Hexindo Adiperkasa (HEXA IJ; BUY; TP IDR8,000) Corporate News Flash: Right Company at the Wrong Time � Hexindo Adiperkasa (HEXA IJ; BUY; TP IDR8,000) Corporate News Flash: Right Company at the Wrong Time � We are maintaining our BUY call on HEXA at the new IDR8,000 TP, which implies a 9.8x 2013 PER but still provides a 28% upside to the current share price. HEXA is poised to achieve our FY12 target on solid sales performance, a remarkable feat in view of the industry backdrop. Our main concern is the group�s inventory buildup � while an industry norm � affects HEXA�s cash flows as it constitutes a significant 30%-45% of its total assets. HEXA is currently trading at 9.8x & 7.5x 2012E & 2013E PERs, a 37% discount to UNTR. BUY. � Robust 11M12 operational results. HEXA sold 242 units of heavy machineries in January and 293 units in February this year � reminiscent of its sales volume during the commodity boom heyday. These brought the group�s 11M12 cumulative sales to 2,717 units (94% of our target of 2,900 units). HEXA�s FY12 machinery sales are poised to stay flat y-o-y, a strong showing despite its refusal to join in the industry�s price war. � Solid business model props up fundamentals; soft appetite for new machines raises working capital risk. We have noted that HEXA, which had a tight rein on its selling expenses during the first nine months of its fiscal year (ending in March), saw only a slight increase in its SGA expenses (11% y-o-y) compared to its competitors. Our main concern is the large sensitivity of HEXA�s cash flow due to an inventory buildup as sales effort intensifies (i.e. turnover declined by ~40% from 2.2x in 9M11 to 1.7x in 9M12). Inventory accounts for 30%-40% of HEXA�s assets. � Maintain BUY, TP slashed to IDR8,000. Having revisited our model and adjusted our working capital assumptions to reflect our concern, we are slashing our TP to IDR8,000/share. HEXA is currently trading at 9.8x & 7.5x 2012E & 2013E PERs, a 37% discount to UNTR. Thus, this pricing adjustment still provides a ~28% upside potential. � � � Best regards, OSK Nusadana Indonesia Equity Research Team � DISCLAIMER The information in this e-mail and any attachment(s) hereto is intended solely for the use of the intended recipient to whom it is addressed and others authorized to receive it. It may contain confidential and/or legally privileged information. If you are not the intended recipient or have received this communication in error, please notify us immediately by responding to this email and then deleting it from your system. If you are not the intended recipient, any use of, reliance on, reference to, disclosure of, alteration to or copying and/or distribution of the information contained in this email, for any purpose is strictly prohibited and may be unlawful. Any information, views, opinions which are expressed in this email and which are unrelated to OSK Holdings Berhad and/or its subsidiaries and affiliates official business are those of the individual author's or senders and may not necessarily bind or be endorsed by OSK. OSK shall not be liable for any loss and/or damage caused by viruses transmitted by this e-mail or its attachments nor for the proper and complete transmission of the information contained in this communication nor for any delay in its receipt. (•̃͡-̮•̃͡)(•̃͡-̮•̃͡)</div>
