Hartadinata Abadi (HRTA)

Capitalizing on solid volume growth and robust gold price; initiate with a Buy rating

 

  • Geopolitical conflicts and additional rate cuts are expected to keep gold prices elevated, as it is perceived as a safe haven.
  • HRTA outpaced industry growth from FY17-23. For FY23-26F, we project a 28% NP CAGR, driven by volume (13%) and private brand expansion.
  • Attractive valuation with a strong earnings outlook: We initiate coverage with a Buy rating and a TP of Rp600 (5.8x FY25F PE).

 

Geopolitical Risks and Rate Cuts to Drive Gold to Record Highs in 2024

We expect the rising volatility due to geopolitical conflicts and the expectation of further rate cuts in 4Q24 to keep gold prices elevated (>USS$2500/ oz) due to its perceived safe haven asset. Between FY17 and FY23, the price of gold increased by 8% CAGR in USD terms and 11% in Rupiah terms.

 

HRTA’s Growth Outpaces Industry with Strong Sales and Export Mkt Expansion

Demand for jewelry and gold products in Indonesia declined by -4.8% and -8% CAGR between FY10 and FY23. However, HRTA managed to increase its market share from 7.5% in FY17 to 18.5% in FY23, driven by a sales volume CAGR of 19.6%, significantly outperforming the industry’s CAGR of -4%. HRTA began selling gold bars in FY19 and entered the export market in FY23, both of which supported robust volume growth. Combined with a 9.9% ASP CAGR between FY17 and FY23, HRTA reported an 18.5% net profit CAGR despite increasing contribution from lower margin products.

 

Gold Price and Private Brand to fuel HRTA’s FY23-26 NP CAGR of 28%

We estimate HRTA's sales volume to grow at a 13.3% CAGR from FY23-26F, primarily driven by pure gold sales (65-72% of total FY24-26 volume). We expect gold prices to rise by an 8% CAGR over the FY23-26 period (based on Bloomberg consensus), supporting a 21% revenue CAGR. To increase the contribution from private brands, HRTA is collaborating with Swarovski for new product launches, offering unique jewelry designs, and promoting the sales of EMASKU gold bars, which will gradually improve margins. Combined with loan refinancing, we forecast strong NP CAGR of 28% for FY23-26F.

 

Attractive Valuation: HRTA Poised for Strong Growth Amid Gold Price Gains

We initiate coverage on HRTA with a SOTP-based TP of Rp600, implying an FY25F PE of 5.8x. We believe HRTA stands to benefit from rising gold prices while capitalizing on its gold retail business. At the current price, it trades at an attractive valuation, with an FY25F PE of 4x, and projected FY24-25F net profit growth of 29% and 21% yoy, respectively. Risks to our outlook include lower-than-expected sales volumes, an unfavorable product mix leading to reduced margins, and a downgrade in bond ratings.

 

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