Gema Grahasarana

First Quarter 2014 was the period in which the financial performance of most of the second-tier (or also called ‘second liner’) companies has declined, if viewed from their net profit that fell over the same period in 2013. While the opposite conditions experienced by large companies (which represented by blue chip stocks), where their earnings increased. Either this is a cycle or just a coincidence, but the poor performance of second liner companies has made their shares dropped in the last two months. One of them is Gema Grahasarana (GEMA), in which the company posted net profit that fell about 40%, and consequently the shares continue to fall until Rp380 per share. But with the stock’s PBV that is only 0.8 times, is the price low enough?

GEMA is a manufacturer of furniture products under the brand 'Vivere', and also offering interior design service and become a distributor for high pressure laminate (a wood product to make items of furniture, flooring, etc.) that is imported from the United States. In the last five years the company enjoyed significant growth that in line with the rapid development of office buildings and housing, especially in Greater Jakarta. In 2009, GEMA’ net equity was only Rp60 billion (about US$ 6 million). And now? It reaches Rp158 billion (about US$ 16 million), while during this time the company’s also pay dividends regularly. We could say that GEMA achieved its growth in a normal way without excessive leverage or expansion, where the company uses to its retained earnings to add new outlets until it has twelve outlets that spread in Jakarta, Surabaya, Medan, and Bali.

Then, if we look at the types of the company’s products that only targeting a narrow market ('Vivere' is a brand of middle and upper class furniture, and indeed the customers of GEMA are only large firms), it is no wonder if GEMA’ growth in revenue and net profit is somewhat inconsistent in the long run, where the company took a loss in 2008, and its net profit in 2013 was down compared to 2012. Nevertheless, as already mentioned above, the company's equity continues to grow from year to year, including GEMA still pays dividend for this year despite only Rp7 per share (last year’s dividend was Rp31 per share, that caused the stock surged to 700’s). And in 2014, the company’s recorded a 4.9% growth in equity during the first three months of 2014, or 19.5% if annualized. Still good enough, is not it?

And if you notice, the shares of GEMA continued to fall due to the disappointment of investors because the company only made Rp7 billion in net profit in the first quarter of 2014, down dramatically compared to Rp12 billion in the same period in 2013.

While in fact, GEMA’ net profit during the year of 2013 was only Rp18 billion. Meaning? Most of the company’s profit in the year 2013 was accumulated in First Quarter, where since Second to Fourth Quarters, the company recorded a profit of Rp6 billion only. So assuming that GEMA’ net profit during the period of April to December 2014 is approximately Rp7 billion multiplied by three (for three quarters), then the company’s net income in 2014 will be Rp28 billion (in line with the target of the management), or a significant increase compared to the full year 2013 that was only Rp18 billion. And of course it would be a positive sentiment for the stock which GEMA may rise back to at least Rp500’s per share (PBV about 1.0 times).

However, in the second quarter of 2013, the company had a net profit of Rp22 billion. So that in the next financial statements of the second quarter 2014, GEMA’ net income may still seems down. Other than that, GEMA’ net profit for the full year of 2013 was only Rp18 billion, because the company suffered a loss due to the weakening of Rupiah against the U.S. dollar that occurred in Fourth Quarter of 2014, that causes the increase in the price of imported raw materials for furniture making.

And because the Rupiah is currently fell to Rp11,863 per US Dollar, then GEMA’ net profit in the upcoming Second Quarter might be a little lower than expected, so the shares would not rise yet. So even though I said that GEMA can go up to 500's, but it's not going to happen too soon, unless if Rupiah was able to recover quickly if the results of presidential elections on next July 9 is responded positively by the market.

In conclusion, although GEMA can not be fully recommended for now, but if you believe that Rupiah will eventually rebound, then this stock may be collected little by little to let it rises in (at the latest) early year of 2015. At its current price, GEMA is no longer liquid, and it indicates that the price has hit its bottom, and it corresponds to its extremely low valuation where the company’s market cap at the price of Rp380 per share is only Rp122 billion, or already lower than the value of the company’s working capital that was Rp128 billion. You know, it is not easy to find a stock that is sold at an absolute undervalue price like this GEMA, unless the company was in trouble. But the fact, Gema Grahasarana is still operating normally, still make a profit, and is still paying dividends. So what's the problem?

PT Gema Grahasarana, Tbk

Rating of Performance in First Quarter 2014: BBB

Rating of Shares at price 380: A