FY13E P/E, a 13% discount to regional tyre peers and 33% discount to Indonesia auto. The stock is also a play on domestic consumption, benefitting from rising middle-high income population, where it is trading at a steep discount of around 76% to Indonesian consumer stocks.
■ Improvement in the replacement market by better penetrating into OEM business. The domestic replacement tyre market is contributing more than 50% of GT’s total tyre revenue. For radial tyres, GT has 24% market share in the replacement market. We expect its market share to improve to 27% by FY15 through better penetration into OEM tyre by: (1) being the biggest tyre supplier for Suzuki Ertiga (the new breakthrough low-end MPV after Toyota Avanza and Daihatsu Xenia), (2) supplying the potential low cost green car (LCGC) market. We expect domestic radial tyre revenue to grow at 28% CAGR.
■ Continues to dominate 2W and bias (heavy duty) tyres. More than 70%
each of 2W and bias tyre revenue is generated from replacements, a high-margin business. GT has been the biggest tyre supplier for Yamaha and Suzuki motorcycles. We expect the combined revenue to witness a 14% CAGR over FY13-15, with 2W tyres as the main growth driver.
■ Target price at Rp4,300. We use DCF and P/E to value the company. Our DCF indicates a target price of Rp4,900, implying 12.1x FY13E P/E. Given regional peers are trading at an implied P/E range of 7–15x, we use 10.5x FY13E P/E to arrive at our target price of Rp4,300. GT’s 15% earnings growth for FY13–15E is among the highest versus its peers, with margin gradually improving along with relatively stable raw material costs. Key risks: commodity price and competitions from both existing and new players.
Share price performance
40
60
80
100
120
2000
2500
3000
3500
4000
Jun-11 Oct-11 Feb-12 Jun-12 Oct-12 Feb-13
Price (LHS) Rebased Rel (RHS)
The price relative chart measures performance against the JSX
COMPOSITE INDEX which closed at 4865.32 on 07/06/13
On 07/06/13 the spot exchange rate was Rp9790./US$1
Performance Over 1M 3M 12M Absolute (%) 3.3 44.2 31.9 Relative (%) 7.7 44.4 5.2
Financial and valuation metrics
Year 12/12A 12/13E 12/14E 12/15E Revenue (Rp bn) 12,578.6 13,628.1 15,100.5 16,584.5 EBITDA (Rp bn) 2,116.8 2,296.7 2,709.3 3,051.2 EBIT (Rp bn) 1,677.2 1,837.6 2,200.6 2,492.5 Net profit (Rp bn) 1,132.2 1,410.6 1,612.7 1,876.3 EPS (CS adj.) (Rp) 325.00 404.91 462.90 538.58 Change from previous EPS (%) n.a. Consensus EPS (Rp) n.a. 335 374 404 EPS growth (%) 65.8 24.6 14.3 16.3 P/E (x) 9.5 7.7 6.7 5.8 Dividend yield (%) 0.32 0.53 0.66 0.76 EV/EBITDA (x) 6.6 6.2 5.1 4.5 P/B (x) 1.9 1.6 1.3 1.1 ROE (%) 22.6 22.6 21.0 20.1 Net debt/equity (%) 56.0 52.1 38.2 28.6
Source: Company data, Thomson Reuters, Credit Suisse estimates.
Rating OUTPERFORM* Price (07 Jun 13, Rp) 3,100.00 Target price (Rp) 4,300.00¹ Upside/downside (%) 38.7 Mkt cap (Rp bn) 10,802.9 (US$ 1.1) Enterprise value (Rp bn) 14,152 Number of shares (mn) 3,484.80 Free float (%) 40.0 52-week price range 3,325.0 - 2,025.0 ADTO - 6M (US$ mn) 2.0
*Stock ratings are relative to the coverage universe in each
analyst's or each team's respective sector.
¹Target price is for 12 months.
Research Analysts
Dian Haryokusumo
62 21 255 37974
10 June 2013
Gajah Tunggal
(GJTL.JK / GJTL IJ) 2
Focus charts Figure 1: Improving auto population… Figure 2: …to benefit Indonesia’s domestic tyre industry
4W tyre (mn units)
-
20
40
60
80
100
120
-
2
4
6
8
10
12
14
16
18
2005 2007 2009 2011 2013E 2015E
4W population (mn units, LHR) 2W population (mn units)
11% CAGR 13E-15E
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E
Replacement OEM
Replacement: 12% CAGR 13-15EOEM: 10% CAGR 13-15E
Source: Indonesia Tyre Association, Credit Suisse estimates Source: Indonesia Tyre association, Credit Suisse estimates
Figure 3: GT has 24% market share in replacement
market, despite having relatively small OEM business
Figure 4: Tyre revenue to grow at 11% YoY over FY13–15E
on higher replacement tyre contribution
Bridgestone33%
Dunlop28%
Gajah Tunggal24%
EP10%
Others5%
5,713
6,979 7,244
8,996
10,721
11,702
12,808 14,314
15,867
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
2007 2008 2009 2010 2011 2012 2013E 2014E 2015E
Rp
bn
Replacement OEM Export Source: Company data FY12 Source: Company data, Credit Suisse estimates
Figure 5: Margins to gradually improve on relatively
stable raw material costs
Figure 6: Undemanding valuation
665 581
1,145 1,287
1,010
1,677 1,838
2,201
2,493
10.0%
7.3%
14.4%
13.1%
8.5%
13.3% 13.5%
14.6%15.0%
0%
2%
4%
6%
8%
10%
12%
14%
16%
-
500
1,000
1,500
2,000
2,500
3,000
2007 2008 2009 2010 2011 2012 2013E 2014E 2015E
Operating profit (Rp bn, LHS) Operating margin
DCF valuation
Assumptions: β: 1.2 CoE 14%
WACC 11.4%
NPV (Rp bn) 20,453
TV multiple 19
TPX (Rp/share) 4,900
Implied FY13E P/E (x) 12.1
Comparisons Current FY13E P/E
Regional tire peers* 9.2
Indo auto* 12.0
Indo consumer* 33.1
Gajah Tunggal
TPX (Rp/share) 4,300
Implied FY13E P/E (x) 10.5
Current FY13E P/E (x) 8.0
Source: Company data, Credit Suisse estimates *CS coverage. Source: Credit Suisse estimates
10 June 2013
Gajah Tunggal
(GJTL.JK / GJTL IJ) 3
Full of grip Gajah Tunggal (GT) is the largest integrated SEA tyre manufacture with own production of
synthetic rubber and tyre cords. The tyre business includes radial, bias (heavy duty), and
motorcycle tyres with replacement market being the main contributor to total tyre revenue.
We initiate coverage on GT with an OUTPERFORM rating and a target price of Rp4,300.
Benefits from the growing auto sector
We estimate Indonesia’s automotive population will grow at 11% YoY over FY13-15,
benefitting from the rising middle-high income segment in Indonesia over the past years,
resulting in improving affordability. We also expect the LCGC to create a new segment
within the industry, suggesting potential room for growth. This should benefit the domestic
4W tyre industry, which we expect to grow at 11% YoY over FY13-15, with higher OEM
tyre contribution resulting in a growing replacement market. Despite a bigger export radial
tyre market, we estimate the growth will be flat due to increasing competition. Indonesia
has a huge 2W replacement tyre market, witnessing a 14% CAGR during FY05-12A,
supported by high 2W penetration. We expect it to see a 11% CAGR over FY13-15.
The largest integrated SEA tyre manufacturer
As the largest integrated tyre manufacturer in South East Asia, GT both manufactures
tyres and produces its own synthetic rubber and tyre cords. The company’s revenue is
primarily coming from the sales of radial, bias and motorcycle tyres with contribution of
35%, 36%, and 24% to total sales, respectively. The domestic market plays an important
role in GT’s tyre business, where revenue from the replacement market contributes more
than 50% of total tyre revenue, followed by export (33%), and OEM (14%). For radial tyres,
GT has 24% market share in replacement market, despite having a relatively small OEM
business. But, we expect its market share to increase to 27% by FY15 through better
penetration into OEM tyre by: (1) being the biggest tyre supplier for Suzuki Ertiga (the new
breakthrough low-end MPV after Toyota Avanza and Daihatsu Xenia), (2) supplying the
potential LCGC market. We expect the domestic radial tyre revenue to grow at 28% CAGR
during FY13–15.
We believe GT should continue dominating the 2W and bias tyre markets. More than 70%
each of 2W and bias tyre revenue is from the replacement market; the high-margin business.
We expect the steady cash flow from these businesses to continue. GT has been the biggest
tyre supplier for Yamaha and Suzuki 2W. We expect the combined revenue to grow at 14%
over FY13–15E, with 2W tyre continuing to be the main growth driver. In all, we expect total
domestic revenue for GT to grow at 14% CAGR, driven by growth in its tyre business, which
is expected to grow at 11% CAGR on the back of 8% CAGR volume growth.
Initiating with OUTPERFORM and a TP of Rp4,300
We have used DCF and P/E to value the company. Our DCF indicates a target price of
Rp4,900, implying 12.1x FY13E P/E. Given regional peers are trading at an implied P/E
range of 7–15x, we use 10.5x FY13E P/E to arrive at our target price of Rp4,300. GT’s
current valuation is undemanding, trading at 8.0x FY13E P/E, a 13% discount to regional
tyre peers and 33% discount to Indonesia auto. The stock is also a play on domestic
consumption, benefitting from rising middle-high income population, where it is trading at a
steep discount of around 76% to Indonesian consumer stocks. GT’s 15% earnings growth
for FY13–15E is amongst the highest versus its peers, with margin gradually improving
along with relatively stable raw material costs.
Risks
Key risks include: (1) commodity price risk, (2) competition from both the existing and new
players, (3) regulatory risk, and (4) macroeconomic risk.
10 June 2013
Gajah Tunggal
(GJTL.JK / GJTL IJ) 4
Gajah Tunggal GJTL.JK / GJTL IJ Price (07 Jun 13): Rp3,100.00, Rating:: OUTPERFORM, Target Price: Rp4,300.00, Analyst: Dian Haryokusumo
Target price scenario
Scenario TP %Up/Dwn Assumptions
Upside 4,800.0
0 54.84 radial tyre vol to go up by 10%
Central Case 4,300.0
0 38.71
Downside 4,000.0
0 29.03 Radial tyre vol to go down by 10%
Key earnings drivers 12/12A 12/13E 12/14E 12/15E
Tyre volume (mn units) 36.6 39.3 42.8 46.3 Rubber price (US cents/kg)
312.6 310.4 304.9 304.9 Oil price (US/bbl) 112.8 112.0 110.0 100.0 — — — — — — — —
Income statement (Rp bn) 12/12A 12/13E 12/14E 12/15E
Sales revenue 12,579 13,628 15,100 16,585 Cost of goods sold 10,142 10,891 11,975 13,076 SG&A 760 900 925 1,016 Other operating exp./(inc.) (439.7) (459.1) (508.7) (558.7) EBITDA 2,117 2,297 2,709 3,051 Depreciation & amortisation 439.7 459.1 508.7 558.7 EBIT 1,677 1,838 2,201 2,493 Net interest expense/(inc.) 331.8 373.0 364.7 344.7 Non-operating inc./(exp.) 87.9 272.6 151.0 165.8 Associates/JV 24.1 26.1 28.9 31.8 Recurring PBT 1,457 1,763 2,016 2,345
Exceptionals/extraordinaries — — — — Taxes 325.2 352.7 403.2 469.1 Profit after tax 1,132 1,411 1,613 1,876 Other after tax income — — — — Minority interests — — — — Preferred dividends — — — — Reported net profit 1,132 1,411 1,613 1,876 Analyst adjustments — — — — Net profit (Credit Suisse) 1,132 1,411 1,613 1,876
Cash flow (Rp bn) 12/12A 12/13E 12/14E 12/15E
EBIT 1,677 1,838 2,201 2,493 Net interest — — — — Tax paid — — — — Working capital (82.0) 20.1 (224.9) (576.8) Other cash & non-cash items 111.9 127.2 (79.3) (57.5) Operating cash flow 1,707 1,985 1,896 1,858 Capex (1,973) (1,720) (1,552) (1,552) Free cash flow to the firm (265.8) 265.0 343.9 305.7 Disposals of fixed assets — — — — Acquisitions — — — — Divestments — — — — Associate investments (80.3) (26.1) (28.9) (31.8) Other investment/(outflows) 704.2 (9.4) (13.1) (13.2) Investing cash flow (1,349) (1,755) (1,595) (1,598) Equity raised — — — — Dividends paid (34.8) (57.5) (71.6) (81.9) Net borrowings — — — — Other financing cash flow (12.8) (195.4) 89.6 72.5 Financing cash flow (47.6) (252.9) 18.0 (9.4) Total cash flow 310.4 (23.4) 319.8 251.3 Adjustments 7.4 — — — Net change in cash 317.8 (23.4) 319.8 251.3
Balance sheet (Rp bn) 12/12A 12/13E 12/14E 12/15E
Cash & cash equivalents 905 881 1,201 1,452 Current receivables 2,227 2,155 2,388 2,623 Inventories 1,479 1,492 1,640 1,791 Other current assets 584.1 529.9 587.1 995.1 Current assets 5,194 5,058 5,816 6,861 Property, plant & equip. 6,122 7,383 8,426 9,420 Investments 793.2 819.3 848.3 880.0 Intangibles — — — — Other non-current assets 761 824 913 1,003 Total assets 12,870 14,084 16,004 18,164 Accounts payable 1,210 1,332 1,466 1,602 Short-term debt 202.2 215.4 216.5 216.5 Current provisions — — — — Other current liabilities 1,608 1,542 1,698 1,855 Current liabilities 3,020 3,090 3,380 3,674 Long-term debt 3,769 4,015 4,035 4,035 Non-current provisions — — — — Other non-current liab. 602.8 545.1 604.0 663.4 Total liabilities 7,391 7,650 8,019 8,372 Shareholders' equity 5,564 6,917 8,458 10,253 Minority interests — — — — Total liabilities & equity 12,870 14,084 16,004 18,164
Per share data 12/12A 12/13E 12/14E 12/15E
Shares (wtd avg.) (mn) 3,484 3,484 3,484 3,484 EPS (Credit Suisse) (Rp) 325 405 463 539 DPS (Rp) 10.0 16.5 20.6 23.5 BVPS (Rp) 1,597 1,986 2,428 2,943 Operating CFPS (Rp) 490 570 544 533
Key ratios and valuation
12/12A 12/13E 12/14E 12/15E
Growth(%) Sales revenue 6.2 8.3 10.8 9.8 EBIT 66.1 9.6 19.8 13.3 Net profit 65.4 24.6 14.3 16.3 EPS 65.8 24.6 14.3 16.3 Margins (%) EBITDA 16.8 16.9 17.9 18.4 EBIT 13.3 13.5 14.6 15.0 Pre-tax profit 11.6 12.9 13.3 14.1 Net profit 9.0 10.4 10.7 11.3 Valuation metrics (x) P/E 9.5 7.7 6.7 5.8 P/B 1.94 1.56 1.28 1.05 Dividend yield (%) 0.32 0.53 0.66 0.76 P/CF 6.33 5.44 5.69 5.81 EV/sales 1.10 1.04 0.92 0.82 EV/EBITDA 6.55 6.16 5.11 4.46 EV/EBIT 8.27 7.70 6.30 5.46 ROE analysis (%) ROE 22.6 22.6 21.0 20.1 ROIC 16.0 16.0 16.9 16.9 Asset turnover (x) 0.98 0.97 0.94 0.91 Interest burden (x) 0.87 0.96 0.92 0.94 Tax burden (x) 0.78 0.80 0.80 0.80 Financial leverage (x) 2.35 2.19 2.00 1.85 Credit ratios Net debt/equity (%) 56.0 52.1 38.2 28.6 Net debt/EBITDA (x) 1.45 1.46 1.13 0.92 Interest cover (x) 5.06 4.93 6.03 7.23
Source: Company data, Thomson Reuters, Credit Suisse estimates.
0
2
4
6
8
10
12
14
2008 2009 2010 2011 2012 2013
12MF P/E multiple
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2008 2009 2010 2011 2012 2013
12MF P/B multiple
Source: IBES
10 June 2013
Gajah Tunggal
(GJTL.JK / GJTL IJ) 5
Benefits from a growing auto sector Indonesia’s automotive industry has benefitted from the growing middle-high income
population over the past years. Based on Nielsen’s survey, in Indonesia’s 12 cities, the
proportion of middle and high income group’s spending population increased from 42% in
2008 to 62% in 2010, implying around 48 mn people moved into the middle-high income
segment during the period. We expect the middle-income group’s spending to continue to
grow along with an estimated rise in Indonesia’s GDP per capita from about US$2,985 in
2010 to US$4,139 in 2014E. Therefore, we expect affordability to improve.
Figure 7: Middle-income group’s spending is rising… Figure 8: … along with rising GDP per capita
10% 7% 4%
21%17%
12%
27%
25%
22%
20%24%
27%
14% 18%24%
8% 9% 11%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2008 2009 2010
Below Rp 700K Rp 700K - Rp1mn Rp 1 mn - Rp1.5 mn
Rp 1.5 mn - Rp 2 mn Rp 2 mn - Rp 3 mn Over Rp 3 mn
42% 62%51%
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2006 2007 2008 2009 2010 2011 2012 2013E 2014E
GD
P p
er c
apita
(U
S$)
Source: Nielsen Media Research, Media Index Source: CEIC, Credit Suisse estimates
Potential room to grow in the 4W market…
The four-wheeler (4W) industry in Indonesia has grown at 21% CAGR over the past five
years, with the MPV (multi-purpose vehicle) segment being the biggest contributor. We
remain positive on the outlook of Indonesia’s 4W industry, given the country’s improving
purchasing power, as well as the low penetration rate of the 4W market, where Indonesia
exhibits the second-lowest 4W penetration after India. This suggests a potential room to
grow further. We expect 4W industry volume to grow at 10% CAGR over 2013E-15E,
bringing the total 4W population to grow at 11% CAGR.
Figure 9: 4W industry to grow at 10% CAGR 2013E-15E Figure 10: Low 4W penetration
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
2007 2008 2009 2010 2011 2012 2013E 2014E 2015E
Uni
ts
0%
5%
10%
15%
20%
25%
30%
35%
Korea Malaysia Thailand China Indonesia India
4W P
enet
ratio
n ra
te
Source: Gaikindo, Credit Suisse estimates Source: Company data, Credit Suisse estimates
10 June 2013
Gajah Tunggal
(GJTL.JK / GJTL IJ) 6
… to benefit 4W tyre industry
Exports play a major role in Indonesia’s 4W tyre industry, especially for the passenger car
radial tyre. North America is the main destination for tyre export, where Indonesia is the
fifth-largest passenger car tyre exporter to the US market after South Korea (based on
2009 data). In 2012, 4W tyre export market was down by around 10% YoY, mostly driven
by the global crisis in the US and Europe.
Figure 11: Indonesia—the fifth-largest PC tyre exporter to the US market Units
0
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
35,000,000
40,000,000
45,000,000
China Japan Canada SouthKorea
Indonesia Mexico Brazil Thailand CostaRica
Germany Others
2009 2008
Source: Company data, Credit Suisse estimates
In contrast, the OEM 4W tyre industry has grown by 28% YoY last year, which was in line
with higher 4W new sales volume during the period. The higher 4W sales volume is mainly
driven by the contribution of MPV (multi-purpose vehicle) segment, which contributed
more than 60% of total 4W market. In particular, the low MPV segment has been the key
driver for the strong growth last year, where new models such as Suzuki Ertiga and Nissan
Evalia have entered the Indonesian MPV market starting last year. In addition, the
comeback of Honda into the industry has also contributed to higher growth, after its supply
was disrupted due to Thailand floods back in 2011.
We expect 4W volumes to grow at 10% CAGR over 2013E-15E. Starting this year, we
expect the LCGC to create a new market segment in Indonesia’s 4W market, which will
drive 4W volume growth, and would automatically result in potential demand growth for
4W tyres in domestic market, including both OEM and replacement tyre markets.
A higher OEM tyre contribution to the total 4W tyre market has also resulted in a higher
replacement market. Although the growth in 4W replacement tyres was only 7% YoY in
2012, the contribution to total market increased to 24% (from 22% in 2011). We believe
that the replacement market would grow by 12% CAGR over 2013E-15E, driven by OEM
market that is estimated to grow at 10% CAGR which will result in higher contribution for
both replacement and OEM to total 4W tyre market. Thus, the total domestic 4W tyre
market is estimated to grow at 11% CAGR. Combined with the expectation of a relatively
flat growth in export tyre market over the next two years, we estimate the total 4W tyre
industry (including export) will grow at 5% CAGR.
10 June 2013
Gajah Tunggal
(GJTL.JK / GJTL IJ) 7
Figure 12: 4W tyre export market still plays a major role… mn units
Figure 13: … while higher contribution in OEM resulted in
better penetration in the replacement market
-
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
2007 2008 2009 2010 2011 2012 2013E 2014E 2015E
Replacement OEM Export
19% 21% 22% 21% 22% 24% 26% 27% 29%
6%8% 7% 8% 8%
11% 13% 14% 14%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2007 2008 2009 2010 2011 2012 2013E 2014E 2015E
Replacement OEM Export
Source: Indonesia Tyre Association, Company data, Credit Suisse
estimates
Source: Indonesia Tyre Association, Company data, Credit Suisse
estimates
Highly penetrated two-wheeler market…
Indonesia’s two-wheeler (2W) penetration per household recently surpassed 80% and our
analysis indicates the risk for higher volatility in the country’s 2W sales volume growth
ahead. Our analysis finds that being above 80% 2W penetration per household, Thailand’s
2W sales volume growth exhibits higher sensitivity to real GDP growth and policy rates. In
countries having below 80% penetration per household, 2W sales generally service first-
time buyers, implying 2W is perceived as a necessity product. In the case of above 80%
penetration per household, however, much of the 2W sales will be servicing replacement
and/or second 2W and thus, exhibits higher sensitivity to macroeconomic variables since it
is perceived more as discretionary rather than a necessity product.
Figure 14: 2W industry to grow at 10% CAGR 2013E-15E Figure 15: Indonesia’s motorcycle per household (%)
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,000
9,000,000
10,000,000
2007 2008 2009 2010 2011 2012 2013E 2014E 2015E
Uni
ts
-
10
20
30
40
50
60
70
80
90
100
1989 1992 1995 1998 2001 2004 2007 2010
2W p
er h
ou
seh
old
(%)
Source: AISI, Credit Suisse estimates Source: CEIC, Credit Suisse estimates
…resulted in high replacement in 2W tyre industry
We believe this supports the argument of high replacement market in 2W tyre industry in
Indonesia, in which the replacement market for 2W tyre has grown at 14% CAGR over
2005-12 and we expect it would continue to grow at around 11% CAGR for next two years.
10 June 2013
Gajah Tunggal
(GJTL.JK / GJTL IJ) 8
Last year, the 2W replacement tyre market grew at an estimated 21% YoY, while the 2W
OEM tyre market softened, which was mostly as a result of the softening of 2W industry in
Indonesia. The soft 2W industry last year was led by: (1) softening commodity prices,
which we believe has impacted the purchasing power of 2W customers. As Indonesia’s
2W penetration has reached above 80%, we believe that most of the 2W customers are
secondary and/ or replacement buyers, in which fluctuation in commodity prices becomes
more sensitive to them; and (2) the introduction of minimum down payment regulation for
conventional loan for cars and motorcycles to 25–30%, and 20–25%, respectively. This
has resulted in softened 2W new sales volume as the customers preferred to postpone
their 2W purchases in order to save their money to meet the required down payment.
We believe this year 2W industry would grow at around 10% YoY on the back of low base
from last year. In addition, we expect this year’s commodity price to normalise, thus 2W
purchasing power should recover, which would also support the growth of 2W tyre
industry. We expect the 2W OEM tyre to grow at 10% CAGR over 2013E–15E. We
believe the introduction of minimum down payment regulation for Sharia auto loans would
not have a significant impact to automotive industry, particularly the 2W market, given
Sharia loans as percentage to total loans in Indonesia only accounts for less than 5%.
Unlike the 4W tyre market, export in 2W tyre industry is relatively small in terms of
contribution to total 2W tyre volume. More than 90% of the 2W tyre in Indonesia is
servicing the domestic market, given the high 2W penetration.
Figure 16: Growing replacement market in 2W tyre… mn units
Figure 17: … which contributes 67% of total domestic 2W
tyre market
-
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
2007 2008 2009 2010 2011 2012 2013E 2014E 2015E
Replacement OEM
59% 55% 57% 61% 60%67% 67% 67% 68%
41% 45% 43% 39% 40%33% 33% 33% 32%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2007 2008 2009 2010 2011 2012 2013E 2014E 2015E
Replacement OEM
Source: Indonesia Tyre Association, Company data, Credit Suisse
estimates
Source: Indonesia Tyre Association, Company data, Credit Suisse
estimates
10 June 2013
Gajah Tunggal
(GJTL.JK / GJTL IJ) 9
The largest integrated SEA tyre manufacturer Established in 1951, Gajah Tunggal (GT) is the largest integrated South East Asian tyre
manufacturer with own production of synthetic rubber and tyre cords. The company’s
revenue comes mainly from sales of radial, bias and motorcycle tyres with contributions of
35%, 36% and 24% to total sales, respectively. Rest of the revenue comes from sales of
synthetic rubber and tyre cords, which are mostly sold internally.
Figure 18: Tyres is the key business with 95%
contribution
Figure 19: Replacement tyres to be the major contributor
Radial tires35%
Bias tires36%
Motorcycle tires24%
Synthetic rubber
4%
Tire cord1%
Replacement53%
OEM14%
Export33%
--- GT’s tyre revenue. Source: Credit Suisse estimates FY13E Source: Credit Suisse estimates FY13E
In terms of total tyre revenue, replacement tyre is the majority contributor, where in more
than half of the revenue comes from Java, followed by Sumatra (29%), Kalimantan (11%)
and Eastern Indonesia (9%). Exports are expected to contribute 33% of FY13 tyre revenue
(mostly from radial and bias tyres), with the US as the main destination. In addition, in line
with the company’s strategy, we expect OEM revenue to increase gradually, which will
improve the performance of GT’s replacement tyre market.
Figure 20: Domestic replacement sales breakdown, FY12 Figure 21: Export sales breakdown, 1Q13
Source: Company data Source: Company data
We expect total GT revenue to see a 10% CAGR 2013-15 mostly driven by the growth in
the tyre business, which we expect to grow at 11% p.a. on the back of an 8% volume
CAGR. We expect revenue from its other businesses, i.e., synthetic rubber and tyre cords,
to decline as the company gradually reduces the proportion of sales to external parties.
10 June 2013
Gajah Tunggal
(GJTL.JK / GJTL IJ) 10
Figure 22: Tyre volume to see an 8% CAGR FY13-15E Figure 23: Total revenue to see a 10% CAGR FY13-15E
27 29 28
36 36 37 39
43 46
-
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
50.0
2007 2008 2009 2010 2011 2012 2013E 2014E 2015E
mn
un
its
Radial Bias MC tire
6,660
7,963 7,935
9,854
11,836 12,576
13,628
15,100 16,585
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
2007 2008 2009 2010 2011 2012 2013E 2014E 2015E
Rp
bn
Radial tires Bias tires Motorcycle tires Synthetic rubber Tire cord
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Radial tyres
GT’s radial tyres are mostly exported (79% of FY13E radial tyre revenue) to more than 90
countries, with the US being the main destination, while 17% of FY13E radial tyre revenue
should come from the replacement market, and the remaining from the OEM business.
To increase the replacement market by a better penetrating OEM business
For the radial replacement market in Indonesia, GT has a market share of 24% (est. 2012
excluding Multistrada). The market is led by Bridgestone (33% market share) of PT
Bridgestone Indonesia (Not-listed) and Dunlop (28% market share) of PT Sumi Rubber
Indonesia (Not-listed). To increase its competitiveness in the replacement market, the
company aims to improve or better penetrate into the OEM market. The Indonesian
customers tend to choose their replacement tyres based on the original tyres of the
vehicles. Thus, if a tyre company successfully manages its OEM business relation, then it
would be able to control the replacement market as well.
Figure 24: GT has a 24% market share in the radial
replacement market, FY12
Figure 25: Volume of GT replacement and OEM tyres to
see a 21% CAGR FY13-15E
Bridgestone33%
Dunlop28%
Gajah Tunggal24%
EP10%
Others5%
0.9 1.0 1.0
1.2 1.3
1.5
1.7
2.1
2.5
0.0 0.1 0.0 0.0 0.2
0.4 0.6
0.8 0.8
-
0.5
1.0
1.5
2.0
2.5
3.0
2007 2008 2009 2010 2011 2012 2013E 2014E 2015E
mn
units
Replacement OEM
Source: Company data Source: Company data, Credit Suisse estimates
10 June 2013
Gajah Tunggal
(GJTL.JK / GJTL IJ) 11
GT’s OEM passenger car tyre exposure includes Suzuki Ertiga (biggest tyre supplier) and
some of Daihatsu Xenia, besides Toyota Avanza. Suzuki Ertiga has been doing very well
since it was launched in April last year. It targets the same segment as Daihatsu Xenia
and Toyota Avanza are in. GT’s exposure to Suzuki Ertiga’s OEM business plays an
important role for the company as it will drive future growth of both OEM tyres as well as
replacement tyres. In addition, the launch of LCGC should bring in additional growth to
tyre demand as a whole and GT in particular. In the global OEM tyre market, the company
supplies tyres to Proton Malaysia and Mitsubishi Thailand.
We expect the volume of replacement radial tyre for GT to grow by 14% YoY this year to
1.7 mn units, with OEM tyres to grow by 40% YoY, which will be contributed by the growth
of domestic car sales from both non-LCGC and LCGC cars.
US import tariffs for China have expired…
In 2012 volumes of GT’s radial export tyres softened by about 13% YoY, mostly driven by
softer demand in the US and Europe markets. In addition, the three-year US import tyre
tariffs for China expired on 27 September 2012. These tariffs were enacted in 2009—35%
import tariff in the first year, 30% in the second year and 25% in the third year—to reduce
unemployment in the US tyre industry. After the tariff expired last September, imported
tyre volumes from China have doubled starting October-November 2012. As a result, we
believe the export market would become more competitive, hence expect GT’s radial
export tyre volumes to remain relatively flat over the next two years.
Off-take agreement with Michelin
GT has signed an off-take agreement with Michelin in 2004. Last year, the off-take volume
from Michelin reached 2.9 mn units, which is expected to reach around 2.8 mn units this year.
In addition, the company has a strategic relationship with GITI which allows synergies in
various marketing and technical aspects of the tyre business. In 2011 the company signed an
off-take agreement with GITI China of up to 1 mn tyres to serve the US market.
Figure 26: Export volumes to remain relatively flat Figure 27: Michelin off-take agreement
7.9
8.5
6.5
9.1
10.3
9.0 8.8 8.8 8.8
5.0
6.0
7.0
8.0
9.0
10.0
11.0
2007 2008 2009 2010 2011 2012 2013E 2014E 2015E
mn
units
Export
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2007 2008 2009 2010 2011 2012 2013E 2014E 2015E
mn
units
Michelin - off take volume
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Competitive pricing
We expect the average blended selling price to see a 2% CAGR 2013-15E on the back of
relatively flat export selling prices due to intense competition. Based on our channel checks,
GT Radial’s domestic selling prices are considered to be competitive versus other tyre
players’ prices. For example, for a tyre size of 165/55/16, Bridgestone’s tyres are about 46%
expensive, while Good Year’s are at a 22% premium. The company is planning to improve
its relationships with OEM players to better penetrate into the replacement market.
10 June 2013
Gajah Tunggal
(GJTL.JK / GJTL IJ) 12
We estimate radial tyre revenue from the replacement market to see a 28% CAGR over
the next two years with OEM revenue to grow by 29% YoY. Thus, total domestic radial
tyres revenue should grow at 28% YoY FY13-15E. However, we expect revenue from the
export radial market to increase by only 1% YoY given potential higher competition.
Figure 28: Competitive retail price for passenger car tyre Figure 29: GT Radial Champiro Eco
-
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
Bridgestone Gajah Tunggal Good Year Continental
Sel
ling
pric
e pe
r un
it (R
p)
46% premium
22% premium
68% premium
*Original retail price prior to discount. Source: kiosban.com, Credit
Suisse
Source: Company data
Figure 30: Replacement and OEM revenue to post a
strong 28-29% CAGR
Figure 31: Radial export revenue to remain flat
265
350 352
446
538
647
785
1,026
1,286
-
200
400
600
800
1,000
1,200
1,400
2007 2008 2009 2010 2011 2012 2013E 2014E 2015E
Rp
bn
Replacement OEM
2,054
2,531
2,208
2,775
3,972 3,807 3,727 3,793 3,793
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2007 2008 2009 2010 2011 2012 2013E 2014E 2015E
Rp
bn
Export
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Bias tyres
Most of GT’s bias tyres serve the domestic replacement market, where the company
continues to be the dominant player. Given the advancement of radial tyres over the
period, bias tyres are now used less frequently. In the developed countries, radial tyres are
preferred for commercial vehicles as the road infrastructure is well developed. However, in
developing countries such as Indonesia, the use of bias tyres is still relatively high as they
normally contain more natural rubber versus synthetic rubber enabling the tyres to become
more flexible, and thus better manoeuvring of bad roads or poor infrastructure.
10 June 2013
Gajah Tunggal
(GJTL.JK / GJTL IJ) 13
Figure 32: Dominates the bias tyre replacement market Figure 33: Volumes to see a 5% CAGR 2013-15E
Gajah Tunggal49%
Bridgestone17%
Swallow21%
Dunlop7%
Others6%
2.2 2.3
2.2
2.5 2.6
3.0 3.2
3.3 3.5
1.1 0.9 0.9
1.1
0.8 0.7 0.7 0.8 0.8
-
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2007 2008 2009 2010 2011 2012 2013E 2014E 2015E
mn
units
Replacement OEM Export
Source: Company data Source: Company data, Credit Suisse estimates
As infrastructure continues to be developed in Indonesia, the company plans to reduce the
proportion of bias tyre volumes gradually in the longer term. We expect total volumes of
bias tyres to see a 5% CAGR over the next two years. According to GT, it is able to
maintain high margins for bias tyres which we believe is due to its dominance in the
replacement market. Thus, the contribution of revenue from this segment is estimated to
remain 38% of total FY13 revenue.
Figure 34: Bias tyre volume contribution to gradually
decline…
Figure 35: …but the contribution to total revenue remains
high backed by higher margins
33% 33%27% 29% 33% 30% 28% 27% 26%
13% 13%12% 12%
11%12% 12% 11% 11%
53% 55%61% 59% 56% 58% 60% 62% 63%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2007 2008 2009 2010 2011 2012 2013E 2014E 2015E
Radial Bias MC tire
41% 41%35% 36%
43% 39% 37% 36% 34%
38% 36%39% 38%
35% 37% 38% 38% 38%
21% 22% 26% 26% 23% 23% 25% 27% 28%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2007 2008 2009 2010 2011 2012 2013E 2014E 2015E
Radial tires Bias tires Motorcycle tires
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
We expect the average selling price to grow at 6% YoY over FY13-15E on the back of
relatively flat rubber prices ahead and estimated average inflation of around 6%. Thus,
total bias tyre revenue should increase by 11% YoY over the next two years, with
replacement tyres continuing to be the major revenue contributor.
10 June 2013
Gajah Tunggal
(GJTL.JK / GJTL IJ) 14
Figure 36: Total bias tyre revenue to see a 11% CAGR Figure 37: GT Super Grip
1,495
1,821 2,043
2,370 2,591
3,149
3,524
3,921
4,373
87 278 252
515 666 743 832 926 1,032
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
2007 2008 2009 2010 2011 2012 2013E 2014E 2015E
Rp
bn
Replacement OEM Export
Source: Company data, Credit Suisse estimates Source: Company data
Motorcycle tyres
Leader in the replacement market
GT’s IRC brand is very popular among the 2W tyre customers. GT dominates the 2W tyre
replacement market with a 50% market share as of last year. It has a licence to
manufacture and sell ‘IRC’ motorcycle brand tyres in Indonesia since 1973. GT has been
one of the biggest suppliers for 2W tyre OEMs such as Yamaha, Suzuki, Kawasaki and
TVS. The company has also supplied around 10% of Honda’s total 2W tyres. However,
majority of Honda’s 2W tyres are supplied by PT Suryaraya Rubberindo Industries, a
subsidiary of Astra Honda Motor, under the brand name ‘Federal’, which has around 28%
market share.
Given high 2W penetration in Indonesia, we expect the replacement tyre market, the main
focus of 2W tyres, to continue to grow. We expect total motorcycle tyre volumes to grow at
11% YoY over the next two years.
Figure 38: Leading the motorcycle tyre market Figure 39: Continue to see a 11% CAGR over 2013-15E
Gajah Tunggal50%
Federal28%
Swallow9%
Dunlop7%
Others6%
9.5 9.5 10.5
13.2 12.6
15.2
16.9
18.7
20.8
4.8
6.4 6.4 7.8 7.6
6.2 6.9
7.6 8.3
-
5.0
10.0
15.0
20.0
25.0
2007 2008 2009 2010 2011 2012 2013E 2014E 2015E
mn
units
Replacement OEM Export
Source: Company data Source: Company data, Credit Suisse estimates
10 June 2013
Gajah Tunggal
(GJTL.JK / GJTL IJ) 15
Launched new brand ‘Zeneos’
The company launched its new 2W tyre brand ‘Zeneos’ in June 2012, targeting medium
and low-end customers, at about 10% lower prices compared to ‘IRC’. The company
expects to enter the export market in 1Q14, at the earliest.
Still the preferred brand
Based on our channel checks, IRC is still customers’ most preferred option for 2W
replacement tyres. The selling price of IRC is also relatively low versus its closest rival,
FDR (Federal), whose price is at about 8% premium to IRC. While brands like Swallow are
relatively cheap versus IRC and FDR, they don’t have much brand value. Branding is
crucial for any consumer product, including tyres. As IRC offers both a strong brand value
and competitive pricing, it continues to be popular.
Figure 40: IRC offers competitive pricing Figure 41: 2W tyre revenue to grow at 18% YoY
-
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
Gajah Tunggal (IRC) FDR Swallow
Sel
ling
pric
e pe
r un
it (R
p)
8% premium
3% discount
953 1,137
1,350
1,702 1,721
2,057
2,425
2,857
3,363
269 421
525 629
738 686 808
944 1,103
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2007 2008 2009 2010 2011 2012 2013E 2014E 2015E
Rp
bn
Replacement OEM Export
*Non-tubeless back tyre. Source: Credit Suisse Source: Company data, Credit Suisse estimates
We expect the average selling price to see a 6% CAGR over 2013-15E on the back of
relatively flat rubber prices going forward and estimated average inflation of around 6%.
Thus, total motorcycle tyre revenue should increase 18% YoY over the next two years,
with replacement tyres continuing to be the major revenue contributor.
Margins to benefit from relatively stable costs
Relatively stable costs ahead…
More than 70% of total cost of a tyre company is raw materials, out of which 36% is
natural rubber and 27% is synthetic rubber. GT sources natural rubber mostly from a
domestic trader under a supply contract that is set on an annual basis based on volumes,
while the average price of the tyre is based on the average price of raw materials on the
previous month. We estimate that rubber prices will be relatively stable going forward,
benefiting the company’s natural rubber costs.
10 June 2013
Gajah Tunggal
(GJTL.JK / GJTL IJ) 16
Figure 42: More than 70% of total cost is raw materials… Figure 43: …with more than half related to rubber
Raw materials77%
Labour8%
Energy7%
Depreciation4%
Others4%
Natural rubber36%
Synthetic rubber27%
Tire cord12%
Carbon black10%
Others15%
Source: Credit Suisse estimates FY13E Source: Credit Suisse estimates FY13E
As the largest South East Asia tyre manufacturer, GT produces the synthetic rubber in-
house, accounting for around 27% of FY13E costs. The raw material for synthetic rubber
is butadiene, which is mostly imported from Korea. We expect the price of butadiene to be
relatively flat.
Based on our report, Auto Parts Sector: Bridgestone & Sumitomo Rubber Industries have
firm grip on profits (refer Appendix 2), according to the International Rubber Study Group
(IRSG), global inventories of natural and synthetic rubber are on the rise. In other words,
given lingering uncertainties on the demand side, the current supply-demand balance
makes a sudden sharp rise in materials prices unlikely. In particular, we believe the current
increase in production of natural rubber by such major producing countries as Thailand will
contribute to more stable natural rubber prices.
Figure 44: Global natural rubber production and
consumption ’000 tonnes
Figure 45: Global synthetic rubber production and
consumption ’000 tonnes
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
0
500
1,000
1,500
2,000
2,500
3,000
3,500
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q
2010 2011 2012
NR Production (LHS) NR Consumption (LHS) NR Stock (RHS)
3,500
3,600
3,700
3,800
3,900
4,000
4,100
4,200
4,300
3,100
3,200
3,300
3,400
3,500
3,600
3,700
3,800
3,900
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q
2010 2011 2012
SR Production (LHS) SR Consumption (LHS) SR Stock (RHS)
Source: IRSG (International Rubber Study Group) Source: IRSG (International Rubber Study Group)
10 June 2013
Gajah Tunggal
(GJTL.JK / GJTL IJ) 17
Figure 46: Historical natural rubber prices Figure 47: High correlation between butadiene and oil
prices
100
150
200
250
300
350
400
450
500
2005 2006 2007 2008 2009 2010 2011 2012
Rub
ber p
rice
(US
cen
ts/ k
g)
0
20
40
60
80
100
120
140
160
0
500
1000
1500
2000
2500
3000
3500
4000
4500
Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13
Butadiene (US$/t, LHS) Brent oil price (US$/barrel)
Source: Malaysian Rubber Board Source: Bloomberg
In addition to synthetic rubber, GT has in-house production of tyre cords, which is based
on polyester or nylon. The cord filament is sourced from Filamendo Sakti (Not-listed), a
subsidiary of Polychem Indonesia (25.6% owned by GT). Carbon black is added to rubber
as both filter and as a strengthening or reinforcing agent. It is an oil-based product sourced
from a US firm located in Indonesia called Cabot.
Margins to benefit
The relatively stable raw material costs, which account for more than 70% of GT’s total
costs, should benefit the company’s overall margins, which are expected to improve
gradually with a higher contribution from the replacement market due to GT’s growing tyre
OEM business.
We estimate GT’s earnings this year will grow by 25% YoY. We continue to believe that
the company’s earnings will continue to see positive strong growth—a 15% CAGR over
the next two years—given relatively stable costs.
Figure 48: Gross profit to see a 13% CAGR… Figure 49: …with a gradual improvement in margins
1,175 1,135
1,822
1,939
1,669
2,437 2,737
3,126 3,508
17.6%
14.3%
23.0%
19.7%
14.1%
19.4% 20.1%20.7% 21.2%
0%
5%
10%
15%
20%
25%
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2007 2008 2009 2010 2011 2012 2013E 2014E 2015E
Gross profit (Rp bn, LHS) Gross margin
665 581
1,145 1,287
1,010
1,677 1,838
2,201
2,493
10.0%
7.3%
14.4%
13.1%
8.5%
13.3% 13.5%
14.6%15.0%
0%
2%
4%
6%
8%
10%
12%
14%
16%
-
500
1,000
1,500
2,000
2,500
3,000
2007 2008 2009 2010 2011 2012 2013E 2014E 2015E
Operating profit (Rp bn, LHS) Operating margin
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
10 June 2013
Gajah Tunggal
(GJTL.JK / GJTL IJ) 18
Sensitivity of rubber prices to earnings
We have done a sensitivity analysis of rubber prices to the company’s total earnings.
Assuming other variables remain constant, if rubber prices move up by 1%, total earnings
will decline by 2%. Conversely, if rubber prices go down by 1%, the company will enjoy
lower costs, and thus earnings will go up by 2%.
On an expansion mode
GT’s radial tyre production facility is running at 45,000 units/day, with an approximately
64% utilisation rate. The company plans to increase its capacity to 55,000 units/day by
2014 through debottlenecking. GT’s bias tyre production facility is about 14,300 units/day,
with 90% utilisation. It targets to increase the production to 14,500 units/day by this year
through debottlenecking. Motorcycle tyre capacity is 90,000 units/day (79% utilisation),
which is planned to be expanded to 105,000 units/day by 2014E. The company is also
planning to build a new facility for TBR (truck & bus radial) tyres, which would be a new
revenue contributor. Its current capacity is still minimal at 350 units/day, and expected to
reach 2,200 units/day by 2016.
In addition, the company is building a new R&D centre in Tangerang, West Java, which
will be used to develop new tyre products. GT is also building its own tyre proving ground
at the recently acquired Karawang land (approximately 60 ha).
The company’s capex for this year is estimated to reach US$170 mn, out of which US$50
mn will be used for TBR facility, US$40 mn for debottlenecking, US$30 mn for R&D and
the remaining for maintenance.
We estimate the company’s total debt will reach Rp4.2 tn in 2013. In February 2013 GT
issued US$500 mn bond with a five-year tenor, expiring in 2018, with a 7.75% coupon.
The proceeds are used to refinance its matured bond, while the remaining will be used for
expansion.
Figure 50: GT—Capital expenditure Figure 51: GT—Net debt
382
669
346
840 913
1,973
1,720
1,553 1,553
-
500
1,000
1,500
2,000
2,500
2007 2008 2009 2010 2011 2012 2013E 2014E 2015E
Cap
ital e
xpen
ditu
re (R
p bn
)
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
2007 2008 2009 2010 2011 2012 2013E 2014E 2015E
Net
deb
t (R
p bn
)
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
10 June 2013
Gajah Tunggal
(GJTL.JK / GJTL IJ) 19
Initiating with OUTPERFORM and a target price of Rp4,300 We initiate coverage on Gajah Tunggal (GT) with an OUTPERFORM rating and a target
price of Rp4,300. We use DCF and P/E to value the company. Our DCF indicates a target
price of Rp4,900, implying 12.1x FY13E P/E. Given regional peers are trading at an implied
P/E range of 7–15x, we use 10.5x FY13E P/E to arrive at our target price of Rp4,300. Over
the past three months, the stock has traded at an average of US$2.9 mn per day.
Figure 52: Peers’ valuation comparisons
Ticker Company name Mkt cap Rating Curr. Target Upside P/E (x) EV/EBITDA (x) Implied P/E (x) EPS
US$ mn price price 13E 14E 13E 14E 13E 14E CAGR
13E-15E
2105.TW Cheng Shin Rubber 8,451 O 89 105 18% 12.8 10.9 9.2 7.9 15.1 12.9 14%
5108.T Bridgestone 25,797 O 3,210 4,000 25% 9.2 8.7 6.3 5.8 11.5 10.8 7%
5110.T Sumitomo Rubber
Industries
4,102 O 1,523 2,000 31% 8.0 7.5 5.3 5.0 10.5 9.9 6%
APLO.BO Apollo Tyres 827 U 93 89 -5% 7.0 6.1 4.8 4.3 6.8 5.9 14%
MICP.PA Michelin 16,259 N 67 60 -11% 7.8 7.8 5.2 5.1 7.0 7.0 6%
Weighted average 9.2 8.6 6.3 5.8 10.6 9.8 6%
GJTL.JK Gajah Tunggal 1,157 O 3,250 4,300 32% 8.0 7.0 6.4 5.3 10.5 9.3 15%
Source: Credit Suisse estimates
We derive our DCF valuation by assuming 11.4% WACC (a 7.5% risk-free rate, 1.2 beta,
and 5% risk premium) with 5.8% terminal growth. The Rp4,900/share equates to 12.1x
FY13E P/E.
Figure 53: DCF valuation
Rp bn 2013E
Risk-free rate 7.5%
Beta 1.2
Risk premium 5%
Ke 14%
Kd 11%
Tax 22%
Debt/Capital 0.4
Equty/Capital 0.6
WACC 11.4%
Terminal value multiple 19
Growth 5.8%
Net Present Value (Rp bn) 20,453
Add: Cash (Rp bn) 881
Minus: Debt (Rp bn) (4,231)
Shareholder value (Rp bn) 17,104
Shareholder value (Rp/share) 4,909
Implied FY13E P/E 12.1x
Source: Credit Suisse estimates
Undemanding valuation
GT’s current valuation is undemanding, trading at 8.0x FY13E P/E, a 13% discount to
regional tyre peers and 33% discount to Indonesia auto. The stock is also a play on
domestic consumption, benefitting from rising middle-high income population, where it is
trading at a steep discount of around 76% to Indonesian consumer stocks. GT’s 15%
earnings growth for FY13–15E is amongst the highest versus its peers, with margin
gradually improving along with relatively stable raw material costs.
10 June 2013
Gajah Tunggal
(GJTL.JK / GJTL IJ) 20
Figure 54: Undemanding valuation
8.0 9.2
12.0
33.1
-
5.0
10.0
15.0
20.0
25.0
30.0
35.0
Gajah Tunggal Regional tire peers* Indo auto* Indo consumer*
FY13
E P/
E (x
)
Source: Credit Suisse estimates
Figure 55: GJTL—Fwd P/E band Figure 56:Currently trades at 7.5x fwd P/E vs. historical
peak of 13.1x
0
500
1000
1500
2000
2500
3000
3500
4000
4500
Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13
Price 4 X 6 X 8 X 10 X
13.1
7.5
6.1
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13
Fw
d P
/E (x
)
Source: Bloomberg, Credit Suisse estimates Source: Bloomberg, Credit Suisse estimates
10 June 2013
Gajah Tunggal
(GJTL.JK / GJTL IJ) 21
Risks Commodity prices
Natural rubber and synthetic rubber comprise more than 50% of total raw material costs.
Synthetic rubber is positively correlated with oil prices. Thus, fluctuations in prices of
natural rubber, synthetic rubber and oil would have a significant impact on the total cost of
a tyre company.
Competition
A number of tyre companies manufacture four-wheel and two-wheel tyres in Indonesia.
They include Gajah Tunggal (GT Radial, GT, IRC), Goodyear Indonesia (Good Year),
Bridgestone Tyre Indonesia (Bridgestone), Sumi Rubber Indonesia (Dunlop), Multistrada
(Achiles, Corsa), and Suryaraya Rubberindo Industries (specialises in 2W tyres – Federal,
FDR).
Gajah Tunggal is the market leader in motorcycle and bias replacement tyres with 50%
and 49% shares, respectively. It is No 3 in terms of market share (24%) in the radial
replacement market, behind Bridgestone (33%) and Dunlop (28%).
Many foreign players, such as Hankook Tyre (South Korea), recently entered the
Indonesia tyre industry. Hankook started the construction of its first factory in Cikarang in
4Q12. This year, total capacity of the Hankook factory in Indonesia is expected to reach
17,000 units/day. Total investment is estimated to reach US$1.1 bn till 2018. Most of the
production is going to be exported to North America, the Middle East, ASEAN and
Australia, while only around 20% of it would be sold in the domestic market.
Figure 57: Tyre companies in Indonesia
Company name 4W tyre 2W tyre
1 PT Goodyear Indonesia Good Year n.a
2 PT Bridgestone Indonesia Bridgestone, Turanza,
Ecopia, Potenza
n.a
3 PT Gajah Tunggal GT Radial, GT IRC
4 PT Industry karet Deli Delium Spectra Swallow Deli Tyre
5 PT Sumi Rubber Indonesia Dunlop Dunlop
6 PT Suryaraya Rubberindo Industries n.a Federal (OEM Honda), FDR
7 PT Elangperdana Tyre Industry EP n.a
8 PT Banteng Pratama Rubber Co. n.a Mizzle
9 PT Hung-A Indonesia n.a Thunderbird
10 PT United King-Land n.a King-Land
11 PT Surabaya Kencana Tyre Industri n.a Skityre
12 PT Multistrada Corsa, Achilles, Strada Corsa
Source: APBI (Indonesia tyre companies’ association), Company data, Credit Suisse
Regulations
The three-year US import tyre tariffs for China expired on 27 September 2012. These
tariffs were enacted in 2009—35% import tariff in the first year, 30% in the second year
and 25% in the third year—to reduce unemployment in the US tyre industry. After the tariff
expired last September, imported tyre volumes from China have doubled starting October-
November 2012. As a result, we believe the export market would become more
competitive.
Macroeconomic risks
The other risks that the company may face would be macroeconomic risks such as
changes in inflation and exchange rate.
10 June 2013
Gajah Tunggal
(GJTL.JK / GJTL IJ) 22
Appendix 1: Financial summary Figure 58: GT—Profit & loss
(As at 31 Dec 2012) CAGR
Rp bn 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E 13E-15E
Volume (mn units)
Radial 8.8 9.6 7.5 10.3 11.8 10.9 11.0 11.7 12.1 5%
Replacement 0.90 1.00 1.00 1.20 1.30 1.50 1.71 2.11 2.49 21%
OEM 0.04 0.06 0.04 0.04 0.16 0.41 0.57 0.81 0.85 21%
Export 7.90 8.50 6.50 9.10 10.30 9.00 8.75 8.75 8.75 0%
Bias 3.6 3.7 3.4 4.2 3.9 4.3 4.5 4.7 5.0 5%
Replacement 2.20 2.30 2.20 2.50 2.60 3.00 3.16 3.31 3.48 5%
OEM 0.30 0.50 0.30 0.60 0.50 0.60 0.63 0.66 0.70 5%
Export 1.10 0.90 0.90 1.10 0.80 0.70 0.74 0.77 0.81 5%
MC tyre 14.3 15.9 16.9 21.0 20.2 21.4 23.8 26.3 29.2 11%
Replacement 9.50 9.50 10.50 13.20 12.60 15.20 16.88 18.72 20.75 11%
OEM 4.80 6.40 6.40 7.80 7.60 6.20 6.88 7.57 8.33 10%
Export - - - - - - - 0.05 0.10
Total tyres 26.7 29.2 27.8 35.5 35.9 36.6 39.3 42.8 46.3 8%
Net sales 6,660 7,963 7,936 9,854 11,841 12,579 13,628 15,100 16,585 10%
Tyre 5,713 6,979 7,244 8,996 10,721 11,702 12,808 14,314 15,867 11%
Radial tyres 2,324 2,892 2,571 3,230 4,560 4,587 4,709 5,114 5,408 7%
Bias tyres 2,167 2,529 2,798 3,435 3,702 4,373 4,866 5,391 5,977 11%
Motorcycle tyres 1,222 1,558 1,875 2,331 2,459 2,742 3,233 3,809 4,482 18%
Synthetic rubber 503 361 225 318 642 577 613 644 627 1%
Tyre cord 444 623 466 540 473 297 206 142 90 -34%
COGS 5,485 6,828 6,115 7,915 10,172 10,142 10,891 11,975 13,076 10%
Gross profit 1,175 1,135 1,822 1,939 1,669 2,437 2,737 3,126 3,508 13%
Selling expenses 304 308 473 435 408 479 573 590 648 6%
G&A expenses 207 245 204 216 252 280 327 335 368 6%
Operating profit 665 581 1,145 1,287 1,010 1,677 1,838 2,201 2,493 16%
Other income (charges) (524) (1,356) 129 (167) (153) (220) (74) (185) (147) 41%
Pre-tax profit 140 (774) 1,274 1,120 857 1,457 1,763 2,016 2,345 15%
Income tax (49) 149 (368) (290) (172) (325) (353) (403) (469) 15%
Minority interest - - - - - - - - -
Net profit 91 (625) 905 831 685 1,132 1,411 1,613 1,876 15%
Margins:
Gross margin 17.6% 14.3% 23.0% 19.7% 14.1% 19.4% 20.1% 20.7% 21.2%
Operating margin 10.0% 7.3% 14.4% 13.1% 8.5% 13.3% 13.5% 14.6% 15.0%
Net margin 1.4% -7.8% 11.4% 8.4% 5.8% 9.0% 10.4% 10.7% 11.3%
%YoY
Net sales 22% 20% 0% 24% 20% 6% 8% 11% 10%
Tyre 24% 22% 4% 24% 19% 9% 9% 12% 11%
Radial tyres 29% 24% -11% 26% 41% 1% 3% 9% 6%
Bias tyres 17% 17% 11% 23% 8% 18% 11% 11% 11%
Motorcycle tyres 27% 27% 20% 24% 5% 12% 18% 18% 18%
Synthetic rubber 45% -28% -38% 41% 102% -10% 6% 5% -3%
Tyre cord -11% 40% -25% 16% -12% -37% -30% -31% -36%
Gross profit 61% -3% 60% 6% -14% 46% 12% 14% 12%
Operating profit 82% -13% 97% 12% -22% 66% 10% 20% 13%
Pre-tax profit -40% -652% -265% -12% -24% 70% 21% 14% 16%
Net profit -23% -788% -245% -8% -18% 65% 25% 14% 16%
Source: Company data, Credit Suisse estimates
10 June 2013
Gajah Tunggal
(GJTL.JK / GJTL IJ) 23
Figure 59: GT—Balance sheet
(As at 31 Dec 2012) Rp bn 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E
Current assets
Cash and cash equivalents 573 170 815 843 587 905 881 1,201 1,452
Accounts receivable 821 670 728 1,549 1,861 2,227 2,155 2,388 2,623
Inventory 936 1,399 862 1,089 1,660 1,479 1,492 1,640 1,791
Others 1,029 818 970 1,007 965 584 530 587 995
Total current assets 3,359 3,057 3,375 4,489 5,073 5,194 5,058 5,816 6,861
Non-current assets
Non-trade receivable 760 736 850 710 718 648 703 778 855
Investment in associates 396 296 315 361 713 793 819 848 880
Fixed assets 3,270 3,619 3,609 4,076 4,588 6,122 7,383 8,426 9,420
Other non-current assets 669 1,005 728 735 516 112 122 135 148
Total non-current assets 5,095 5,656 5,502 5,882 6,536 7,676 9,026 10,188 11,303
Total assets 8,455 8,714 8,877 10,372 11,610 12,870 14,084 16,004 18,164
Current liabilities
Bank loans - 34 - - 13 - - - -
Accounts payable 607 1,345 811 1,194 1,395 1,210 1,332 1,466 1,602
Sales advances 117 346 261 244 188 178 187 196 206
Dealer's guarantee - - 483 884 885 952 954 1,057 1,161
Current maturities
Bonds payable 524 12 - 98 97 202 215 216 216
Other current liabilities 312 334 263 227 322 478 401 444 488
Total current liabilities 1,560 2,071 1,818 2,647 2,900 3,020 3,090 3,380 3,674
Non-current liabilities
Long-term debt – net of current
Bonds payable 3,939 4,581 4,044 3,779 3,722 3,769 4,015 4,035 4,035
Post-employment benefits
obligations
271 312 345 419 501 603 545 604 663
Others 299 100 - - - - - - -
Total non-current liabilities 4,509 4,993 4,389 4,198 4,223 4,371 4,560 4,639 4,698
Total liabilities 6,069 7,064 6,206 6,845 7,123 7,391 7,650 8,019 8,372
Shareholders' equity
Capital stock 1,742 1,742 1,742 1,742 1,742 1,742 1,742 1,742 1,742
Additional paid-in capital 52 52 52 52 52 52 52 52 52
Diff arising from restructuring trx (495) (495) (495) (495) (495) (554) (554) (554) (554)
Retained earnings 654 12 1,330 2,108 2,673 3,770 5,123 6,664 8,459
Others 433 338 42 119 514 468 71 81 94
Total equity 2,386 1,649 2,671 3,527 4,486 5,478 6,434 7,985 9,793
Total liabilities & equity 8,455 8,714 8,877 10,372 11,610 12,870 14,084 16,004 18,164
Source: Company data, Credit Suisse estimates
10 June 2013
Gajah Tunggal
(GJTL.JK / GJTL IJ) 24
Figure 60: GT—Cash flows
(As at 31 Dec 2012) Rp bn 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E
Net cash provided by
operating activities
450 571 1,137 1,011 304 1,707 1,985 1,896 1,858
Acquisition of fixed
assets (capex)
(382) (669) (346) (840) (913) (1,973) (1,720) (1,553) (1,553)
Others (577) 175 (48) (41) 407 624 (35) (42) (45)
Net cash used in
investing activities
(959) (494) (394) (882) (506) (1,349) (1,755) (1,595) (1,598)
Free cash flows 68 (98) 792 171 (609) (266) 265 344 306
Net cash used in
financing activities
840 (513) (50) (59) (32) (48) (253) 18 (9)
Net increase in cash and
cash equivalents
330 (437) 693 70 (234) 310 (23) 320 251
Cash and cash equivalents
at beginning of year
240 573 170 815 843 587 905 881 1,201
Net effects of changes in
exchange rate
2 34 (47) (42) (22) 7 - - -
Cash and cash equivalents
at end of year
573 170 815 843 587 905 881 1,201 1,452
Source: Company data, Credit Suisse estimates
10 June 2013
Gajah Tunggal
(GJTL.JK / GJTL IJ) 25
Appendix 2: Global industry outlook An excerpt from our report titled: Auto Parts Sector: Bridgestone & Sumitomo Rubber
Industries have firm grip on profits: initiate coverage of both at OUTPERFORM by
Masahiro Akita (24 October 2012).
Global tyre demand continues to expand
Tyre sector is a defensive growth sector
The tyre sector represents a large market with a large commercial aftermarket business. In
that sense, tyre companies are defensive stocks. At the same time, the continuing
expansion of the global tyre market makes the sector a growth sector. From 1995 to 2011,
the global tyre market witnessed a CAGR of 7.4%. That growth has become even more
pronounced since 2004 amid the motorisation of newly emerging countries. The trend has
not only pushed up annual demand for tyres used in new vehicles but has also contributed
to the progressive growth of the key determinant of aftermarket demand, the total number
of vehicles in operation throughout the world.
Figure 61: Global tyre market has expanded significantly Figure 62: Increase of vehicles in operation contributing
to expansion of global tyre demand
0
20
40
60
80
100
120
140
160
180
200
Global Tire Market Demand
Billion Yen
CAGR 7.4%
0
200
400
600
800
1000
1200
Vehicles in Operation
Million Vehicles
Source: Tyre Business, Credit Suisse Source: Wards, Credit Suisse estimates
Global tyre demand has softened, with demand in Europe and Asia particularly being
weak. Although the tyre sector is a relatively defensive sector, especially within the auto
parts sector, it is not immune to macroeconomic weakness and economic cycles. Indeed,
global tyre demand softened recently, reflecting the impact of weak demand in Europe and
Asia in particular. In 1H 2012, global demand for tyres used in new passenger cars and
light trucks increased 10% YoY, with key contributions from the North American and Asian
markets. However, aftermarket demand in Europe and Asia was weak across all vehicle
types. As a result, global aftermarket sales of replacement tyres used in passenger cars
and light trucks fell 5% YoY, while sales of replacement tyres for trucks and buses
declined 7%.
Global tyre demand should grow steadily over the medium term
Although currently weak, global tyre demand should rebound next year and grow steadily
over the medium term. We expect the global tyre market to witness a CAGR of a bit more
than 3% during 2011-14 (unit sales base). By region, we expect the Japanese and
European markets to be stable or perhaps shrink somewhat, while we foresee a 2-3%
CAGR in the North American market and a more than 8% CAGR in Asia including China.
10 June 2013
Gajah Tunggal
(GJTL.JK / GJTL IJ) 26
Figure 63: Stable growth expected both for OE and
replacement tyre demand
Figure 64: Asia and North America expected to lead
global tyre demand
-10%
-5%
0%
5%
10%
15%
FY09/12 FY10/12 FY11/12 FY12/12E FY13/12E FY14/12E
Global Replacement OE
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
2009 2010 2011 2012E 2013E 2014E
Japan US EU Asia / Others
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Material prices likely to linger at high levels but
further sharp increases unlikely
Tyre makers have in no small measure been affected by the sharp and sustained climb
since 2002 of prices of their key raw materials, including natural rubber used in tyres
(RSS#3 and TSR20) and butadiene and crude oil used to produce synthetic rubber. While
prices of these materials have plateaued, we expect them to remain at current lofty levels
over the medium term. On a slightly more positive note, we also believe they are unlikely
to rise much from these levels.
According to the International Rubber Study Group (IRSG), global inventories of natural
and synthetic rubber are on the rise. In other words, given lingering uncertainties on the
demand side, the current supply-demand balance makes a sudden sharp rise in materials
prices unlikely. In particular, we believe the current increase in production of natural rubber
by such major producing countries as Thailand will contribute to more stable natural
rubber prices in the future.
For example, Thai natural rubber production statistics show that from 2000 to 2010
planted area expanded at a CAGR of 3.8% but harvested area grew only 2.4% and
production rose only 2.5%. In 2011, however, planted area increased by the same 3.8%
YoY but harvested area expanded 5.4% and actual production was up 8.6% YoY.
In August 2012, Thailand, Indonesia and Malaysia agreed to reduce their exports of
natural rubber by a combined total of 300,000 tonnes beginning this October in an effort to
halt the recent fall in natural rubber prices. At the same time, the three countries agreed to
reduce output by a total of 150,000 tonnes by cutting down older trees at natural rubber
plantations. Natural rubber prices have already reacted to the agreement by the world’s
three leading producers but, while these measures are affecting prices in the near term,
we think they will have limited impact over the medium term. The export restrictions by the
three countries are to be implemented over a two-year period ending in 2014. Considering
the current annual global natural rubber output of about 11 mn tonnes, removing a total of
450,000 tonnes from supply over a two-year span should have little impact on the market.
10 June 2013
Gajah Tunggal
(GJTL.JK / GJTL IJ) 27
Figure 65: Global natural rubber production &
consumption ’000 tonnes
Figure 66: Global synthetic rubber production &
consumption ’000 tonnes
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
0
500
1,000
1,500
2,000
2,500
3,000
3,500
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q
2010 2011 2012
NR Production (LHS) NR Consumption (LHS) NR Stock (RHS)
3,500
3,600
3,700
3,800
3,900
4,000
4,100
4,200
4,300
3,100
3,200
3,300
3,400
3,500
3,600
3,700
3,800
3,900
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q
2010 2011 2012
SR Production (LHS) SR Consumption (LHS) SR Stock (RHS)
Source: IRSG (International Rubber Study Group) Source: IRSG (International Rubber Study Group)
10 June 2013
Gajah Tunggal
(GJTL.JK / GJTL IJ) 28
Appendix 3: Corporate ownership structure Figure 67: Gajah Tunggal’s ownership structure
Denham PTE Ltd Michelin (France) Public shareholders
Gajah Tunggal
Tire Business Synthetic Rubber Tire Cord
Polychem Indonesia (Chemicals - Textile)
Prima Sentra Megah (External SBR/TC)
49.7% 40.3%10.0%
25.6% 99.0%
Source: Company data
10 June 2013
Gajah Tunggal
(GJTL.JK / GJTL IJ) 29
Appendix 4: GJTL’s management Figure 68: Gajah Tunggal’s management
Name Positions
Board of Commissioners
Sean Gustav Standish Hughes President Commissioner
Mulyati Gozali Vice President Commissioner
Gautama Hartarto Commissioner
Benny Gozali Commissioner
Sang Nyoman Suwisma Independent Commissioner
Doktorandus Sunaria Tadjuddin Independent Commissioner
Board of Directors
Christopher Chan Siew Choong President Director
Budhi Santoso Tanasaleh Vice President Director
Tan Enk Ee Director
Irene Chan Director
Catharina Widjaja Director
Hendra Soerijadi Director
Kisyuwono Director
Ferry Lawrentius Hollen Director
Michel Dube Director
Lin Jong Jeng Independent Director
Source: Company data
Christopher Chan Siew Choong – President Director
Joined the company in 1991 and was appointed as President Director in 2004. Mr. Chan
graduated from Kolej Tunku Abdul Rahman, Kuala Lumpur, Malaysia in 1979. Prior to
joining Gajah Tunggal, he had held positions as internal audit manager, Head of Budget
and Financial Accounting Manager with Nestle Malaysia Berhad, Malaysia.
Budi Santoso Tanasaleh – Vice President, Director
Joined the company as an export manager in 2001 and was appointed as a Director in
2004, and currently serves as VP Director of Gajah Tunggal. Mr. Tanasaleh received his
Bachelor’s and Master’s of Science degrees in Electrical Engineering from University of
Texas Arlington in 1983 and 1989, respectively. Prior to joining the company, he worked in
Motorola, Inc, USA for eight years, and PT Motorola Indonesia for six years, last position
as country manager at the pager division. He had also spent one year as VP for marketing
at Citibank, N.A, Jakarta in 1998.
Tan Enk Ee – Director
Appointed as Director of the company in 2006. He serves as executive chairman of GITI Tyre, a position he has held since 2009. Furthermore, he is a member of several boards, including Conservation International and the MIT Asia Executive Board. Prior to joining GT, he had served as chief executive director of Gul Technologies Singapore Ltd., a SGX-ST listed company, for three years. Mr. Tan obtained Master of Business Administration from the Massachusetts Institute of Technology in 2000. Mr. Tan is one of the three beneficial owners of the company.
Irene Chan – Director
Appointed as Director of the company in 2007. Prior to this, she was director at PT Polychem Indonesia Tbk from 2004 to 2007. From 1970 to 1974, she served as auditor staff at Kenden, Mills, Muldon & Browne Public Accountants in New Zealand. From 1975 to 1976, she was an internal audit manager at Drs. Agus Hanadi Akuntan and, from 1979 to 1983, she was manager of reinsurance accounts at Central Asia Insurance. Her career at the Gajah Tunggal group began in 1983 as Finance Manager of the company.
10 June 2013
Gajah Tunggal
(GJTL.JK / GJTL IJ) 30
Catharina Widjaja – Director
Appointed as Director of the company in 2004. Ms. Widjaja was Executive Vice President, Corporate Communications of the Gajah Tunggal group from 2000 to 2004. Prior to joining the Gajah Tunggal group, Ms. Widjaja had worked for various multinational companies including The Hongkong and Shanghai Banking Corporation, Jakarta, for nine years, where she last held the position of country treasurer, and Deutsche Bank AG, Jakarta, as a foreign exchange dealer for two years.
Kisyuwono Prawirohardjo – Director
Appointed as Director of the company in 2004. He joined the company as Assistant Accounting Manager in 1992. Prior to joining the company, Mr. Kisyuwono Prawirohardjo worked as an auditor with the Government’s Internal Audit Financial and Development Supervisory Board (Badan Pengawasan Keuangan dan Pembangunan, or BPKP) from 1982 to 1992. Mr. Kisyuwono Prawirohardjo graduated with a Bachelor of Accounting from Sekolah Tinggi Akuntansi Negara.
Ferry Lawrentius Hollen – Director
Appointed as Director of the company in 2010. Prior to this, he was General Manager of Human Resources and General Affairs, beginning in 2006. He had previously held several managerial positions in the areas of finance and administration, as well as sales, marketing and operations. Mr. Hollen has a Master’s Degree in Management from the Asian Institute of Management in Manila, Philippines.
Michel Dube – Director
Appointed as Director of the company in 2012. Prior to this, he had been Executive Vice President Manufacturing since 2010. He was also Executive Quality Director for GITI China from 2007 to 2011. Dr. Dube had previously worked for the Michelin Tyre group of companies in Europe, North America and Asia from 1983 to 2007. Prior to this, he was Senior Research Group Manager at American Enka Company in Asheville, North Carolina, from 1979 to 1983. He holds a Ph.D. in Chemistry from the University of Montreal in Canada.
Lin Jong Jeng – Director
Appointed as Director of the company in 2007. He has been with the company since 1983, starting as Research and Development Manager. He subsequently became Plant Manager and Executive Vice President Manufacturing and finally the Head of Production in 2006. Before joining the company, he had worked for Tay Feng (Federal) Tyre Co. Ltd in Taiwan as research and development manager. He has a Bachelor’s Degree in Chemical Engineering from the Chung-Yuan College of Science and Technology.
10 June 2013
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(GJTL.JK / GJTL IJ) 31
Appendix 5: GJTL’s milestones Figure 69: Gajah Tunggal’s milestones
1951 Gajah Tunggal was established to produce bicycle tyres and inner tubes.
1973 Technical assistance agreement was signed with Inoue Rubber Company of Japan to produce motorcycle tyres.
1981 Company started producing bias tyres for passenger and commercial vehicles with technical assistance from Yokohama Rubber
Company of Japan.
1990 PT Gajah Tunggal Tbk was listed on the Jakarta and Surabaya Stock Exchange.
1991 PT Gajah Tunggal Tbk acquired GT Petrochem Industries, a producer of tyre cord and nylon filament.
1993 Company started producing radial tyres for passenger cars and light trucks.
1994 PT Gajah Tunggal Tbk received quality certifications such as the E-Mark from the European community and passed the
regulatory requirement of the US Department of Transportation.
1995 PT Gajah Tunggal Tbk acquired Langgeng Baja Pratama (LBP), a steel and bead wire producer.
PT Gajah Tunggal Tbk received ISO 9002 international quality certification for its radial tyre production quality control system, as
well as receiving the TUV CERT quality certification from Germany.
1996 PT Gajah Tunggal Tbk acquired Meshindo Alloy Wheel Corporation, the second largest manufacturer of aluminium alloy wheels
in Indonesia.
PT Gajah Tunggal Tbk’s main subsidiary, PT GT Petrochem Industries, expanded its operations to include synthetic rubber,
ethylene glycol, polyester filament and polyester staple fibre.
1997 PT Gajah Tunggal Tbk entered into an off-take agreement with Pirelli Tyre to produce Pirelli designed passenger car radial tyres
for North America and Europe. This agreement was mutually terminated in 2001.
PT Gajah Tunggal Tbk’s radial tyre plant obtained ISO 9001 certification for its quality design, development and installation
systems.
2001 The company entered into a manufacturing agreement with Nokian Tyres Group, a leading tyre manufacturer based in Finland,
to produce a selected range of passenger car tyres, including winter (snow) tyres, for markets outside Indonesia.
2002 The company received QS 9000 quality certification, one of the requirements to supply to US "Big Three".
PT Gajah Tunggal Tbk completed its restructuring, enabling the company to lower its debt burden by more than US$200 mn and
convert debt in to FRN.
2004 Completion of corporate restructuring in which PT GT Petrochem Industries was deconsolidated, and at the same time acquired
the TC and SBR assets.
Divestment of Steel Wire Producer Langgeng Bajapratama.
Start of off-take agreement with Michelin, in which Gajah Tunggal is to produce 5 million tyres per year for Michelin in export
markets by the year 2010. Launch of TyreZone outlets.
2005 The company issued a US$325 mn Maiden Global Bond, and used the proceeds to buy back some of its notes as well as to
finance the expansion.
Divestment of aluminium alloy wheels producer Meshindo Alloy Wheel.
The company received ISO/TS 16949 quality certification, an upgrade form the QS 9000 achieved in 2002.
Start of the production of tyres for the Michelin off-take program.
2006 PT Gajah Tunggal Tbk was awarded “Best Managed Company in Indonesia” by Euromoney Magazine
2007 Additional US$95 mn Bond re-tap, to finance the remainder of the expansion as well as capital expenditures relating to its
research and development activities.
The company also re-entered the equity market with a 10-to-1 Rights issue, totalling Rp158.4 bn (around US$17 mn) for working
capital needs.
2008 The company received the Primaniyarta award from The President of Republic Indonesia.
Michelin off-take reached 2.8 mn tyres.
2009 The company successfully completed an Exchange Offer of its outstanding bonds. Gajah Tunggal also was the proud recipient of
numerous awards, most notably the ‘Anugerah Produk Asli Indonesia’ Award 2009 from Bisnis Indonesia. The company also
achieved ISO 14001 certification for its management systems.
2010 The company's net sales surpassed US$1 bn for the first time in its corporate history. Furthermore, Gajah Tunggal receives
three prestigious awards from Museum-Rekor Dunia Indonesia (MURI) for first green/ecological tyre produced in Indonesia, first
studded/snow tyre and first multi-colour smoke tyre made in Indonesia.
Source: Company data
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Appendix 6: 4W Tyre Figure 70: Tyre in details
Source: Good Year Indonesia
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Appendix 7: HOLT® Figure 71: Gajah Tunggal Terbuka—HOLT default showing 37% upside
1
Relative Wealth ChartTires & Rubber Price: 3,250 (Jun 6, 2013)
Market Cap: 1.156 USD Warranted Price: 4,438 IDR (+37%)
Source: Credit Suisse HOLT Lens
TM
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Companies Mentioned (Price as of 07-Jun-2013)
Apollo Tyres (APLO.BO, Rs90.95) Astra International (ASII.JK, Rp6,800) Bridgestone (5108.T, ¥3,055) Cheng Shin Rubber (2105.TW, NT$90.5) Gajah Tunggal (GJTL.JK, Rp3,100, OUTPERFORM, TP Rp4,300) Michelin (MICP.PA, €68.4) Multistrada Arah (MASA.JK, Rp380) Polychem IDN (ADMG.JK, Rp250) S Giti Tire (600182.SS, Rmb12.43) Sumitomo Rubber Industries (5110.T, ¥1,463)
Disclosure Appendix
Important Global Disclosures
I, Dian Haryokusumo, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities
As of December 10, 2012 Analysts’ stock rating are defined as follows:
Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months.
Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.
Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.
*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin Ame rican and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; Australia, New Zealand are, and prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12 -month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stock’s total return relative to the average total return of the relevant country or regional benchmark.
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Global Ratings Distribution
Rating Versus universe (%) Of which banking clients (%)
Outperform/Buy* 42% (54% banking clients)
Neutral/Hold* 39% (48% banking clients)
Underperform/Sell* 15% (39% banking clients)
Restricted 3%
*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other i ndividual factors.
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Price Target: (12 months) for Gajah Tunggal (GJTL.JK)
Method: We derive our target price of Rp4,300 for Gajah Tunggal by assumming 10.5x FY13E P/E (price-to-earnings), the regional average implied P/E of tire companies under our coverage.
Risk: Risks that could impede achievement of our Rp4,300 target price for Gajah Tunggal include: Fluctuation in commodity prices such as rubber; competition from existing and new players; regulations; and macroeconomic risks.
Please refer to the firm's disclosure website at www.credit-suisse.com/researchdisclosures for the definitions of abbreviations typically used in the target price method and risk sections.
See the Companies Mentioned section for full company names
The subject company (APLO.BO) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse.
Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (5108.T, 5110.T, APLO.BO) within the next 3 months.
Credit Suisse may have interest in (GJTL.JK, ASII.JK)
As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (2105.TW).
Important Regional Disclosures
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The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (GJTL.JK, 2105.TW, APLO.BO, MICP.PA, ASII.JK) within the past 12 months
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PT Credit Suisse Securities Indonesia ....................................................................................................................................... Dian Haryokusumo
Important Credit Suisse HOLT Disclosures
With respect to the analysis in this report based on the Credit Suisse HOLT methodology, Credit Suisse certifies that (1) the views expressed in this report accurately reflect the Credit Suisse HOLT methodology and (2) no part of the Firm’s compensation was, is, or will be directly related to the specific views disclosed in this report.
The Credit Suisse HOLT methodology does not assign ratings to a security. It is an analytical tool that involves use of a set of proprietary quantitative algorithms and warranted value calculations, collectively called the Credit Suisse HOLT valuation model, that are consistently applied to all the companies included in its database. Third-part data (including consensus earnings estimates) are systematically translated into a number of
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