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Metrodata Electronics: Undervalue Stock

Every three months, every time the companies released their latest financial report, I used to search for stocks with good fundamentals (good company’s performance), while on the other hand its valuations are still low, or undervalue. If I cannot find any, usually when the Jakarta Composite Index (JCI) is in its peak position as it is now, then the criterion is pushed down to one of which: 1. A good stock with a fair valuation (not overvalue), or 2. A not-too-bad stock but with low valuation. And here we go, Metrodata Electronics (MTDL) is a stock that if based on its performance in the nine months of 2012, and by its current price, can be classified as a stock with not-too-bad fundamental but with low valuation.

MTDL is a provider of services and products of information and communication technology (ICT), either in the form of hardware, software, and consulting services, where the sales of hardware (computers, printers, etc.) are the largest contributors for the company, accounted for 76.2% of total revenue in nine months of 2012. However, MTDL does not develop or manufacture its own products, but rather sell ICT products belonging to other companies, so MTDL is only a retail trading company. Some brands sold by the company are Adobe, Oracle, Microsoft, and Samsung.

MTDL has been established since 1975, but the company entered the ICT business in 2008 by acquiring Soltius Asia Pte Ltd, a consulting firm of system application and products in the data processing (SAP), which is followed by the acquisition and establishment of several other ICT subsidiaries, such as Xerindo, Synnex, and MyIcon Technology. Currently MTDL is one of the largest distributor of ICT products in Indonesia.

By IDX, MTDL is classified as a computer and services company, or in the same group with Astra Graphia (ASGR). The main shareholder of MTDL is Candra Ciputra, son of a well-known property entrepreneur, Ir. Ciputra.

Then, because the business model of MTDL is not too common, it is difficult to get a picture about the prospects of this company. But clearly, for the size of retailer company, MTDL performance is quite good with ROE of 14.2%, and the growth is quite smooth with an increase in both its revenue and net income, ie 23.6 and 51.9% respectively. One of the supporters of this growth is the increase in the number of retail stores, where the company is working with Carrefour. In the period of January to June 2012, MTDL has set up 22 new outlets across several cities in Indonesia, with a target of 35 outlets by the end of 2012. The outlets sell PC computers, computer supporting hardware, and gadgets, with brands like Asus, Dell, Epson, Fujitsu, Panasonic, Intel, HP, Lenovo, Huawei, Sony Xperia, and Samsung. This reminds me with the other trading companies, Erajaya Swasembada (ERAA). ERAA is focus on selling gadgets, while MTDL is more focus on selling desktop and notebook computers. But the equation is, both companies are not depend on a particular brand.

Related to corporate actions, In May 2012 MTDL had intended to do a right issue by issuing 1.3 billion shares valued at Rp155 billion, where the funds will be used to increase capital in its two subsidiaries, Synnex and Mitra Integrasi Informatika. But the plan was canceled and replaced with a loan, which the management said that they had an undisbursed bank loan of US$ 70 million or about Rp650 billion. Actually it's a bit scary, given that currently, MTDL’ bank debt has reached more than Rp400 billion, or nearly its net capital of Rp642 billion. But so far the company’s interest expense is not too great when compared with its gross profit (profit before operating expenses, financial expenses, and taxes), so that it can be said that the amount of the debt is still reasonable. In nine months 2012, MTDL acquired gross profit of Rp302 billion, while interest expense was Rp18 billion.

And how about the stock? Here’s the interesting point. At a price of 154, its PER is 5.7 times, and its PBV is 0.5 times (but if the minority ownerships of the company are not counted, then the PBV is only 0.8 times, but it was still quite low). Meanwhile, if you consider the valuations of other retail companies such as ERAA, Ace Hardware (ACES), Hero Supermarket (HERO), to Mitra Adiperkasa (MAPI), the average PER is quite high at over 10 times. Including when compared with ASGR, then MTDL is also fairly undervalue considering the PER of ASGR reached 12.6 times at the price of 1,330.

So what is causing that low valuations? There may be two causes. First, in the long term the performance of MTDL is tend to be inconsistent. In 2012 the company did achieve the increase in revenue and profit, but in 2011, MTDL profit fell compared to 2010 despite the rise in revenue. Second, MTDL plays in a such complicated business sector which is difficult to understand, especially for investors who lay about ICT (including me, actually), where MTDL provide consulting services of cloud computing, virtualization, systems and network integration, supply chain management, websphere, and so on. Could you bear in mind the name of services? I could not.

But in fact MTDL core business, as already mentioned above, is the sale of ordinary desktop and notebook computers. While the business of software trading and ICT consultancy only accounts for a quarter of overall company’s revenue. For ICT consulting business, the earnings prospects are indeed limited because most of its buyers are corporations. But for computer sales, the numbers should continue to increase because its consumers are general users of computer and internet, given the internet users in Indonesia continues to increase over time.

Thus, although in terms of financial performance, MTDL is not as good as ERAA or ASGR, but the valuation is low enough to make this stock attractive. If you use a simple calculation, then the price of 200 is still fairly reasonable (currently MTDL is at 154). So we have a chance here, of course with a low risk because since the beginning, MTDL is a value stock.

PT Metrodata Electronics, Tbk
Performance rating on Nine Months 2012: A
Stock rating at 154: AA

Original article was written at November 14, 2012

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