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
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