Nippon Indosari Corpindo

(Sept 11: IDR1,290)

UPGRADED TO BUY. Nippon Indosari Corpindo (ROTI) is guiding for 35% y-o-y net income growth in 2019, which is realistic considering that 1H2019 net income grew 154% y-o-y. This growth will primarily be driven by +20% net sales growth in 2019, which is expected to be driven by: (a) 20% volume growth, and (b) improvements in sales returns ratio, which is expected to drop from 17.6% in 2018 to 12.9% in 2019. For 2019, ROTI is guiding for net income of IDR225 billion (versus our IDR228 billion forecast). We lower our 2019 net income forecast by 12.8%. However, the new net income forecast still represents 31.9% y-o-y growth. For 2020, we have incorporated 32.5% y-o-y net income growth, in line with the company’s guidance. Our new forecast is 11.3% higher than that of the street’s. ROTI is trading at 26.2x 2020F PER, which is below the historical average of 30x. Our new price target of IDR1,450 is derived using a 30x PER assigned to 2020F EPS (13.7% upside). —